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Expleo Solutions

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Brief Information

Expleo Solutions Ltd is an India-based software service provider primarily delivering software validation and verification services to the BFSI industry worldwide. In FY22, Company initiated the process of merger of Expleo India Infosystems Private Limited (EIIPL), Expleo Technologies India Private Limited (ETIPL), Expleo Engineering India Private Limited (EEIPL), and Silver Software Development Centre Private Limited (SSDCPL) with Expleo Solutions Limited (ESL). Co. has filed with NCLT and expects to close this transaction in FY23

Q3 FY23 results

Financial results & highlights

Detailed Results:

  1. The company had a decent quarter with revenue growth of 28% and PAT growth of 150%.
  2. EBITDA margin stood at 23.3% in Q3FY23 as against 17.7% in Q3FY22, up by 559 basis points.
  3. Net cash position stood at Rs 1,599 million vs Rs 1,633 million for Q3FY22.
  4. The top 5 & 10 customer contributions stood at 43% & 59%.
  5. Revenue by practice:
  • Insurance: 23.8%
  • Cards & payments: 35.8%
  • Capital markets: – 
  • Data: 3.9%
  • Banking: 36.4%
  1. Revenue by region stood as:
  • Asia: 45.8%
  • N.America: 4.1%
  • Europe: 50.1%

Investor Conference Call Highlights 

  1. The company is in the final leg of the merger & expects it to happen within 2-4 weeks.
  2. The major contributor to 610 Bps PAT rise QoQ was forex gains of 9.5Crs vs Loss of 1.5 Crs in Q2.
  3. DSO dropped to 74 days compared to 80 days in the previous quarter and the cash balance has increased from Rs 108 Crores to Rs 159 Crores.
  4. The Revenue for the nine months ending for the other two unlisted companies is around Rs 273 Crores and PBT is Rs 41 Crores while DSO was longer at 95-100 days due to its services being on the engineering side.
  5. The digital revenue’s share as % of total revenues stood at 32.5% & the company expects it to end at 38% for the year ending.
  6. Attrition on volumes basis stood at 27-28% & management expects this to reduce to 20%.
  7. As of December 31, 2022, the outstanding loan to the related party stood at Rs 63 Crores.
  8. The average yield on the treasury lying outside of India would be in the range of 5% plus & it can be withdrawn easily within 3 three days to fund any acquisition.
  9.  The company’s new customer revenues have increased from previous levels of low single digits to 10-12% in the recent quarter.
  10. The management expects the margin to be closer to the 19% to 20% range and post the merger it will be closer to the 16% to 18% range.
  11. The company has been hiring close to around 180 to 200 people on a month-on-month basis over the last 12 months and net of attrition the addition will be in the range of around 40 to 50 people.
  12. The company targets reducing DSO days to 65-70 days post-merger for all the entities.
  13.  Currently, the billable headcount is around 1,700 for the listed companies and 1,500 for the unlisted company and the total headcount for the company is around 3,850 & the target for next year stands at 5000 employees.
  14. Talking about the group’s share of revenues for 9 months, management stated “ for the Listed entity it is around 18% and for the unlisted entity, for Pune, its around 85% of the revenue, and for engineering 15% to 20% comes from the group company.
  15. The company is confident of 15-20% revenue growth post-merger as well.
  16. The company sends any cash above 2.5X of operating expenses/working capital to the foreign treasury.
  17. The company expects significant growth in the aero, defense, and space segments.
  18. The Indian listed company will act as an executor for large contracts signed by the Parent company & would thus not have any 5-10 million dollars sort of clientele. But since 30% of the revenue comes from the group biz, the company in a way will still benefit from the growth of the group biz as a whole.
  19. The company is targeting a headcount of 10,000 by FY25.

Analyst’s View

The company saw a very decent quarter with revenue & PAT growth of 28% & 154% YOY. The merger plans are on track & should get completed by the end of FY23. It remains to be seen how the company will tackle the recessionary climate in the form of delays in spending by BFSI companies coupled with supply-led attrition issues & small scale of the company’s operations. Nonetheless, given the parents group strong scale of 1.2 billion dollars coupled with strong market positioning & growth plans, the company remains an interesting small-cap IT stock to keep track of.