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    Nucleus Software Exports Limited

    NUCLEUSMixed
    Information Technology·5 Aug 2024
    Management Summary

    Nucleus Software reported a challenging Q1 FY25 with significant declines in both top-line and bottom-line figures, primarily due to increased cost of delivery and slower-than-expected revenue acceleration. While the order book and cash position remained healthy, management acknowledged delays in customer repricing and migration, and noted no new customer revenue in the quarter. The company expressed confidence in a bounce-back in coming quarters, driven by strategic initiatives and continued focus on international markets.

    Highlights

    8

    • Consolidated revenue for Q1 FY25 stood at ₹195.4 crore, a decline of 7.03% QoQ and 5.51% YoY.

    • Net profit significantly decreased to ₹30.2 crore, representing a 42.19% QoQ and 43.66% YoY drop.

    • EBITDA for the quarter was ₹28.8 crore (14.7% of Revenue), down 50.34% QoQ and 53.77% YoY.

    • EPS for Q1 FY25 was ₹11.28, compared to ₹19.48 in the previous quarter and ₹20 YoY.

    • The order book position increased to ₹813.4 crore, up 4.28% from ₹780 crore in the previous quarter.

    • Domestic revenue contribution rose to 58% in Q1 FY25 from 48% in Q1 FY24, while international revenue declined to 42% from 52%.

    • No revenue was generated from new customers in the last quarter, with all revenue coming from existing clients.

    • The company added 62 Nucleics to its team during the quarter.

    Concerns

    2

    • Slower-than-expected revenue acceleration and repricing/migration delays for 20% of customer base.

    • No revenue from new customers in the last quarter.

    What Changed3

    vs Q3 FY25

    Tone shiftGood → MixedGuidance items5 → 1 (-4)Risks discussed3 → 4 (+1)

    Key financials

    Single quarter

    08 metrics
    1. 01Consolidated Revenue₹195.4 Cr-5.5%YoY
    2. 02EBITDA₹28.8 Cr-53.8%YoY
    3. 03EBITDA Margin14.7%
    4. 04Net Profit₹30.2 Cr-43.7%YoY
    5. 05Net Profit Margin15.5%

    Segment breakdown

    Revenue Mix
    58% Domestic Revenue (Q1 FY25)42% International Revenue (Q1 FY25)48% Domestic Revenue (Q1 FY24)52% International Revenue (Q1 FY24)
    Product vs Services Revenue
    ₹168 Cr Product Revenue₹27.4 Cr Projects & Services Revenue
    List

    Guidance & targets

    1
    CategoryTargetPriority
    Profitability
    Financial Numbers
    bounce back
    		Medium

    Risks & concerns

    8
    RiskSeverity

    Slower-than-expected revenue acceleration and repricing/migration delays for 20% of customer base.

    Management stated that revenue acceleration is slower than expected and repricing/migration for 20% of customers is taking 'far longer than we had expected'. — Analyst acknowledged

    high

    Higher lead times for new customer acquisition due to pricing complexity.

    Vishnu R Dusad noted that lead times are higher, partly due to complexities in pricing models, which affects adding new customers. — Both acknowledged

    medium

    No revenue from new customers in the last quarter.

    Management confirmed that all revenue in Q1 FY25 came from existing customers, indicating a lack of new client acquisition revenue. — Analyst acknowledged

    high

    Decline in international market revenue despite strategic focus.

    Analyst highlighted top-line decline in regions like Southeast Asia, Middle East, and Australia, which management acknowledged while expressing confidence in future growth. — Analyst acknowledged

    medium

    Areas of Evasion(4)

    • Specific reasons for slower growth beyond 'slower than expected'
    • Numerical guidance for future revenue or margins
    • Detailed breakup of customers on old vs. new product versions
    • Domestic/overseas CapEx breakdown

    Q&A highlights

    3

    “No, there's no indication or belief that the market is saturated. In fact, as we have been maintaining, we are getting good traction both from domestic market as well as from outside markets. So there's absolutely no saturation. We don't believe that.”

    Analyst questioned the growth potential in the domestic market, and management clarified that the market is not saturated and they are seeing good traction both domestically and internationally, with a focus on international expansion.

    asked by Samar Singh

    2 min read7 chapters

    Detailed Narrative

    01

    Q1 FY25 Financial Performance Overview

    Nucleus Software reported a consolidated revenue of ₹195.4 crore for Q1 FY25, marking a 7.03% QoQ and 5.51% YoY decline. In USD terms, revenue was $23.4 million, down 7.51% QoQ and YoY. Net profit significantly decreased to ₹30.2 crore (15.5% of revenue), a 42.19% QoQ and 43.66% YoY drop, with EPS at ₹11.28 compared to ₹19.48 QoQ and ₹20 YoY.

    02

    Margin Compression and Cost Structure

    The quarter saw substantial margin compression, with EBITDA falling to ₹28.8 crore (14.7% of revenue) from ₹58 crore (27.6%) QoQ and ₹62.3 crore (30.1%) YoY. This was primarily driven by an increase in the cost of delivery, including product development, which rose to 75.5% of revenue from 63.5% QoQ and 60.5% YoY. Management attributed higher employee costs, including above-industry wage hikes, to talent retention efforts.

    03

    Order Book and Cash Position

    The company's order book position improved slightly to ₹813.4 crore as of June 30, 2024, up 4.28% from ₹780 crore on March 31, 2024. This includes ₹752.2 crore from product business and ₹61.2 crore from projects and services. Total cash and cash equivalents also increased to ₹920.8 crore from ₹808 crore in the previous quarter, indicating a strong liquidity position.

    04

    Domestic vs. International Revenue Mix and Growth

    There was a notable shift in the revenue mix, with domestic revenue increasing to 58% of total revenue in Q1 FY25, up from 48% in Q1 FY24. Consequently, international revenue decreased to 42% from 52% YoY. Despite a stated focus on international markets, management acknowledged a dip in top-line from regions like Southeast Asia, Middle East, and Australia, but expressed confidence that growth will start happening in coming quarters.

    05

    Customer Repricing and Migration Challenges

    Management highlighted that repricing for the remaining 20% of their customer base, involving either upgrading to FinnOne Neo or continuing with the older FinnOne platform, is taking 'far longer than we had expected.' This delay, combined with the fact that no revenue was generated from new customers in the last quarter, contributed to the stagnant revenue momentum, with all Q1 FY25 revenue derived from existing customers.

    06

    Strategic Initiatives and Product Enhancements

    Nucleus Software is undertaking a significant long-term strategic initiative called Hoshin Kanri, based on Toyota Production System Principles, aimed at continuous improvements and enhancing end-customer experience. The company continues to enhance its product suites (FinnOne Neo, FinnAxia, Payse), with the latest enhancement being the development of an Islamic version of FinnOne Neo for markets like the Middle East and Malaysia, representing a significant functionality enhancement.

    07

    Talent Acquisition and Retention

    The company added 62 'Nucleics' to its team during the quarter. Management stated that wage hikes, which were more than the industry average, are a normal run rate and consistent with their policy of retaining and attracting the best industry-based talent. This investment in human capital is part of their strategy to build a long-term enterprise.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.