Expleo Solutions (Earlier: SQS India BFSI) - A niche Small Cap Value Pick

Dear Himshah

  1. Amalgamation is likely to be completed by December 2022.

  2. Very bright future prospects on digital play , Robotic process automation, security surveillance, Data analytics,IOT, all new age technologies.

  3. Expleo will do extremely well hereon

  4. it’s a potential multibagger & can yield 5 X returns in 5 years by 2027 , from current levels, if all goes well.

  5. IT sector is out of favour & will make a come back within coming 2 quarters, nonetheless, Expleo & Tata Elxsi will not be affected as far as profits are concerned during current scenario, when other IT firms are facing margin pressure


@Balki Sir, What do you feel will be the impact of economic downturn in European region on Expleo ?

Dear Prudhvi

  1. Economic recession in Europe & USA is transitory & consequent sequel to Russia Ukraine war. . This downcycle of Recession should get over, when the war ends .

  2. Now, Recession will not affect, Expleo & Tata Elxsi, since they are now executing critical work, that cannot be ramped down or postponed.

  3. Future projects/ orders may slow down, due to Recession, but IT ,AI ,IOT,Data analytics & Security,
    RPA, cloud computing etc have become a must to survive, & for cost savings & so I don’t support the view that future orders may be ramped down in new technology areas.

  4. Also there are,some decisions being taken by the parent to sell, the engineering segment business & focus on BFSI & non BFSI segments,where margins are substantially higher.

  5. Amalgamation will be completed before December end & likely that Engineering segments may be sold

  6. As far as I know, Having heard from concalls, Expleo bills in dollars, worldwide, except for india, with USD at ₹81 to 84 ? ,See upside to 2 to 3 K over the coming 3 Quarters. Small cap to Midcap transformation story.


Just a question, what would the dilution be like post amalgamation? Also is it considered to be a red flag that unlisted co’s which were not subsidiaries are now being incorporated in the listed entity? Would appreciate views

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Post Amalgamation, equity capital will go up & the parent will hold 71.05 % stake.

Now unlisted companies catering to BFSI & non BFSI segments are cash rich & have higher margins. The engineering division, despite the hype have lower margins & there is indeed a proposal to sell out the engineering division & focus on the BFSI & Non BFSI segments where margins are substantially higher.

Amalgamation is a win ,win situation for both the parent & shareholders & will transform Expleo from small cap to Midcap.


Another good set of numbers from expleo sol. Given the uncertainty environment a good half yearly performance by the company. Management walk the talk in conference call.

6 months number at 260 cr vs previous
Period 185 cr.

Whole year performance can easily cross 500 cr mark. A big milestone for the company.

Next trigger is the merged entity numbers which will be completed in 2 months.

Disc - invested


Gone through the Transcript Q2FY22 AR Call and summarizing it here:

  1. UPDATE ON MERGER PROCESS: merger process currently for the unlisted companies it is the official liquidator of each state has to submit the report to their respective NCLT once that is over NCLT of those states will take into consideration before the pronouncement of the order. With respect to NCLT, Chennai, as a process they have sent it to the other regulatory authorities for the representation, if any. The next hearing is around 12th week of December. So, we expect it all to close by end of the year.
  2. The merger should be closed by December 31 and combined entity should start publishing the results from Q1 Calendar year 24.
  3. Post-merger margin we are expecting an EBITDA we are looking around 16% to 18%.
  4. The entities, which are going to be merged had a revenue of around Rs. 95 crore in Q2. And EBITDA of around Rs. 18 crore, which is around 19% EBITDA. PAT for the unlisted entity is around Rs. 11 crore. In Q1 it was around 85 Crore.
  5. The group revenue of the unlisted entities Pune is around 85% to 90% is the group revenue and for Bengaluru entity it is around 10% to 15%.
  6. At a group level we are not listed. We are owned by a PE fund and total ER&D revenue at a group level is around 60%.
  7. Any M&A affect related to selling the stake at group level will not impact the shareholders of the Expleo Solutions.
  8. Employee target is 5500 next year from the base of 4200 last year.
  9. Capex Plans: We do have plans of capital investment primarily from expanding our capacity, we are running short of capacity in Bangalore, we may also find requirements in 2023 in Chennai as well.
  10. On the people front, we are planning to hire graduate trainees in a similar scale as what we did in 2021 around 500 to 600 people over the course of the year.
  11. US Business: Nothing much by Indian entity. However some acquisition may be done at the group level. A data management acquisition was done couple of quarters back and that is contributing to the growth. From the earlier single digits to around 13%. And it should grow to 13% to 15%.
  12. Digital Transformation: We have done a transformation over the last five years moving into DevOps automation. We also started with some of the software development as well. Configuration, testing, installation moving in the cloud all those are the ones where we are focusing, that’s what we classify as digital.
  13. About Slow down in Europe: At group level we focus on aero and defence industries. And even in the automotive sector, we don’t really see a slowdown of customer investment in digitalization. From these industries we are not seeing any demand coming down.
  14. At the group level, this year a growth of around 25% and we are even expecting that we will outperform the market in 2023.
  15. Growth: Orderbook mostly comes from renewals and order from customer is same as it was in 2022. (60% to 70% same). We are yet to add growth to this.
  16. Our ambitions is to grow in the range of 25% to 35%. So, for that the current growth rate at what we are projecting around 4% Q on Q.
  17. Dividend: Current priority is Merger and than group is also looking for M&A. So the decision on dividend has been postponed.
  18. SOME CONCERNS: Capital allocation within the group and sending it abroad is a concern to maximum analysts.
  19. On the constant currency, it is quarter-on-quarter the growth is around 1% but, if I look at year-on-year for the same quarter, the growth is around 47%, PAT is 35%.
  20. Q2 is the first quarter, where digital revenues have actually de-grown.
  21. Management is not able to give any long term vision about growth.
  22. .

My initial hypothesis is that at the current stage, the org should be more efficient. Have questions and doubt the efficiency of management

Outcome: Moving out of my watchlist.

Hi you are comparing expleo group and not expleo india.

Current employees of expleo india as confirmed in con call is 4500

KPIT Tech is having market cap of 20,000 cr on a topline of 2,500 cr giving 8 x mcap/sales valuation.

Whereas expleo solutions market cap is 1,275 cr on a topline of 500 cr giving 2.55 time the valuation.


My apologies. I was redirected to their LInkedIn page and didn’t notice that it was a group.
Will need to deep dive - previously I did an early-stage filtration and rejected the org

I am not sure what are you trying to show me here. I’ll explain my approach.

Valuation re-rating happens when growth is visible. If the company is not growing faster than its peers, it will be lesser valued than them.

  • Is/can the company grow faster than its peers?
    Usually, fast-growing IT companies have a higher hiring rate. If the company increases the hiring rate now, it will take at least 3 to 6 months to reflect in output. The alternate way to achieve growth is to increase employee output and become efficient.

  • Is the organization efficient?
    I compared employee size and PBT (i.e. PBT per employee) with peers

In my exp, achieving efficiency and hiring both are a time taking processes - especially efficiency. This is where I rejected Expleo because I didn’t feel confident that the company is doing enough to hit either of the two triggers.


Ever since the group schemed a merger with the unlisted cos of the group the listed entity has suffered.They took 18 months to formulate a dividend policy and and still there is no clarity on what is the policy. To accommodate and list the unlisted group cos they planned merger with listed co and suspended dividend. Now that the merger is close to completion they have another story of acquisition, which in all probability will be to rescue the parent of an investment in some country,
The CEO and CFO are uninspiring and the stock has given zero returns in the last 15 months and nil dividends.The company is being run remotely from Paris and the local heads have no role to play.
Wouldn’t be surprised if the group sells its stake in the next 18 months.


Q3 FY23 Bumper results.

Q3FY23 Revenue up by 27.7% Y-o-Y to Rs 1,351 million
Consolidated Q3FY23 Q-o-Q Review
• The operating revenue was Rs 1,351 million in Q3FY23 as compared to Rs 1,310 millionin Q2FY23, reflecting a growth of 3.1%.
• Total income was Rs 1,467 million in Q3FY23 as compared to Rs 1,328 million in Q2FY23, reflecting a growth of 10.4%.
• EBITDA stood at Rs 315 million with the margin at 23.3% in Q3FY23 as compared to Rs 289 million with the margin at 22.1% in Q2FY23, upward movement of 122bps.
• Profit after tax stood at Rs 294 million in Q3FY23 as compared to Rs 185 million in Q2FY23, reflecting a growth of 58.8%.
• Basic EPS stood at Rs 28.22 as compared to Rs 17.17 for Q2FY23.
• The Company’s net cash position stood at Rs 1,599 million in Q3FY23 as compared to
Rs 1,082 million in Q2FY23.

Consolidated Q3FY23 Y-o-Y Review
• The operating revenue was Rs 1,351 million in Q3FY23 as compared to Rs 1,058 million in Q3FY22, reflecting a growth of 27.7%.
• Total income was Rs 1,467 million in Q3FY23 as compared to Rs 1,063 million in Q3FY22, reflecting a growth of 38.0%.
• EBITDA stood at Rs 315 million with the margin at 23.3% in Q3FY23 as compared to Rs 187 million with the margin at 17.7% in Q3FY22, reflecting a growth of 559bps.
• Profit after tax stood at Rs 294 million in Q3FY23 as compared to Rs 116 million in Q3FY22, reflecting a growth of 153.7%.
• Basic EPS stood at Rs 28.22 as compared to Rs 11.10 for Q3FY22, reflecting a growth of 154.3%.7
• The Company’s net cash position stood at Rs 1,599 million in Q3FY23 as compared to Rs 1,633 million in Q3FY22.

Consolidated 9MFY23 Y-o-Y Review
• The operating revenue was Rs 3,936 million as compared to Rs 2,910 million in 9MFY22, reflecting a growth of 35.3%.
• Total income was Rs 4,048 million as compared to Rs 2,936 million in 9MFY22, reflecting a growth of 37.9%.
• EBITDA stood at Rs 871 million with the margin at 22.1% in 9MFY23 as compared to Rs 524 million with the margin at 18.0% in 9MFY22.
• Profit after tax stood at Rs 656 million as compared to Rs 361 million in 9MFY22.
• Basic EPS stood at Rs 52.58 as compared to Rs 34.40 in 9MFY22.
• The Company’s net cash position stood at Rs 1,599 million in 9MFY23 as compared to Rs 1,633 million in 9MFY22.

Comments by Mr. Balaji Viswanathan, Managing Director & CEO:
In a seasonally weak quarter, we reported revenue growth of 27.7% on a year-on-year basis. The
outlook remains quite positive albeit with some caution due to several global economic conditions.
We signed several new clients and renewed some of our critical engagements. The Digital and new
generation testing services continues to show growth and so was our Data Management practice
that we added in 2022.
Our focus and investments in people, technology and partnerships in the Digital transformation capabilities are enabling the growth in our capability and enhancing our position as a Digital
Transformation and Assurance partner.
We continue to focus on our costs which is reflecting in the continued increase in our net profit and
better cash positions.
Talent acquisition and attrition saw a slight respite in this quarter, however the demand and the
challenge in finding the right skills is still high. We are focusing on graduate hiring and upskilling
in 2023.
Finally, the merger process is still underway and awaiting the orders from NCLT which is expected in February 2023.”
Press release:
b21fa44e-b9d9-4285-9a17-fe2f987930dc.pdf (bseindia.com)

Investor Presentation:
10d4973a-b51d-4502-8124-cdb4f2a61d15.pdf (bseindia.com)

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They have taken 2 years and still no dividend policy announcement. It is clear that there is not going to be any dividend but a acquisition announcement likely in April/May. The biggest give away was the statement that they hope to reach the target of 10000 employees including organic and inorganic, by 2025.
They have given negative returns over the last 13 months. Scaled down growth to 15-20% from the earlier claims of 25-30%.
Management seems to have no clue about NCLT approval of merger. Price will underperform till they realise that rewarding shareholders is important. Converted a large holding into Pricol and Data Patterns and both have doubled since April/May.


There is a report dt 20 Feb by Sharekahan released yesterday giving a merged EPS target of Rs79 for YE23 and Rs98 for YE25.

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Finally things started moving on amalgamation front.
Expleo received NCLT approval for scheme of amalgamation wrt Expleo India Infosystems Private Limited with the listed entity, other three companies are awaiting NCLT approval . Hopefully that shd also happen by this March end.

b2c8af29-8bda-49e6-aec7-751e1f457d04.pdf (bseindia.com)


Have been following this company for an year now, goes without saying that capital allocation/utilization/dividend payout is a concern and in recent times they have overpromised and underdelivered.

But apart from that the stock still looks promising

  • The merged entity roughly has a revenue run rate of 850-800cr with 18-20% margin
  • ~150cr cash on books
  • PS of merged entity roughly 1.5, PE of 8 of merged entity
  • A strong parentage and visibility of growth in next couple of year

Unable to understand if I’m missing something obvious or is street actually neglecting the stock for it being a microcap


NCLT Approval received for the rest of the companies.
One Mile stone crossed.

a0faa6af-7f65-4330-b0ae-9cd70aeb46f5.pdf (bseindia.com)

This is not right. After merger the number of shares will also increase, number of shares along with market cap will be approximately 1.55x of current listed company market cap (around 2200cr if current listed market cap is around 1415cr).

Source https://www.bseindia.com/xml-data/corpfiling/AttachLive/d1028cf4-13f2-462c-83a4-e53f7f7f8527.pdf

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Interesting, can you point to the source of this information please ? Anything which points out the merging ratios

The management has lost credibility as they have done away with dividends and have been saying that dividends will resume once the parents stake increases after the merger of the unlisted companies.It appears that the merger itself was to give an exit to the management and also the dividend policy hinges on how much the management gets. Anyway, over the last 2 years they have been promising to put out the dividend policy which they have failed to do so far.
In the last analyst meet they changed their views on dividend and said they may deploy the cash for an inorganic acquisition rather than declare dividend. The policy keeps changing.