Tanla : Transcript of Investor call

"Tanla Solutions Q2 FY 2017 Results Conference Call"

October 21, 2016

ANALYST: MR. ANKIT TIKMANY - IIFL WEALTH AND ASSET MANAGEMENT MANAGEMENT: MR. UDAY REDDY - CHAIRMAN AND MANAGING DIRECTOR - TANLA SOLUTIONS MR. GAUTAM SABHARWAL - DIRECTOR, GLOBAL BUSINESS DEVELOPMENT - TANLA SOLUTIONS MR. G.K. SRINIVAS - CFO - TANLA SOLUTIONS MRS. SESHANURADHA CHAVA - AVP- LEGAL AND COMPANY SECRETARY - TANLA SOLUTIONS Moderator: Ladies and gentlemen good day and welcome to Tanla Solutions Q2 FY2017 Results Conference Call, hosted by IIFL Wealth and Asset Management. As a reminder all the 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 "*" and "0" on your touchtone telephone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Ankit Tikmany from IIFL Wealth and Asset Management. Thank you and over to you Sir! Ankit Tikmany: Thank you all. Good evening to all participants and I would thank the management of Tanla Solutions for taking out time today for today's concall and discuss company's business strategy and outlook post the declaration of the Q2 FY2017 Results. I would also like to thank the participants for taking time to join in. I would like to hand over the floor to Mr. Uday Reddy who is the Chairman and Managing Director. The other management team members in this call includes Mr. G.K. Srinivas, who is the CFO, Mr. Gautam Sabharwal, who is the Director, Global Business Development, and Mrs. Seshanuradha Chava, who is the Legal and Company Secretary. I would now hand over the floor to Mr. Uday. Thank you and over to you Sir! Uday Reddy: Ankit, thank you very much and I would like to thank all the participants. I think this is our first investor call of probably after a break of eight years and as promised in the AGM we are here and we would like to continue this investor call after every quarterly result. So for the benefit of all the participants here I would like to give a quick update about what Tanla is all about. We have predominantly in telecommunication space so we have two verticals, which is one is A2P messaging and the second one is mobile payment.

In terms of A2P messaging as everyone knows we are the global leaders in terms of volume that we handle every month, we handle upward of 6 billion messages and we are predominantly in India in terms of A2P messaging, but in terms of mobile payments we are predominantly outside India. I am sure each one of you have got a chance to go through the investors update, but I would like to read out couple of numbers here. In terms of the breakup so we have grown from 98 Crores to 135 Crores in terms of top-line and in terms of the gross margin we have grown from 17.2 to 20.3 Crores. So in terms of EBITDA we have grown from 11.1 to 13.7 Crores effectively our gross margin last quarter was I am talking about only business gross margin here, we were around 17% and in terms of EBITDA we were around 11% but in Q2 it is the gross margin has come down to 14% and the EBITDA has come down to 9% I will also give you reasons why the both gross margin and EBITDA have come down.

In terms of verticals, in terms of messaging like messaging we have grown from 92 Crores we have clocked 92 Crores in quarter one but we have grown to 123 Crores in quarter two. In terms of mobile payments we have grown from 3.7 to

6.5 Crores this quarter, which is almost 77% growth in quarter two. So in terms of a geographic mix we were doing at 91% in domestic and 9% of revenues were coming from rest of the world in the quarter one, but in quarter two, we were doing around 9% from rest of the world that we have gone up to 14%.

In terms of domestic market it has come down to 86% from 91%. So there is a bit of change in the mix between the geographies these are all about numbers. In terms of business updates we have closed two large deals in this quarter and one is with one of the mobile telcos where we are going to deploy SMSC and so we are going to start the deployment very soon probably next one week time and we will be tracking the revenues in the next probably from November 15th that is what we are estimating at. So the value of that if you look at the potential of deployment is in terms of the topline it is going to be 100 Crores per annum. It is a big deal and so we have been persuading this deal for the last one year so we kind closed the agreement last week and so the potential size I have just said earlier it is around 100 Crores in terms of revenues but in terms of probably the EBITDA it may be around 8 Crores per annum. By end of March this year we should able to clock the full potential per month and from April 1st next year we will go full blown that means effectively next year, the 100% of potential revenues are going to come from these deployment.

The second deployment what we announced yesterday in fact it was due to go live last month but because got a technical glitches from our partner side we could not go live in last month September. We went live yesterday and again the potential value of this deal is around in fact before I say the numbers we have now gone live full blown on this product yesterday and will be one of the features have gone live because other features are not ready from our partner side. That will go live by end of March this year but potential size of this feature that we went through the market yesterday is around 60 Crores topline full one year, but in terms of EBITDA it is upwards of around 16, 17 Crores we are expecting only from this deployment with one feature live. So these are two deployments will be closed last month and we have been following as I told you earlier almost it took almost one year for before we closed both the deals and in terms of the guidance we already shared the guidance with all of you we are pretty confident that we can achieve these numbers and we should able to share the guidance for the next year by the end of this coming March.

We are pretty confident that we will achieve these numbers what we shared and our top priority is now is to improve both gross margin as well as EBITDA. We were around I think around in terms of 14% in terms of gross margin and in terms of EBITDA it is only 9%. I am talking about business revenues. Our priority for the next 12 months is to improve both in terms of gross margins as well as EBITDA. So for which we are looking for two more deployments in the next six months other than what we have already declared last quarter and our visibility towards the new deployments is almost 60% to 70% that as and when we did not need deployments definitely we will update you we will announce to the market but in terms of this year numbers we are pretty confident that whatever we shared we will minimum achieve all these numbers; Ankit that is it from my side and I more than happy to answer any questions.

Moderator: Thank you very much. We will now begin with the question-and-answer session.

We have our first question from the line of Mr. Lalit Kumar.

Lalit Kumar: Of the total year guidance which you have given which is roughly supposed to be about 510 to 532 can you give more light on the 100 Crores project, which

you have bagged and the set of kind of perpetual contract or a onetime implementation stuff which you are targeting this?

Uday Reddy: All the projects in fact are perpetual in the sense like we work on the revenue share basis so 100 Crores that I am talking about is per annum so this is a long- term contract and we work on the initiatives. Lalit Kumar: And in this year how much of this will be recognized? Uday Reddy: See by the time we deploy this product which will be around 15th November and probably by end of March we should able to book around 8 to 10 Crores per month so it would to answer the question like it is not more than probably 10 to 12 Crores. Lalit Kumar: Can you throw some light on number of employees on the attrition rate please? Uday Reddy: Number of employees? Lalit Kumar: Attrition rate. Uday Reddy: We have around 103 people on our payroll and attritions are as low as 6%. Lalit Kumar: Perfect! Thank you. Congrats for the fantastic quarter. Moderator: We have our next question from the line of Devendra Thakur from KDI Advisors. Please go ahead. Devendra Thakur: Sir at the outset let me congratulate the chairman and the team for the extraordinary results. My specific question is with respect to the fixed assets, which include capital work-in-progress. So I just want to know how much is the capital work-in-progress in the fixed assets? Uday Reddy: Mr. Devendra thank you very much for congratulating us and in terms of so if you look at our March 2016 the capital work-in-progress was at Rs.502 Crores. On September 30, 2016 it has come down to 400 Crores effectively we have capitalized 100 Corers this quarter. Devendra Thakur: Sir when will this capital work-in-progress be capitalized? Uday Reddy: See the way we work, Mr. Devendra is like as and when we have the deployment contracts with the mobile carriers we will go for deployment as and when we start commercializing the product we will capitalize the product, capitalize the assets like. So since now we have got all the assets under parent company we are lining up a lot of deployments very soon and then we should able to push the assets as and it is possible to capex. Devendra Thakur: So when the deployment will be there that time you will be capitalizing or when you complete the total acquisition of all assets intangible or movable you will capitalize it?