Ksolves - a newage software development firm

[Chethan_Ck]

Very good set of numbers from Ksolves.
KSOLVES_16102022175554_Outcome1.pdf (2.0 MB)

Key Highlights of Financial Results: Q2’FY22-23 Consolidated Revenue from Operations increased 73% YoY (18.5 cr vs 10.7 cr) Consolidated Revenue from Operations increased 12% QnQ (18.5 cr vs 16.5 cr)
Profit After Tax (PAT) increased 78% YoY (5.92 cr vs 3.33 cr)
Profit After Tax (PAT) increased 12.1% QnQ (5.92 cr vs 5.28 cr)
An interim dividend of Rs 4.5 rs per share is declared taking the total interim dividend in this
financial year to 12.5 rs per share so far
Q2 Earning per share of Rs 4.99 vs Rs 2.81 last year same quarter

Guidance for Q3 (Oct-Dec’22):
Q3 QnQ sequential revenue growth of ~10-12%.
Q3 has 6% less working days (Diwali and Christmas leaves) compared to Q2 and guidance is conservative to account for that.
Few recent new client wins taking longer to on-board and will add to growth momentum Q4
onwards.
Q3 Operating profit margin (OPM) % is expected at ~ (41-42%) as maintained for the last few quarters

[Chethan_Ck]

Execution success in a challenging macro environment:
A) Client Base
Client base continues to grow with 50+ IT services clients across 20+ countries with top-5 client’s
contribution of 36% and top-10 at 53%. This demonstrates the company’s focus to avoid key client
concentration risk.
Won multiple new projects in Q2 including onboarding as an IT vendor with a leading bank in UAE.
An existing BFSI client (one of the key private banks in India with which engagement started last
year) has seen the project ramp-up.  Such large enterprise clients win while not very significant at this stage, augurs well for future
trajectory.

B) Business Growth
*Growth remained broad-based and especially strong in the USA geography in the area of AI/ML.
*Strong new wins have offset limited downsizing in two projects of existing clients. Overall,
company continues to have big pipeline of leads as well as order book to sustain Industry leading
growth.
*Ksolves also gained business by replacing eastern European IT vendors of two North American
clients due to ongoing war concerns. The project pipeline has few more such transition
opportunities.
*Employee addition during Q2 was muted (370 as of Sep’22 end vs 359 at Jun’22).
Growth in coming quarters will be a function of
*Employee growth which should drive half of the revenue growth.
*Higher billing rate by upgrading tech stack (current average billing rate of ~22 USD per
hour)
*Higher utilization (current utilization levels of 63% at the company level at 73% in service
division) has scope of further improvement. Ksolves also has a large product division and
higher bench strength as it relies on heavy junior level employee layer hence any peer
comparison should be discounted for this focused business strategy.

C) Reasons for sustained high profitability *Ksolves currently works as 100% offshoring model. Its tech stack is skewed towards niche
technologies in AI/ML space.
*Pyramid structure of employee has thin middle layer which results in lower employee cost base.
Ksolves is able to sustain this by heavy focus on hiring fresher and investing heavily in their on-job
trainings and/or stint in product division.
*67% revenue is USD denominated and hence recent USD strength worked as tailwind.
*In near future, Increased business travel, marketing expenses and office re-opening expenses will
create downward pressure on margins but that’s likely to be offset by better operating
efficiencies. Additionally, subdued attrition pressure in recent months will help in sustaining
profitability.

D) Investments for sustained growth:
*Ksolves had marketing presence in two recent leading Industry events (Annual Salesforce event -
Dreamforce 2022 in San Francisco and TechEx’s AI & Big Data Expo North America 2022 at the
Santa Clara, CA). More such participation is planned.
*All three offices (Noida/Pune/Indore) continue to see an increasing trend of employees coming
back to office. Work from the office allows the company to better train new resources and
improve employee engagement as well as productivity.
*Continue to invest heavily in building top-class teams via lateral hires in key focus areas of Data
Sciences/Big Data/AI & ML.
*Freshers hiring is getting ramped up too especially via campus drives to support growth and
backfill attrition.
*Product division working on a Saleforce Product launch in Q4 which if well received by market can
have meaningful growth implications for both products and salesforce services division.

[iyeron]

Appreciate management’s detailed disclosure. Just couple of points:-

1. The billing rate is not very high and can improve in the years to come
2. Utilisation levels can certainly improve from current levels
3. Good to see managements focus on maintaining a lean pyramid structure - one of the main levers to preserve margins

[james_kerala]

Thank you for result updates.
Would you please post the link for results update ?

I could not see the updates in screener.in or bse site at Latest Corporate Announcements

[gofinance31]

KSOLVES_16102022175554_Outcome1.pdf

[GourabPaul]

I dont see why Ksolves will do better. I think currently the large IT players have the capacity and trust. I see infosys and wipro getting more involved in our company. I work for a global eRnD.

[harshal_7]

Agree with your point on Large IT players having higher cash flows and trust they have built over the years, but that’s the case with every other large company irrespective from which sector it belongs to. The performance of Ksolves has been really good so far and can do even better going forward, obviously companies like TCS, Infosys, HCL tech will continue to drive the Indian IT sector but the emerging small cap companies will continue to grow at a faster rate as compared to the leaders and Ksolves can be one of them. Also you can see the balance sheet of Ksolves getting better and better with imrpoved topline and bottomline.

Can you provide your views on why Ksolves will not do better going forward? Will really appreciate to understand your point of view on the company.

Thanks.

[Pankit]

I agree with @harshal_7.

Business execution by promoters is phenomenal.
Allocation of capital seems to be quite good - in terms of giving majority cash generated as dividends.
Management seems to be clean in corporate governance - when acquiring sister concern from promoters, company only paid the token amount for 100% shareholding of Ksolves LLC - which was almost equal to profit generated of that company in previous year.
Since last few quarters, they have been giving guidance and achieving the same. The hunger for growth is there and promoter seems quite ambitious in few of their long term goals.

Except one irritant like promoter reduced their holding from 68% to below 60%, that too when they themselves are very sure about achieving growth, and that too for diversification(as mentioned in their disclosure), I did not find anything worth bothering about. Would surely understand any antithesis pointers which I might have missed.

D : invested and looking to increase holding

Thanks,

[Deenar_Toraskar]

@Pankit @harshal_7

Currently, IMO the higher margins are due to

• Its tech stack is skewed towards niche technologies in AI/ML space.
• lean pyramid structure of employees
• 100% offshoring model.
• lower selling costs as a lot of clients are acquired via word of mouth.

This is possible for companies only till a certain scale (say ~500 employees). Usually in smaller companies a few key seniors can get clients from word of mouth lowering selling costs, upskill their teams and keep the structure lean. Once you get beyond a certain size this is very hard to scale.

Look at their investor presentation, their focus ahead involves

• Aiming for hybrid delivery model by aiming to open onshore delivery centers in North America
  and Europe. Covid era posed operational challenges which delayed execution on this front but
  it remains a key focus area for next 12-18 months time frame.
• Target Enterprise Customers by leveraging techno-functional expertise of senior lateral hires
  in different industries.

this would reduce the margins. Plus senior talent is very hard to recruit and retain in this market.
@iyeron has already mentioned

Projections based on historical performance and guidelines is an easy one and good to have. However, it is more meaningful to get a pulse of the sustainable margin figures

I am not disputing the superior execution and good corporate governance. Investing is all about probabilities. KSolves could still grow at a faster clip if they can keep the lean structure for a bit longer, but the odds are stacked against them as they grow bigger. One need to factors in the macro headwinds and the recent reduction of the stake by management. You will see many IT companies of similar size in the peer group. Just check their growth trajectories.

[dd1474]

Ksolve India appear on screener due to consistent quarterly growth of more than 15% growth in YOY revenue and >20% growth in YOY net profit every quarter. Further, dividend yield was also high. However, I rejected the investment as it was listed on NSE SME and also management did indicate that they wanted to increase equity in order to get listed on NSE Main exchange.

Post September 2022 results, it again appears in my screen. The company was already listed on NSE, nil debt and also higher dividend payment. Hence, I got interested to explore further about the company. I did read Valuepickr post on the company. I also read last two annual reports, Prospectus and investor presentation of the company. Subsequently to this and also some primary analysis, I decided to invest a tracking position of 1% portfolio in the company.

The main factors for my investment are as under:

1. Dividend payment since listing is higher than total issue price of share in IPO:
   The company raised Rs 4.02 Cr during IPO in June-July 2020. The IPO price was Rs 100 per share (face value 10 paid up). Subsequently to IPO, the company issued bonus share twice, which resulted in increase in holding by 8 time. So 1 share in IPO at Rs 100, would now be 8 shares, resulting in cost per share of Rs 12.5 in June 2020.

As against, this cumulative dividend paid by the company till June 2022 are as under:

In case company continue to grow dividend even at 5% p.a. for next 5 years, it would serve my investment purpose. It is too simple to forecast, but too difficult to be correct on forecast

2. Past performance and actual achievement:
   Find enclosed actual achievement vis guidance of management over last few quarters. While the current data suggest management capabilities on execution has been good, the period of data available (only 3 quarters) is too small to make any meaningful judgment. Nevertheless, the past performance increases my optimism in the company.

3. EPF Data with Company data comparison
   My limited past experience with special companies suggest generally company find it difficult to manage employee related data. Of course, Satyam has been legend in managing employee strengths as well, it is generally difficult to manage the EPF data (as cash are actually need to be paid to Govt).

Hence, in order cross check the number of employee and payment to EPF, I downloaded employee number and amount paid by EPF by Ksolve. While there would be some amount of difference can be explained by employee not being eligible to EPF (foreign employee/ contract worker etc) and other reporting factors, the deviation in employee strength from EPF data and Company reporting for March are within my acceptable range of around 5%. (Please note that this is very subjective assessment and may be completely wrong).

Further the amount paid for March month (in April month) for EPF for March 2021 and March 2022 is also matching with Standalone Financial Current liabilities in annual report. Since the company also need to pay amount for Employee state insurance and heading is PF and ESI Contribution payable, we can attribute variance to ESI.

Find enclosed information table.

Risk Factors:

1. Limited understanding of business:
   While I have limited understanding of financials and accounts, I am near zero in understand IT industry in which company operate. Hence, I cannot decide on whether the verticals and segment in which the company is present can grow and whether company will be able to maintained competitive edge in its area of operations. Further, the recent growth in last two years, might be due to change in IT sector growth orbit due to Lockdown. With world market opening, whether the IT offerings of the company (mainly Salesforce and other products) would be relevant to clients, one need to observe same over period,

2. Payment of fees to related parties:
   The relative of the promoter has received payments from the company for services provided. While the amount involved may not be material, but such deals shall be avoided in good companies in my opinion. The enclosed information compiled from Prospectus of the company

3. Multiple resignations of Directors and KMP:
   Over past two years, CFO as well as CS has resigned from the company. Similarly, there has been multiple resignations and additions in directors. While it is not unusual in small companies, still it needs further investigation for frequent changes in KMP/Directors

4. Stretched valuation:
   The company is trading P/E ratio of 27 times and 13% lower at current price of Rs 450 as against all time of Rs 519. The current valuation provides limited margin of safety in my understanding.

Further, my record in investing in small companies has been mediocre at best and below average in reality. I have taken many wrong decisions and missed major red flags when my greed has exceeded my rationality. Arrow Greentech is one such hope investment for which I booked very large loss in my investment career. Hence, I may have missed many critical aspects which are very obvious and need special attention while investing.

Discl: Invested 1% of portfolio in the company in last 7 days. My view may be biased due to my investment. I am not a SEBI registered advisor. I am not recommending any investment action in the company. Reader shall do his/her own due diligence before making any investment decision. I may exit from investment without intimating this forum in case my personal risk profile changes.

[prashantrane2000]

Hi @dd1474
Are numbers (salary, PF, electricity, internet) consistent with 350+ techie company working on leading technologies having average experience of 8+?
ksolves.docx (531.5 KB)
I couldn’t find any reason behind such a low expenses for utilities.

[dd1474]

@prashantrane2000
Thanks for your valid comment. Only explanation and ratonale I can find is the employees working from home. Also, Average median salary level Rs 300,000 per annum indicate very lower skilled manpower being employed by the company. Having said that, I completely agree with your observation about 8 years+ experince manpower and average cost being so low. We need to be watchful and also explore reasons from management in case we get opportunity.

Only comfort for me in this investment is actual Dividend payment from the company. While it is possible that business may required very lower skill set and not a major value added, but then, that does not add up with more than 40% operating margin reported by the company in last 4-5 quarters. Exponential growth, lower employee manpower cost, lower internet and electricity cost are genuine concern about the company and we need to take that as major risk factors while looking at investing in same.

Since absense of any information, I have initiatited only trakcing position of ~1% in my portfolio. Not sure whether it would become core portfolio. However, this become part of high risk, high return (or rather high cashflow return) portfolio.

Please note that my understanding of company cashflow and business model may be completely wrong. I have faced multiple failure in investing and paid my tuition fees. The current investment would end as wealth accretive or tuition fees for me, only time will tell. Till that time, I would keep my first name (i…e Dhiraj) and closely monitor development in the company.

Discl: My view may be biased, my assessment may be wrong. I am not SEBI registered advisor. I AM NOT SUGGESTING ANY INVESTMENT ACTION. I have been wrong mutiple times in past in my investment jounery and may repeat same mistakes in future. I have added my holding in company in last seven days, but it is still ~1% of equity portfolio.

[COMLB26]

Looked up this co’s annual report after it came on my screen due to its high quarterly growth on a small annual Sales of just 45cr, alongwith divident payout 40%+, and high ROCE, ROE.
Looked too good to be true…So wanted to explore in depth.
Wanted to check majorly if the numbers are genuine (big if), what niche have they identified for growth, how are they maintaining ebitda margins of 40%+ (when all other pure play services small& mid IT players have ebitda margins of < 20%) while competing for talent in new skill areas

Went thru F22 AR in full. Observations:

1. This co. has probably the youngest CFO with just 3 years of “total” work exp. (Umang Soni)
2. Co. has regd. office address of Saket, and corp office in Noida. But uses a statutory auditor from Jaipur. Why did’nt they use anyone from Delhi NCR?
   Also, internal auditor (RSAV &Co) has the same Saket address as the regd. office address of the co.
   Other members on the board also don’t give much confidence
3. Co. pays a salary of 9 lakhs p.a. to its CS & Compliance officer (young lady) vs 8 lakhs p.a. to its CFO
4. They say 35+ clients in 20+ countries with top 5 contribution of 48%. Building top class teams via “lateral hiring” in key focus areas of Big Data/AI&ML.
   Sales is 45 cr p.a. (45/35 = 1.3 cr sales per client) In these 35+ clients, the co. would be doing very small work for a majority of clients.
5. This co. has identified all the new tech buzzwords right in the CRM, Big data, AI, ML, Mobile app development space. And has taken tech partnerships with Salesforce (CRM) and few other open source techs. But, When you look on their website, in the service offerings, what they have written does’nt showcase any competency in these areas. They just use names and write generic descriptions
   Pg 85: Revenue by Technology shows Salesforce 39%, Java 15%, Big data 16%, Mobile 14%, AI ML 11%
6. From FY12-FY20, this co. was practically dead. F20 sales 8cr. Op profit 1 cr. (OPM 13%)… And then sudden jump in F21 (Corona year) F21 sales 24cr. Op profit 11cr (OPM 45%)
7. Pg 58 of AR says the Average net profit of co for last 3 financial years is 3.9cr (vs 8 cr if you calculate from P&L info)
8. Pg 79 lists out the Sectors the co provides services to: 1st mention Real estate, Then, Ecom, Finance, Telco, Healthcare.Pg 81 again mentions Real estate.
   vs See pg 86. Revenue by Industry… No mention of Real Estate in % breakup. Top customer industry is IT & Services at 33% because this co. is an empanelled vendor to IT services firms.
   Revenue breakup also shows that it is a pure Service provider. IT services 94% and Product is meager 6%.
9. Pg 82 says 100% of revenue is generated from Export sales (vs Pg 85: Revenue by geography: 74% is Exports and 26% domestic sales)
10. Pg 82: Demand environment is improving with Ksolves getting empanneled as official vendor for many large IT firms
    (How can a vendor make twice the operating margin than that IT firm itself?)
    “Supply side constaints” are seen in highly skilled areas and attrition is controlled by offering salary hikes & flexi work from home
    Short term gaps will be filled by external professional contractors on hourly billing basis
    11.Pg 83: Read “Our competition” section & “Business risks & Concerns” section.
    a) Their attrition is around 25%, b) They compete with global tech service providers in response to RFPs… Read “Clients often cite … xyz… for awarding us contracts” I can only laugh at this. This is clearly an exaggeration
11. Pg 83: Strategy: Aims to open onshore delivery centers in USA & Europe. Key focus area for next 12-18 months
12. Currently, Offices in Noida & Indore (Pg 80)…Co. does not own any office building. No mention in fixed assets. Entirely Rented office space.
13. Receivables are 40% of total assets. Receivables have grown much faster than Sales (F20 - F22)
    Trade receivables turnover ratio dropping year on year (Pg 154: -53%)
14. Consolidated cash flows show after tax CFO of Rs 10cr from which company paid dividend of Rs 12cr (Think from point of view of: Capital allocation)
15. Employment related expenses [Salary expenses + Professional fees (contractors)] growing much faster than Sales
16. Other Expense disclosure Pg 163: Business development expense “down” yoy, Office rent expense “down” yoy: Down ??
17. Promoter steadily selling out stake in the market (clearly current price is richly valued vs stated financials

My take:
This is a very small IT services co. focusing on new “hot” areas but neither the promoter nor senior tech leadership has any “experience” in these hot areas. They can hire talent “laterally” which any IT services company can from another.
33% of their Sales is to other IT services cos. as subcontractors. It surely cannot have OPMs of 40%+… The 35+ clients they say at Sales of 45cr… I think the work they are getting is very small revenue per client work which other IT cos. wont be interested in doing. They can keep growing with “low revenue per client” work till a certain revenue size, say sales 400cr (avg 10 cr per client). But, going forward,

1. Operating margins will surely reduce
2. Working capital will keep getting stretched yoy (Receivables growing much faster than sales)
3. Talent acquisition in hot skill areas will always remain a challenge. Pay high and poach.
   *Does this co. have any strength? : I don’t think so. Its just a subcontractor to other IT services firms.
   *Co. is paying out dividend more than its after tax cash flow from operations. Does’nt look prudent given that it plans to open onshore centers in US & Europe. I think the high payout is to attract investors into trusting the financial nos., to prop up stock price, meanwhile the promoter can cash out slowly. Anyways, the fundamentals will deteriorate in the future.
   *Do i think numbers are genuine? : No. I would say exaggerated. With receivables growing far higher than Sales. Alsom In the AR, we saw discrepancies in the textual description of business, vs the data provided in figures
   Also, What would you think of a CFO (aged 25 years) with just 3+ years of total work experience?
   If I am the promoter of this co, and my numbers are genuine, I will not make such high payout given my growth plans ahead (I ll pay less than my after tax CFO… maybe 20% of my free cash flow at max) , and, I would definitely not reduce my stake right now (unless i feel my nos. will deteriorate in the future)

I would not put my money here. Happy to hear your thoughts

[dd1474]

@COMLB26

First of all, let me congratulate for excellent work on the company and bringing out various disparities between the company peformance and trying to connect with reality. Most of the points you mentioned are real concern and we need to have answer for same, specifically, decline in office expense and margin being 40% when other IT companies are having margin of around 20%. I think that is mute question for me as well. If salary is any indication,the Median salary of Rs 300,000 per annum (25,000 p.m.) does not connect with narrative company claims in presentation.

While I am in agreement most of your observations, only in certain points, I would have partial disagreement and I put foward my rationale on those points.

On point 14 of distribution of cashflow, while you validly raised that FY22 dividend being higher than FY22 cashflow from operation. Since pre FY21, size of company was tiny, I have considered FY21-FY22 aggreage cashflow form operations, which amount to Rs 13.88 Cr as against FY21-FY22 aggregate dividend of Rs 12.74 Cr (around 92% being distributed).

On point 13 of receivable, while your point is valid that the company does not have any tangilble assets and receivable being large portion of total assets at around 40%, I would like to look at receivable from revenue context. On FY22 sales of Rs 43 Cr (Standlone), receivable of Rs 9 Cr, would be around 20%, i…e 72 days of average daily sales in FY22. However, while evaluating high growth companies, it might make sense to look at quarterly sales. During Q3FY22 and Q4FY22, quarterly sales of company was Rs 11.97 cr and Rs 13.59 Cr repsectively. On Page 127 of Annual report FY22, we find ageing details of receivable, which indicate that all receivable are less than 6 months. Hence, in case we apply average sales of Rs 15 Lakhs per day for Q4FY22 vis Rs 8.94 Cr Receivable, we get receivable days of ~60 for Q4FY22 which is reasonable in my view for such small company.

Thanks once again for doing excellent work and raising valid concern which benefit all forum members. Appreciate your efforts

Disclosure: I have 1% of equity portoflio invested in the company. My view may be biased. Not a SEBI Registered advisor. Not recommending any investment action. I may exit from investment without informing the forum in case I find other opprtunities which attractive. Added small quantity in last 7 days.

[idikasony]

Just to clarify based on my understanding of IT Landscape

Offshore only Gross Margins are generally around 65-75% with USD 25 per hr billing rate depending upon experience level with another 20-25% for all other expenses , so OM of 40% is possible based on my practical experiences

If Company is allowing for Remote work with Rs 25000 per month median salary with Senior/Junior of 1/8-10, they can target tier2/3/4 towns folks OR folks wanting to work from their hometowns as per last 2 yrs trend in IT Market, so office expense(including no domestic travel) can saved due to above scenario

Also, moment one needs to set-up Onsite, with inflation, lesser supply and high demand and salary being high in last 2 yrs across Globe, OM mix will definitely decline in relation to % Onsite mix increase unless one tries to get only a Coordinator employee(low paid)/Offshore employee being sent Onsite after Visa instead of Managerial/Technical Lead sort of employee hired Locally (High pay)

Disclaimer : Not Invested but was just checking based on Growth rate

[inteliinv]

Ksolves IR profile on twitter.
https://twitter.com/iksolves?s=21&t=YdkVKML6KteKl5gGVk4iwg

[dd1474]

@inteliinv . Thanks for sharing twitter link. From there I got email address and sent some of my quesries to the company.

@COMLB26
Further to your observations, I sent an email to the company seeking certain points. Key highlights of reply from company IR are as under:

1.  What is business model of the company? How company can generate operating margin of more than 40% during FY21 and FY22 when the large IT Firms operating margin remain in range Infosys (24-33% during FY11 to FY22 period), TCS (26-30% range during FY11-FY22 period) and relatively small companies like Persistent System (14-22% range during FY11-FY22 period)?
   

Reply: Provided link to NSE website for Q2FY23 results

2.  The 40%+ operating margin are also considering the relatively lower cost of manpower (median salary of Rs 3,00,000 p.a.) as against Median salary of Rs 8,14,000 for Infosys during FY22; Rs 7,14,812 for Persistent System during FY22.What drive this superior margin for the company? Also, how much sustainable the growth in margins? Does management perceive same reaching normalization period (time when it would meet industry average) and what is management view of length of normalization period?
   

Reply: There must be some variation in calculation/ you might have taken the start of the year as the base. For FY 22 Our Median Remuneration is Rs. 3 lac and the Average salary is between Rs. 7 lac- Rs. 8 lac as we have a higher number of people at a lower level of the pyramid and is expected to be the same in near future.

3.  The company has registered office in 317/276, Second floor, Lane No. 3, Mehrauli Road, Saidulajab, Saket, New Delhi-110030. The internal auditor M/s. RSAV & Company also have same office address 317/276 Second Floor Lane No.3, Mehrauli Road, Saidulajab, Saket, New Delhi-110030, India as per annual report. Further, despite company having registered office in Noida, what is specific reason to appoint Statutory auditor and Secretarial auditors having their main office in Jaipur? Normally, we find most of companies using service of auditors and CS which are normally located in same location to minimize logistic time and cost. I would appreciate if you revert on this point.
   

Reply: . At the time of inception to avoid any procedural delay, the company had started with the same registered office address. But apart from mailing purposes, the company has operational corporate offices in Noida, Indore, and Pune and in the future planning to shift the registered office either to Pune or Noida region.

The Statutory and Secretarial Auditors were appointed at the time of the IPO. At that time the situation was a nationwide lockdown. Both entities had been appointed after a good research and both have been found with a greater degree of knowledge in the area of audit and
secretarial than their peers. Having both entities in Jaipur has no impact on Audit procedures.

4.  Last three-year average net profit (Standalone) as per my calculation of will be Rs 797 Lakhs (Rs 67 Lakhs in FY20, Rs 796 Lakhs in FY21 and Rs 1527 Lakhs in FY22). Annual report FY22 on Page 119 shown required CSR spend of Rs 5.87 Lakhs, which is 2%, so average profit being 50*5.87 Lakhs, i.e., Rs 294 Lakhs. Can you please look into calculation and revert?
   

Reply: Regarding CSR expenditure for FY 2021-22, the last three-year average net profit shall be calculated taking the year ending 2018-19, 2019-20, 2020-21

5.  Some issue needs more explanation. For instance, Pg 82 says 100% of revenue is generated from Export sales (vs Pg 85: Revenue by geography: 74% is Exports and 26% domestic sales). Also, despite increase in employee strength (almost double) and increased revenue, we find in FY22, expenditures like Office expense decline. Further, increase in most head like Business Development, Office Rent expense, Electricity charge growth is very low as compared with increased level of activities. When employee strength increases almost by 50%, how can rent increase is just 20% in FY22?
   

Reply: There is certainly some typo error, 74% is Exports is the correct data. We shall convey this to the management.

Further, post covid, the electricity and rent expenses had been lowered due to work-from-home practices. New hiring did not burden these expenses. Very later the company started the hybrid model and in the near future, these expenses are expected to rise as a result of an increase in the higher ratio of work from the office.

6.  Can you provide some press releases from large clients, for instance SalesForce partnership status upgrading to Silver (Ridge) from SalesForce website, or other public domain?
   

Reply: We had updated our investor regarding upgrading to SalesForce Silver (Ridge) partner. Disclosure can be found at link https://archives.nseindia.com/corporate/KSOLVES_03032022092745_SalesforceRidgeDisclosure.pdf

While the main question about superior operating margin remain unaswered, on other points, the company has provided explanation which I find acceptable, given the company started as SME company and justed moved to main board. In Microcap companies, we can not expect same process and system as we find in Mid Cap and Large cap, as they have limited management bandwidth, high growth propsect and past experience and methods of working as small Prop/Partnership firm set up.

Having said that, I am still not convince about robustness and sustianability of business model and whether the company can manage high growth with such high margin for next 2-3 years. Please note that my view may be biased and I am may wrong in my understanding.

My working/calculation table for some points as enclosed

Discl: Not A SEBI registered advisor, Not recommending any investment actions, Biased due to my investment, Added small quanitity in last 10 days (invested around 1% of equity portoflio due to superior dividend yield and anticipating growing dividend with cashflow over next 2-3 years). I may exit from investment in case find superior opporunity or my risk profile change without informing the forum.

[Chethan_Ck]

Good set of numbers again by Ksolves!

YoY:
Revenue - 20.58cr vs 12.6cr (Up 63%)
Net Profit - 6.17cr vs 4.04cr (Up 54%)

QoQ:
Revenue - 20.58cr vs 18.56cr (Up 11%)
Net Profit - 6.17cr vs 5.91cr (Up 4.5%)

Management is walking the talk for last few quarters.

Disclosure: Invested and biased

[Chethan_Ck]

690b84dc-8c80-4e10-95ba-a1b3052707b1.pdf (1016.7 KB)

[Nolar]

Co. is inching closer towards it aspirations to reach “25cr ORR in next 2-3 quarters.” Great numbers again.