The world is passing through uncertain times and it would be incorrect to begin areview of the last financial year without a mention of it.
The Novel Corona virus has created the largest pandemic in the recent history of theworld affecting most countries and companies.
The abruptness of the virus incidence the speed of its spread and the extent of itsimpact represent a watershed in the history of humankind.
At Saksoft Limited we were not substantially affected by the virus impact during thefinancial year under review and the first quarter of the current financial year.
However an unpredictable environment as the one that we are passing through puts apremium on strategic de-risking and the need for managed growth. This is a time when webelieve that the truly sustainable companies will effectively resist a sharp revenueprofit and margins downside while the going is difficult but be quicker off the blocksonce conditions revive.
So what companies are expected to endure?
At Saksoft we believe that companies that are in existence to address a specificpurpose - in our case the providing of solutions that facilitate the digitalisation ofcompanies - will find it easier to survive and sustain during such challenging periods.
we believe that companies that are specialised and address specific market niches -like where Saksoft is positioned - stand a better chance of remaining competitive in thesechallenging times
we believe that companies where the organisational structure is adequately sized andcompatible with the business size - as at Saksoft - will be better equipped to survive andsucceed.
We believe that there is a greater priority in being debt-light than ever before. AtSaksoft we were net-debt- free during the year under review managing our growth from theannual surplus generation and the cash on our books.
And lastly we believe that companies like Saksoft that have been able to retain theirtalent and generate superior people productivity will be better equipped to provideeffective knowledge-based solutions that transform the business health of their customers.
The principal message that I wish to convey to our shareholders is that Saksoft issecurely positioned to retain and service clients on one hand and outperform sectoralgrowth as soon as conditions improve.
Review of the last financial year
Saksoft reported a topline of Rs.358.78 crore during the year under review compared toRs.358.05 crore in FY18- 19.
The EBITDA margin strengthened from 16.5% in FY18-19 to 17% in FY19-20 largely due toour ability to moderate costs effectively amortise fixed costs and enhance our peopleproductivity.
However even as revenues remained around the same level the Company's post-taxbottomline strengthened from Rs.36.45 crore in FY18-19 to Rs.38.45 crore in FY19-20. Thisindicates that the Company reported profitable growth validating the robustness of itsbusiness model and its efficiency to streamline costs. the flatness in our revenues was onaccount of a large customer who we had worked with for years selecting to move businessto a captive solutions centre in India from the start of the financial year. The companycould not begin work with enough new customer relationships of the required deal size tooffset this loss of revenue However in spite of this revenue loss the Company increasedits revenues marginally during the financial year under review.
The revenue sluggishness explained
Over the last number of years Saksoft selected to focus on a distinct bulge of themarket for reasons of opportunity size and capability.
We segregated customers across three categories: the A category comprised large andmarquee customers usually serviced by some of the largest software solution providers inthe world; the C category customers were marked by small budgets and infrequentengagements where the cost of engagement was disproportionate to the quantum of revenuesgenerated and finally the B category represented the sweet spot of the market marked by arelatively large deal size multi-year engagement prospects corresponding skill sets andattractive profitability.
During the past the Company generated a majority of revenues from B categorycustomers. However during the year under review the Company failed to penetrate deeperinto this large market. The reason for this ineffectiveness was the decision of theCompany to empower its solutions delivery team working inside the customer premises togenerate new business. The rationale of this decision was well-founded: we believed thatour technology experts working inside the customer's premises would gradually evolve into'customer experts' possessing an intimate knowledge of the customer's business systemsneeds and projected technology spending. This we felt would graduate our technologyexperts from solutions delivery to being able to propose or predict the next round ofinformed technology spending and then marketing our proposition as resident experts. Thiswe felt would empower us to carve away emerging opportunities within customers growingour business. this approach sounded credible in theory. However the challenge lay in itssuccessful implementation.
Our solutions delivery professionals delivered a high degree of solution but could notextend their capability to generating fresh business from the same customer. The Companyhas since corrected its approach from the latter part of the last financial year. We areoptimistic that upsides should yield better results in the current financial year.
Banking on efficiency
At Saksoft we moved with proactive speed when we recognised a delay in ramping ourrevenues.
The company strengthened its business control across a number of fronts with theobjective to become organisationally leaner moderate people costs strengthen KRAs forthe senior managers in line with enhanced delivery efficiency and increased resourceutilisation. the complement of these initiatives strengthened our margins.
I am pleased to communicate that we finished the year with EBITDA margin and net margincomparable with some of the best large IT companies. From this point onwards any increasein revenues - the only feature of our business holding us back - should only strengthenour profitability and sustainability further.
Bringing our strengths into play
At Saksoft we bring into play a business model that has transformed in line withcustomer needs.
We believe that our 'Inch wide mile deep' positioning is increasingly relevant as theworld seeks specialists. The world is willing to pay more for vendors with demonstratedtrack records would rather trust one vendor across a larger number of projects acrosstime than keep shifting across them and would prefer to evolve a transaction into anenduring partnership.
I am pleased that Saksoft ticks all these boxes. By the virtue of focusing on selectverticals and digitalisation- empowered business transformation the Company has sent outa distinctive message: that it is not everything to all kinds of customers but stands fora distinctive recall for a distinctive customer. At our Company we believe that thispositioning is prudent and will generate outsized value across the long-term.
We have selected to focus on four business verticals - Fintech Transport &Logistics Retail/E-commerce Health care and Telecom that account for 72% of ourrevenues strengthening our competence and brand. We have graduated to an ongoingengagement model covering the complete engagement lifecycle.
Our use of accelerators and reusable components has helped moderate project turnaroundtenures and costs. Our deployment of small focused teams of specialised professionals hasreduced our project turnaround time. Our account management emphasis is to carve out alarger share of the customer's wallet.
We provide technology-plus solutions that address the customer's challenges. Ouremotional ownership of the customer's project generates proactive suggestions of how wecan benefit their business.
We also believe that each of the verticals where we are present hold out multi-yeargrowth possibilities; the countries that we are present in (United Kingdom and UnitedStates) hold out attractive business opportunities in the verticals and market categoriesof our presence. In view of these realities we believe that it is only a matter of timebefore our customer acquisition strategy generates traction returning Saksoft to itserstwhile growth rate.
During the challenging lockdown days extending from March into April 2020 Saksoftlived its credo of customer- centricity: the Company's technology and businessprofessionals worked from their residences protecting the integrity of mission-criticalprojects for demanding customers half the world away. I will go a step further: duringthese challenging days we only strengthened our dependability and if we were tohypothetically disappear I have no doubt that our customers would miss us.
How our acquisitions played out
One of the other reasons behind our optimism is that our String of Pearls strategy -following the acquisition of subsidiaries with different competencies - has empowered ourCompany with a holistic digital customer proposition. This was validated in the lastfinancial year when we acquired new customers on this basis.
Our String of Pearls strategy was reinforced through complementary acquisitions. Theinvestments that we made across six years have now been completely integrated into ourbusiness strengthening our customer proposition.
Saksoft acquired the UK-based Acuma a business information enterprise in 2006. Acumareported revenues of 10.17 million GBP during the year under review.
Saksoft acquired 360Logica in 2015. The testing services business under 360Logicareported revenues of Rs.330.23 million during the year under review.
Saksoft acquired Dream Orbit Softech a Bengaluru-based IoT specialising companyaddressing the logistics domain in December 2016. The Dream Orbit acquisition empoweredour offerings in the logistics service sector.
This acquisition delivered Rs.540.37 million in revenues in FY19-20.
Saksoft will continue to invest prudently in its sales and marketing team across theforeseeable future with regard to balancing the need to grow topline on the one hand andthe need to report presentable quarterly performance on the other. I am optimistic thatgiven the Company's long-term positioning in two of the most attractive markets and itsverticals widening Saksoft is at the cusp of generating outsized shareholder returns.
Thank you for your continued support.
With my best wishes
|Aditya Krishna |
|Chairman and Managing Director |