Seshaasai Technologies Limited (STYL) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to SpecialSide Technologies Ltd. Q2F517 earnings conference call. As a reminder, all participant lines will be in the lesson-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 star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mishapateek Jafthap from E&Y Investor Relations team. Thank you, and over to you, sir.

Thank you, Sagar. Welcome, everyone, and thanks for joining SESHA-SAI Technologies Ltd. Q2 FY27 Earnings Call. The results and presentation have already been mailed to you, and you can also view them on our website at www.seshasai.com. So, in case anyone does not have the copy of investor presentation or press release, please to write to us and we will be happy to share them with you. To take us through the results today, we have the management of the company represented by Pragrat Lalwani, Chairman and Managing Director, Gautam Jain, Whole-Time Director, and Pawan Kumar, Chief Financial Officer. Pragnat will start the call with brief overview of the company and business update, which will be then followed by Pawanth, who will take us through the financial performance for the quarter, and then we will open the floor for Q&A session. As usual, I would like to remind you that anything that is mentioned in this call which reflects any outlook for the future or which can be construed as a forward-looking statement must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included but not limited to what we have mentioned in the prospector's file with SEBI and subsequent annual reports that you can find on our website. Having said that, I will now hand over the call to Pragnanji. Over to you, sir.

Thank you, Pradeek. Good day, everyone, and thank you for joining us for our Q2 and H1 FY27 earnings call. I hope you have had the opportunity to review our financial results and presentation. Let me first take you through the key business highlights, after which Pern will discuss the financial performance. We are pleased to report another quarter of healthy growth. Revenue from operations increased 15% year-on-year and 7.7% sequentially to Rs. 4053.1 million. For the first half, revenue increased 17.9% year-on-year to Rs. 7,817.8 million. The quarter combined broad customer engagement with a meaningful sequential recovery and profitability. Payment solutions was the principal growth driver in Q2. Revenue reached Rs. 2,182.6 million, up 21.7% year-on-year and 38% sequentially. Revenue growth was broad-based but led by payment solutions, supported by higher volumes of payment cards across banks, metal cards growth, mass transit programs, and payment card exports. We retained wallet share with our largest customers and won one multi-year tender during this quarter. Communication and fulfillment solutions revenue was Rs. 1290.1 million. It remained broadly stable year on year but moderated sequentially because Q1 and Q4 carried larger volumes and certain yearly reckoning one-time projects that tend to execute in those periods. We continue to retain wallet shares with our top customers. We added one new enterprise account in the quarter and renewed a three-year contract with a leading PSU bank for fulfillment solutions offering. We also renewed a three-year contract with a leading PSU life insurer securing a significant share of the business. IOT Solutions revenue grew 45.6% year-on-year to Rs.551.9 million. Sequentially, revenue moderated from a high Q1 base, reflecting retail sector seasonality and the normalization of volumes following a large retail customer migration, which happened in Q1. RFID continues to present significant long-term growth opportunities across retail, logistics, pharmaceuticals, and manufacturing driven by increasing adoption of traceability and automation solutions. We are strengthening system integrated partnerships to develop differentiated end-to-end solutions integrating hardware, software, and data intelligence. In parallel, product qualification is under way for SIM card supplies to another large telecom operator. We remain optimistic about the long-term growth potential across RFID, IoT, and BLE-based accessibility, SIM, and eSIM solutions. The external environment continues to be challenging, with the USD, INR remaining elevated, higher fuel prices having its impact on logistics and input material costs. Cost of materials, therefore, increased faster than revenue on a year-on-year basis. Sequential revenue growth with a better product mix outpaced an increase in material cost, driving an 89 BIFs improvement in gross margin to 42.5%. We remain focused on diversified sourcing, calibrated inventory planning, localization, and procurement discipline. The contribution from our top 10 customers was 57% reflecting a well-diversified portfolios while retaining deep relationship with large clients. Our sustained focus on R&D, product innovation, and continuous technological advancement is deeply embedded in our organizational culture. This commitment is reflected in our growing intellectual property portfolio. During the quarter, we filed two new patent applications taking a cumulative This has changed relative filings across products and solutions to 21, of which 5 have been granted. Our subsidiary, Atoll Solution, also filed for 4 new patent applications this quarter, bringing its cumulative filings to 7, out of which 2 have been granted. These milestones reflect our ongoing efforts to develop differentiated solutions and strengthen our technology-led competitive advantage. As we look ahead, our focus remains on strengthening our core business while building new avenues for sustainable growth. A diversified portfolio, long-standing customer relationships, strong execution capabilities, and continued investments in technology position us well to navigate evolving market conditions and capitalize on emerging opportunities. Our priorities remain clear. Deepen our wallet share with existing customers. Scale our premium and metal card offerings. Strengthen our IoT portfolio across RFID, SIM and ECM solutions and expand our export business. We will continue to invest in R&D innovation, manufacturing capabilities and strategic partnerships to develop differentiated, higher value added solutions for our customers. Alongside these initiatives, we remain committed to operational excellence, improving efficiencies, and disciplined execution with a clear focus on long-term value creation. Thank you for your continued trust and support. We look forward to updating you on our progress in the coming quarters. With that, I will now request Pawan to take you through the financial and operational

Thank you for joining our Q2 and H1 FY27 earnings call. Let me begin with a summary of our consolidated financial performance. In Q2 FY27, revenue from operations increased to 4053.1 million, representing a growth of 15% year-on-year, and And 7.7% sequentially. Total income was 4112.5 million up 16.4% year on year and 7.2% sequentially. Gross profit was 1724.4 million with the gross margin at 42.5%. Gross margin improved by 89 bits sequentially due to operating leverage and a favorable product mix. It remained 331 basis points lower year-on-year, primarily due to the elevated USD INR and the geopolitical situation and its related impact on input costs. EBITDA increased 12% year-on-year and 12.9% sequentially to 1065.6 million. EBITDA margin was 26.3% and improvement of 121 BIPs over Q1 FI27. Operating EBITDA, that is excluding other income, was 1,006.2 million with a margin of 24.8%. Operating EBITDA grew by 7% year-on-year and 15.2% sequentially, demonstrating improved operating leverage during the quarter. Finance costs declined by 74.9% year-on-year, reflecting the benefit of debt repayment. Profit after tax increased by 21% year-on-year and 15.6% sequentially to $697.3 million. Fact margin improved to 17.2%. For H1 FY27, revenue from operations was 7817.8 million. EBITDA was 2009.7 million and profit after tax was 1300.7 million. EBITDA margin for the half year was 25.7% while PAT margin was 16.6%. Our balance sheet remains strong. Cash and liquid investments were 3144 million. As at the end of Q2, unutilized IPO proceeds were 1196.1 million. Cumulative utilization was $4,803.9 million, including $849.2 million towards capital expenditure, $3,000 million towards repayment of borrowings, $343.7 million towards issue expenses, and $611 million towards general corporate purposes. Overall, Q2-FI27 delivered healthy growth, a sequential recovery in margins, and a stronger cash conversion outcome. We will continue to invest for growth while maintaining financial discipline. Thank you once again for joining us. With this, I hand it back to the moderator to open the floor for the Q&A session.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then 1 on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and then 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

Again, to register for a question, you may press star and then 1.

And your first question comes from the line of Aditya with Aventus Park. Please go ahead.

Hi, sir. Am I audible? Yes, you are audible. Go ahead.

Hi. First of all, congratulations on your excellence of number one. My first question is on the payment solution segment. We have shown a tremendous growth in our payment solution business quarterly and also year-on-year. Could you throw some light on where directionally has the growth came from, whether on the debit card segment or the credit card segment? And also, could you elaborate more on our export business, like give us some insights, because we specifically mentioned that also has contributed to our revenue growth. Could you give us a broad overview on that too?

Yeah, Aditya. See, basically the revenue competition on the payment solutions in this quarter had some project volumes where we had done some projects for the mass transit programs. And also, I think we had some good volumes on the debit card side. On the credit card side, we, you know, we've kind of in that quarter, if you see, we've had a couple of customers where the volumes have done well. But overall, I would say the major contributors would have been the mass transit program and the debit card. On the export side, we have done exports to Europe and Africa. So, it began in the first quarter and it picked up the second quarter. Also, in this quarter, we were happy to know that our metal card volumes picked up. So, we had done some very good volumes of metal card compared to the previous quarter. So, let that I would say three or four factors. One is the general uptake in the debit and credit card from the customers. Second, this is one of the programs that we are doing, which again is going to be sustained over quite some time in the possible future for mass transit programs. So, this is the metal card update and fourth is the export of cards that you're doing to answer your questions specifically on export what we've been doing is we've been building channel partners and especially personalization bureaus and other geographies who would want cards to be taken from us and typically these are premium cards and metal cards that these customers want and probably we've got you know good visibility of things to sustain over some time.

Thank you, sir. My next question is on the IoT segment. We have shown a tremendous year-on-year growth on IoT segment and a slight moderation in our quarter-on-quarter. I would like to know how we can track this segment as it's considering we have entered this business recently and we are showing tremendous growth on this. Could you give me some insights on whether we have to track this segment on a quarter-on-quarter basis or year-on-year basis like as a whole how to track this particular segment?

That's a very good question. See, in fact, what happens is on the on the IoT business, if you look at the construct, right now, the major contributor in the IoT business is coming from the RFID tag business and the same business is just beginning to contribute towards it, right. So, if you look at it from a year on year basis, if you look at it on H1 26 to H1 27, we still grown at about 45% year on year, okay. Especially the retail business, if you see retail business has its own demands because they prepare for the festive seasons. So typically, you know, the Q1 seasonality pattern is such that maybe the preparation for the festive season is such that the Q1 volumes are slightly higher than Q2. And then again, they pick up in Q3, Q4. And also, I think when our sim business will pick up, it also depends on how we can onboard the customers and start building up volumes. So, I think if this this whole seasonality on the retail business is something which is, which is common to the market, which will I think repeat year on year. So, maybe at the end of the year, we again expect ourselves to grow with the outlook and target is set for ourselves that I think in FY27, we should be again going overall year on year basis at 45% of the IoT revenue of FY26.

Right, sir. Thank you so much, sir. Again, congratulations on your awesome set of numbers. Thank you.

Thank you. The next question comes from the line of Zaki Inasir, an individual investor. Please go ahead.

Sir, good evening and congratulations on a very steady set of numbers in a difficult kind of a market. Sir, generally for SSI, the H2 has been better than the H1. Do you foresee that trend continuing in the current year also, sir?

Yeah, so see, basically, we normally expect a better traction in H2, which is a pattern of our business. However, we have to just keep one thing in mind that last year our Q1 numbers were slightly on the lower side and hence the H1, H2 difference was slightly more amplified, right. So I mean if you look at the current business pipeline, we have you know support for the customers in terms of the card volumes. We also are having good visibility on the on the premium and metal cards that we are executing for customers. The transit program that we We are doing continue to be executed through H2 and we are also having some engagements and expect some volume ramp up in our IoT business through the same business, right. So I would say that you know we will continue to maintain the expectation that H2 would be better than H1. It has to be seen how it plays out you know once all these variables are in place, but as a pattern one would expect that to continue.

Sir, and what is your take on the input prices, sir? I think there is input price pressure. So, are you able to pass it on or do you see it easing in the next few quarters, sir?

So, ah essentially here ah I would say the the dollar impact is something which which is ah you know which is very important for us. We also have ah related ah input cost sites on the kind of logistics and the ah and the input related to petrochemicals. So, ah in certain customer cases ah we have been able to pass on the price heights to them. In certain other customer contact which are coming up for renewal, we are you know factor So, I would say, I mean, if you look at the in power sales opening statement, if you look at the reduction in in our gross margins, right. It's reflecting there. So, what we are also trying to do is see how is it that we can improve our product mix to add more products, which are high margin contributors. Uh, keep our ship very tight and lean so that we are able to have more operating efficiencies. So I would say in all fairness, this is a factor when it's gone in our control. Uh, so while we are trying to minimize and mitigate the impact of that, by, uh, you know, handling our inventory and our supply chain more tightly. Uh, we're trying to look at it more from what factors under our controls, such as our product Mix, you know, and also seeing how is it that we can go back to customers where possible for price tags or factoring it in our revision of contracts with customers.

And, sir, slightly on our macro level, the changes in MDR, does it affect our touch station

It's a very good question. See, I hope it comes through. Okay, you are talking about MDR related to UPI, right?

Yes, sir.

Okay, okay. So, I think right now, UPI obviously is a very convenient mode of payment, but I think a very big attraction towards such a large, you know, usage of UPI has obviously been the zero MDR, right? And if the kind of fees for the high value transactions or chargeable transactions comes in as and when it comes in, people expect that the delta differential incentive between using a card and phone pay will get a little brunted. So, you know, now it is a factor where the consumer behavior is going to be leaning more towards convenience or more towards the, I would say, you know, the financial implication is to be seen. But, I mean, net net that factor is a factor which obviously has a bias in our favor if MDR comes in, in terms of, you know, the. It is, it is a variable project with price. Yes, yes, yes, yes.

And, sir, any plans for the cash-on-books? What would be the cash-on-books and what are the near-term plans for it, sir?

Zaki, sir, good evening. This is Pawan here.

Hello. Yes, Pawan ji, good evening.

So, we have a cash and cash equivalent of close to about 3,144 million and a net cash of about 2,407 million. So, right now, it's in a mix of bank deposits, etc., which is including our unutilized IPO funds of close to 120 crores. What we are doing is through the year, there have been consistent investments in infrastructure as well as equipments, which we have done. And we are continuing to do that through the year across our business verticals. So, we see that continuing while ensuring that we are able to manage our overall cash flows and working capital as well.

Thank you and best wishes for the year.

Thank you. Thank you. Before we take the next question, a reminder to all the participants, you may press star and then 1 to ask a question. Once again, to register for a question, you may press star and then 1. Your next question comes from the line of Devesh Agarwal with IIFL Capital. Please go ahead.

Good evening, sir, and thank you for the opportunity. Firstly, congratulations on good set of numbers. So my first question would be on the payment solution business. If you can give us a broad idea in terms of how much of your revenues were from the, I would say, the traditional business or the core business, how much was from this one-time mass funded program that you mentioned, and how much is from your new initiative, which is exports and basically the So,

while hello Devesh, I think I mean we would probably the export revenue here of the overall revenue in in H1 is close to about 5% of the total you know payment card business right. On the on the metal cards and the mass transit I would probably refrain from giving the details It's on the mass transit. But the mass transit is a volume segment which is going up. We've got three programs running right now on that. But that's a program which is showing good promise for the future.

Right, sir. And, sir, going forward, maybe if you can take a little longer term view, two, three years, do you think the growth in this segment will largely be driven by the exports and the metals or the core business, plastic business is also growing equally fast?

I would say there is one more aspect to it, Devesh, which is also within the existing plastic business. There is a sustainability and a premiumization part is coming in. So a lot of customers are requiring recycled PVC on the existing plastic base. A lot of customers are also wanting better embellishment and finish on the card, which adds to the value to the existing plastic card itself. And also the entire unboxing experience in terms of the packaging. And we are also going one mile ahead to also offer the logistic solution that we actually increase the realization of revenue per lens shape or per card delivered. So our focus in the coming time is that on the existing base card itself, how much more value can we add there in terms of the card value and the value added services we can do on top of it for the existing base. So that's one part of the thing and then there is a premiumization part linked to it. Definitely we feel the time has come in our markets for the metal card volumes to pick up, and exactly for that we are setting up the new facility which will be operational very soon, where we are almost tripling our, you know, three times the current metal card capacity, which we are trying to keep ourselves ready in time such that when the market demand picks up, we are ready for execution. And we are also having a couple of overseas customers that we are in talks with. So, metal for sure, you know, is going to be also an important driver. And it will be, you know, good for you to know that the metal card quality of the products that we produce in India also has been very well received by international customers. So, the quality of the product is really, I would say, benchmarked to the best in the world. So, that sets us very well and this is a platform for good metal card opportunities going forward. So, net that I would say it is a mix of probably you know the product mix in the current portfolio that we have and also the metal card business. On the export side, our strategy is to work with system indicator partners and also work with large direct consumer of cards to see How is it that we can tap into that market which obviously will be only for you know niche products that we are focusing on right now.

And so this export market is largely the plastic for the plastic or metal as well?

Yes, so right now we will be doing it for some premium plastics. There are discussions on customers for metal. So we are right now on the sampling in the qualification stage right now for metal.

Sure. And the markets you mentioned were Africa and?

Africa and Europe right now.

Europe, okay. And so on the IoT business, you said migration of a large customer. Could you share some more details around it?

No, so the question was the way that, I mean, I think that our Q2 number and Q1 number, basically there was a little bit of a moderation in the Q2 number. So, in Q1, we had typically a customer who was getting onboarded. So, what happens when a new brand comes into the RFID program, right? There are two, what I would say, it's a two-prong approach that they take. So, one is all new merchandise which are produced from the factories, those essentially are supplied with RFID tags, and they come pre-tagged from the factory with RFID tags. But also at that point in time, the brand would have a lot of stock lying in its warehouse and a lot of material lying in the stores. So what happens is that at that point in time, whatever is your legacy inventory lying at various stages of your supply chain, they also have to be made smart and they also have to be tagged because they are sitting on legacy non-RFID tags. So, what happens is that when a program begins, during the transition migration phase, you have one bulk requirement which comes in for tagging of all this inventory lying in the supply chain, and then you have business as usual, which is your new procurement where you are supplying to the factory and it gets tagged. So, what I was just trying to explain to the questioner was that in Q1 of this year, we had one large brand whose program was picking up. And at that point in time, we had some bulk volumes where the existing inventory was also being tagged. So, that existing inventory tagging is once in the lifetime of project takeoff, right? Then it is always inventory and business as usual. So, you probably, so, I mean, that's a good thing for us that whenever we have a new customer coming in, we will always have this one upside where we have one large chunk of existing inventory being tagged, and then you start doing business as usual. So, this was one such situation where in Q1, we were in the midst of this migration exercise.

Understood, sir. And, sir, retail used to be the biggest customer as a sector for us, but we were also trying for some of the other sectors to use the RFID technology. Have we made any headway in any of the other sectors?

Yes, good question. See, retail continues to be the driver for that. We've done some good work. We continue to do good work in the renewal school space. Okay, we continue to have our product well accepted in that space. There are some customers that we're working on also in the iWear space. So, we began some work with some large brands in the iWear space. There are some pilots also happening with large brands in the FMCG space, and we are also doing some pilots with customers in pharma. So, whereas in the iCare space and the non-renewable space, we already have revenue for the past few months. In pharmaceutical, in jewelry, So, in these two, three sectors, we are doing POCs with customers and, you know, getting the product and the solution evaluated.

Right, sir. And so, my final questions would be on the margins. You did mention that on a worldwide basis, there has been a decline. We understand that rupee kind of rupee depreciation hurts you and even there is a cost inflation in terms of possibly the raw material imports. But does the 2Q number reflect your spot cost or the spot cost will be higher than the 2Q and to that extent there will be further pressure in the 3Q margins?

I would say what has happened is that ever since the war began, in February, March, we decided to actually hold a larger inventory for two reasons. One was we thought that we'll have gradually insulating us from any supply chain shocks. The flip side of that, which also became an advantage of sorts, was that as the rupee was climbing, we were having inventories held up at various levels of the rupee. So, to my mind, you know, inventories which have been consumed in Q2, you know, or the input cost in Q2, pretty much to a great extent, almost are at the normalized level of the rupee at this stage. Maybe to my mind, you know, Q3 could better reflect the actual numbers, you know, which would probably be things which are in current ministry. But overall, I would say Q2 should not be very far away from the normal situation.

Understood, sir. Thank you so much and all the very best and wish everyone a very happy Diwali.

Thank you. Thank you. Thank you. Before we take the next question, a reminder to all the participants, if you wish to register for a question, you may press star and then one now. Your next question comes from the line of Pratik Bantia with Fermi 325 Investment Advisors. Please go ahead.

Good evening. Congratulations on our stock set of numbers. I only had two small, a couple of questions, primarily bookkeeping in nature. The first one is, we see a little inventory build-up during this half of the year. I just wanted to know, is it due to some seasonality wherein before the festive season kicks in, we have stopped up for our IoT business? Or is it that you are seeing a little volatility in the future and you wanted to stock up on some trips or anything like that, like we have done before as an opportunity?

So, I think the seasonality as I explained earlier, especially in the IoT business, the seasonality execution typically gets over by, you know, maybe July, August, September, you know, so typically the inventory here right now probably would be, as I explained earlier, we are expecting maybe because of the semiconductors, So, what happened in our segments is that the lead times have been very, very high for semiconductor supplies and we always see that come December right from second half of December to first half of January because of the holiday season and all of that there is very high unreliability in the supply chain and we always seen that that period from third, fourth week of December to the end of January. You know, you you cannot very much rely on on supply chain where also also shut down for holidays, etc. So this is something which was done keeping in mind the one of the Q3 requirements that we have as also keeping in mind the fact that some of it is also a new vertical that we're beginning is for our SIM card supplies. So, a couple of our customers have a couple of variants of products that they consume we still not got a grip of their consuming pattern. So, we want to be agile in terms of being able to get larger market share from them. So, we are also inventarizing the whole variety of chips that they would need for their consumption. So, you know that's where we are but you know we probably once as this year passes by the endeavor is if things normalize at least to some degree or we have greater clarity. The endeavor is to probably rationalize this as we go with that. But what we said thought was that it's very important for us to ensure that if the inventory becomes an enabler for us to get greater market share and greater resilience to customer service, then probably it's better to work on the side of caution than, you know, be a little conservative there.

Okay, thanks so much, Mayim. Last question would be, could you share the utilization for your SIM card business, and have we started with commercial production for our eSIM products?

Yeah, so on the SIM card business, I think this month, we are running well. This month, next month, we should be close to about 70-25% of our capacity utilization. Okay. On the eSIM side, the process involves qualification and integration with the telcos. So, I think we in the process of finishing our qualification one of the telcos. As per our original plan as well, we have not factored any revenue of eSIM in part of our business plan for this year, but I think we hope to at least begin something by the turn of the year. And we've got a good prospects lined up for the next financial years, by which time our integration, qualification, because the ECM business, the customer actually ends up testing the module on his own end. So if it is electronic meter, or it is a EV, or it is a circuit board of an appliance, it has to be integrated into that, the customer does the testing and the qualification, and then your business starts. So, the qualification cycle is slightly longer, but once you are in, then it is slightly more secure. So, we hope to finish at least this process in the next six months for a couple of our customers to set the platform for M&E for next year.

Okay, and last question, just a little clarification for my understanding. So, these ECM modules that we produce, these are for smart connected vehicles, smart meters, etc. Is there a possibility of these same modules going into mobile phones as well? Or those are a different kind of module?

No, so it's a good question. The eSIM secure component which goes into mobiles is the same, okay. But the unfortunate part is that the volumes are so large that these mobile players have global partnership with some global suppliers. But the answer is the eSIM component is the same. It is just the manifestation is different. It is called a secure element. The manifestation is different on different use cases, but the hardware is pretty much the same.

So, probably at a larger, if we get to a larger scale probably we could end up supplying some hardware. Is that a plan in the future or not at this point?

Too early to comment, Pratik. We are just taking our baby steps here. You know, kind of take it as it comes, but as you rightly said, the opportunity, you know, especially in utility services, you know, electric meters, water meters, gas meters is immense. So, let us actually just kind of take the situation as it unfolds over time.

Okay, thank you so much and all the rest.

Thank you. Participants, if you wish to ask a question, you may press star and then one now.

Once again to register for a question, please press star and once to ask a question. You may press star and then one.

As there are no further questions from participants, I now hand the conference back to the management for closing comments. Over to you, sir.

It has been a pleasure interacting with all of you today. We appreciate your continued trust and support.

Thank you. Thank you once again for joining us today. We appreciate your participation and look forward to updating you next quarter.

Thank you.

Thank you. Ladies and gentlemen, on behalf of CSSI Technologies Limited, that concludes this conference. Thank you, everyone, for joining us, and you may now disconnect your lines. Thank you.