Kellton Tech Solutions Limited — Q3 FY25 earnings call

Call held 14 Feb 2025

Management summary

Kellton Tech reported a robust Q3 FY25 with revenue of ₹279 crores, marking a 13.7% YoY and 3% QoQ increase, despite the quarter typically being slower due to US holidays. The company achieved an EBITDA margin of 12.3% and a PAT margin of 7.5%. Key highlights included three significant client wins, successful SAP HANA implementation across 21 countries, and the launch of a global OTT content management system. Management expressed confidence in achieving a 17% EBITDA margin and $200 million revenue within two years, driven by AI-enabled services and account mining, with two fundraising initiatives nearing completion.

Highlights

  • Q3 FY25 Revenue at ₹279 crores, up 13.7% YoY and 3% QoQ, exceeding typical slower quarter performance.

  • EBITDA margin at 12.3% and PAT margin at 7.5% for Q3 FY25, demonstrating strong profitability.

  • Secured three significant client wins, including advanced AI-powered solutions and digital transformation projects.

  • Successfully implemented SAP HANA system across 21 countries and launched a global OTT content management system for 33 million users.

  • Aggressive internal target to achieve 17% EBITDA margin and $200 million revenue within two years, driven by AI and efficiencies.

Key financials

2 periods

Headline

  • Revenue
    ₹279 Cr
    YoY +13.7% QoQ +3%
  • EBITDA
    ₹34.4 Cr
  • Net Profit
    ₹21 Cr
  • EBITDA Margin
    12.3%
  • PAT Margin
    7.5%
  • EPS
    ₹2.2

9M

  • FY25 Revenue
    ₹812 Cr
  • FY25 EBITDA
    ₹99.5 Cr
  • FY25 Net Profit
    ₹60.5 Cr
  • FY25 EBITDA Margin
    12.2%
  • FY25 PAT Margin
    7.4%
  • FY25 EPS
    ₹6.3

What they filed

Q1 FY27: revenue up 7.1%, net profit down 4.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue271 279 286 295 300 +11%308 +10%314 +10%316 +7%
EBITDA32 34 29 35 37 +16%39 +15%25 −14%34 −3%
Net profit20 21 19 23 24 +20%25 +19%20 +5%22 −4%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Order book

low confidence
The company secured three significant client wins, focusing on advanced intelligence platforms, finops-driven approaches, and AI-powered solutions for various industries.

Source: Prepared remarks

Guidance & targets

Profitability

  • EBITDA Margin Profitability · within the next two years · High confidence 17%
    See our goal is to get to 17% within the next two years. That's the target that we are setting ourselves internally, to achieve a 17% EBITDA margin that we want to achieve and today we are around 12.5%.

    — Niranjan Chintam

Revenue

  • Revenue Revenue · next two years · Medium confidence 200 million
    Our target is the 200 million that we want to achieve in the next two years, is where the target that we have setup.

    — Niranjan Chintam

What to watch in Q4 FY25

Fund-raising completion (preferential route & FCCB)

next quarter
Current Ongoing, close to completion
Target Closed

Why it matters

Imminent capital infusion will impact the balance sheet and provide funding for future growth initiatives.

I am thinking like one week, maybe max two weeks is when we will be able to close the FCCP round and similar timelines for the preferential bonds too...

Q&A highlights

7 direct
Future growth outlook, EBITDA margin, and debt position Partial
See our goal is to get to 17% within the next two years... Our target is the 200 million that we want to achieve in the next two years... Talking about the debt, I'll get the numbers, I'll pull it up and get the number back to you.

Provides key financial targets for the medium term, though specific debt figures were deferred for later disclosure.

Asked by Elesh Gopani

Status of fund-raising initiatives (preferential route and FCCB) Direct
So there are two fundraisers going on now. One is promoters, and management is taking around via a preferential route... the second one is the FCCB route... we are pretty much very close to the fag end of it. I am thinking like one week, maybe max two weeks is when we will be able to close the FCCP round and similar timelines for the preferential bonds too...

Indicates imminent capital infusion, which could significantly impact future growth and balance sheet strength.

Asked by Elesh Gopani

Drivers for Q3 FY25 revenue growth and margin expansion Direct
there are other growth areas. We are targeting growth in the Al and Al enabled services... we are doing a lot of account mining... The margin improvement is primarily driven by efficiencies that we are able to squeeze out of the system itself... performance improvement using some of these Al tools.

Explains the strategic focus for both top-line growth (AI, account mining) and the underlying reasons for current margin improvements (efficiencies, AI tools).

Asked by Redapa Gunluru

Impact of the Trump administration on US market traction for IT services Direct
from a services side, there is no impact so far there is no focus on services except, the outlook is that there will be deregulation, specifically on the Al side and the cloud side and so on and so forth. Which will improve IT services business in the US.

Addresses a macro-economic concern and provides a positive outlook for IT services in the US under the new administration, specifically regarding AI and cloud.

Asked by Gaurav Shah

Status and payment schedule for the LIC contract Direct
Government payments are milestone-based... next milestone is probably within the next three months we should get a large chunk of the money coming in... whatever milestone we met, yes, we have got the payments.

Clarifies the payment structure and expected cash flow from a significant government contract, indicating a large payment is due soon.

Asked by Gaurav Shah

Competitive strategy against larger IT service providers and winning larger deals Direct
from a larger company perspective, the nimbleness is not there, they are much more aggressive, we are a little bit more accommodative when it comes to some of these small, granular differences in contracts... differentiation lies [in] speed, agility, and a nimble way.

Explains the company's competitive advantage and niche in the IT services market, highlighting its ability to deliver with speed and flexibility.

Asked by Amita Gesha

Employee headcount, talent attraction, and retention strategy, especially for AI skills Direct
we are around 1600 employees globally, and that is where we have been constant around that time. And are we looking to hire people, absolutely we are looking to hire people... giving them challenging work... aggressiveness that we provide... stock options to both our long term employees... as well as to attract new talent.

Addresses human capital management, a critical aspect in the IT services sector, and outlines strategies for scaling and retaining talent, particularly in AI.

Asked by Amita Gesha

Plans for geographical expansion Direct
No, at this point no. I was corrected by the number of employees; it's actually 1750, little over 1750. We don't want to enter new geographies, we already have enough geographies that we have, there are some challenges with some of the geographies that we are facing, and we have been addressing that, but at this point, no.

Clarifies the company's current stance on international expansion, indicating a focus on optimizing existing markets rather than immediate new entries.

Asked by Amita Gesha

3 min read 7 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

Kellton Tech reported a strong Q3 FY25 with revenue reaching ₹279 crores, marking a 13.7% year-on-year increase and a 3% quarter-on-quarter growth, despite the quarter typically being slower due to US holidays. The company achieved an EBITDA of ₹34.4 crores, resulting in an EBITDA margin of 12.3%, and a net profit of ₹21 crores, translating to a PAT margin of 7.5%. For the nine months of FY25, the company's revenue stood at ₹812 crores, with an EBITDA of ₹99.5 crores and a net profit of ₹60.5 crores.

Strategic Client Wins and Operational Achievements

The quarter saw three significant client wins, including the development of an advanced intelligence platform for sustainable landscape management, a finops-driven approach for a large customer's digital ecosystem, and an AI-powered solution for end-to-end coal tracking for a major power group. Operationally, Kellton Tech successfully implemented a SAP HANA system across 21 countries for a global leader in high-performance computing and AI infrastructure. Additionally, the company launched a global OTT content management system serving 33 million users, a project recognized by MongoDB for its efficiency and scalability.

Ambitious Profitability and Revenue Growth Targets

Management has set an aggressive internal target to achieve a 17% EBITDA margin within the next two years, a significant increase from the current 12.5%. This margin expansion is expected to be driven by enhanced operational efficiencies and the strategic leveraging of AI tools. Concurrently, the company aims to reach a revenue target of $200 million within the same two-year timeframe, with a strategic focus on AI and AI-enabled services and intensified account mining from existing customers.

Capital Raising Initiatives Nearing Completion

Kellton Tech is actively engaged in two fundraising initiatives: a preferential route involving promoters and management, and an FCCB (Foreign Currency Convertible Bond) route. Both processes are reported to be in their final stages, with an anticipated closure within one to two weeks, pending procedural clearances. The management confirmed that investors are ready, and the successful completion of these initiatives is expected to provide significant capital infusion.

US Market Dynamics and Competitive Edge

The company anticipates no negative impact on the IT services sector from the new US administration, with expectations of deregulation in AI and cloud potentially improving business prospects. Kellton Tech differentiates itself from larger IT companies through its nimbleness, agility, and ability to accommodate specific client needs, often winning projects where larger firms may be less flexible. This 'born digital' approach, combined with a strong heritage in product engineering, enables faster and more agile project execution.

Talent Management and Geographical Strategy

Kellton Tech's global employee headcount stands at approximately 1750. The company is actively hiring and attracting talent, particularly for AI skills, by offering challenging, cutting-edge projects, an aggressive work environment, and stock options for both long-term employees and new hires. The management stated no immediate plans for new geographical expansion, preferring to focus on optimizing opportunities and addressing challenges within its existing operational regions.

Update on LIC Contract Payments

The company provided an update on its 7-year LIC contract, confirming that payments are structured on a milestone basis. Kellton Tech has received payments for all milestones achieved to date. A 'large chunk' of payment for the next milestone is anticipated within the next three months, indicating a steady cash flow from this significant government contract. The company expects increasing yearly payments, with the initial higher investment recouping within three years.

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