Onward Technologies : July 19, 2022 Earnings Call Transcript

Onward Technologies Ltd

July 19, 2022

Onward Technologies Limited

Earnings Conference Call

July 19, 2022

Moderator: Ladies and gentlemen, good day and welcome to the Q1 FY23 Earnings Conference Call of Onward Technologies Limited. 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 the conference call, please signal an operator by pressing "*" then "0" on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal, Chief Executive Officer of Valorem Advisors. Thank you and over to you.

Anuj Sonpal: Thank you. Good afternoon everyone and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Onward Technologies Limited. On behalf of company I would like to thank you all for participating in the company's earnings call for the first quarter of financial year 2023. Before we begin, a quick cautionary statement. Some of the statements made in today's earnings conference call may be forward looking in nature. Such forward looking statements are subject to risks and uncertainties which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward looking statements in making any investment decisions. The purpose of today's conference call is purely to

Page 1 of 24

Onward Technologies Ltd

July 19, 2022

educate and bring awareness about the company's fundamental business and financial quarter under review

Now I would like to introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us firstly Mr. Jigar Mehta, Managing Director, and we also have Mr. Devanand Ramandasani, Chief Financial Officer. Without any further delay, I request Mr. Jigar Mehta to start with his opening remarks. Thank you and over to you sir.

Jigar Mehta: Thank you Anuj and good afternoon everybody. It's a pleasure to welcome you all on the earnings call for the first quarter of financial year 2023. I hope you're all keeping well and safe. I want to take this opportunity to congratulate my entire team for delivering robust Q1 performance, driving the highest quarterly revenue of Rs 93.7 crores with our highest ever year on year growth at 35%. We are seeing strong demand for our services in line with our medium term objectives of achieving $100 million of annual revenue. In parallel, Onward Tech continues to exit legacy business, which is the low margin high volume business in India. While focusing our entire investments and budget on the top 25 global customers. These customers now, generate, close to 73% of our consolidated revenue, and has increased by 12% from the same period in the previous financial year. I'm also proud to announce today that are over half of these customers come from our top 25 contribute more than $1 million revenue per year with visibility towards even higher share of wallet in the coming quarters. What that means is in terms of $100 million objective is we will have few customers which will be as high as generating $10 million revenue per year going towards that journey to $100 million. We are undertaking building investments in the two primary areas. One is as I shared in the earlier earning calls and in our notes, post Covid we have now 7 international

Page 2 of 24

Onward Technologies Ltd

July 19, 2022

offices three in US, one in Canada and one London and two in Europe in Frankfurt and Amsterdam which we are strengthening and building up the entire sales teams. And the second big investment is Onward Technologies academy under the terminology TAP, which is talent acceleration program. Under TAP, We are investing to build advanced digital capabilities in line with the goal of achieving 50% of our revenues in 2025.

Under the TAP initiative, Now we have 250 engineers, getting trained across multiple design centers we have in India which is Mumbai, Pune, Chennai, Bangalore and Hyderabad. And this training will be approximately 4 6 to 9 months post that where they will start working on the various projects in these top 25 clients. These business building investments of the 2 initiatives is approximately budgeted at Rs 25 crores per annum, which will propel future growth and an improved business mix while impacting reported EBITDA margins in the short term.

I'm also happy to share that we've WON a large multiyear deal from one of the global automotive companies in the digital space which will reflect in our results in the coming quarter.

Lastly, I'm also happy to announce that we have awarded engineering partner of the year by Intech Awards 2022 in Delhi. Overall, as a summary, I believe our Q1 was a great quarter as a follow up to our last financial year and on our journey to beat the record of the growth record of the previous financial year. Now I hand over the call to our CFO Mr. Dev to give you the financial insights. Over to you, Dev.

Devanand Ramandasani: Thank you Jigar and good afternoon everyone. Let me take you through the first quarter financial 23 performance of our company on the consolidated basis. The operating income of Q1 FY23 is 93.7 crore which is as Jigar has mentioned that we grew year on year basis by 35%, which is

Page 3 of 24

	Onward Technologies Ltd
	July 19, 2022
	one of the highest growth ever. Growth in revenue, is mainly driven by
	increasing wallet share from the existing strategic client in the industrial
	and equipment heavy machinery the domain as well as in transportation
	mobility vertical. The EBITDA reported was 2.9 Crore and the net profit
	after tax reported is 1.2 Crore. In the landmark decision, one of the
	landmark decision income tax authorities awarded a refund of INR 51.7
	million to the company which is recorded during the quarter, which is case
	belongs to the financial year 2007-08 and our company has received the
	amount along with the interest. Our reported EBITDA and PAT in Q1 was
	lower due to the heavy investment in the manpower and the capabilities
	as big as mentioned in above. The key initiatives were hiring, training and
	upskilling of the graduate training program, which is called the TAP from
	the available talent pool to cater the future demand. Direct costs belongs
	to the TAP program, which is 2.4 Crore, which is recorded in the quarter
	one the company has added net addition of 197 employees during the
	quarter and which is majorities are belong renewable resources. Taking to
	the total headcount is 2838. We are also setting up the infrastructure for
	the new digital Center of Excellence in Navi Mumbai, which will be
	operation in Q2 of FY23. With this we can now open for the floor for the
	questions and answer session. Thank you.
Moderator:	Thank you very much. We will now begin the question and answer
	session. The first question is from the line of Parthiv from NVS
	brokerage. Please go ahead.
Parthiv:	My first primary question, is on the employee cost so as you also said, that
	your employee expense has actually shooted in the quarter, and I believe
	you receive some benefits from the US. Actually, at the time of Covid if I'm
	not mistaken, so will this be the new normal for when as far as the
	employee cost is concerned. Especially, when we start comparing other
	Page 4 of 24

Onward Technologies Ltd

July 19, 2022

percentage of the topline. That is my first question. The second is, can you just give a brief break up on the revenue coming from different geographies and across the client segments, so that would be really helpful to me Sir.

Jigar Mehta: To answer your first question regarding employee expense, yes, that's correct. This will be the new normal in terms of the fully loaded cost. For our entire team today, which is the sales team, delivery team and of course the new TAP initiatives where we are on boarding a large number of freshers. They are also all on full salary in the company. Of your second question. So we are present in three industry verticals. So the 1st is industrial equipment and heavy machinery, second is transportation and mobility and 3rd is Healthcare. So the revenues from industrial equipment is 45% of the consolidated revenue. The transportation is 38% and Healthcare is now at approximately 6%, so we still have approximately 11% revenue, which comes from the other category which will continuously be coming down.

Parthiv:OK, and so just wanted to understand now with this 93-94 crores of your top line. Will this be growing at the same or accelerated pace for the rest part of the year like for FY23?

Jigar Mehta: Yes, we see a very good visibility and traction from all the top 25 clients and a very active prospect base. In terms of the opportunity in front of us, now it's all about execution and building up the delivery capacity across multiple cities and locations where our clients are based.

Parthiv:All right and the benefits for the employee from the US has been done right. We are not receiving any benefits from the USA apart for employee expenses.

Page 5 of 24