Q1 Review: Data Patterns Reports Strong June Quarter Profit
#Q1WithBQ | #DataPatterns reports strong June quarter profit.
Company’s Chairman and MD Srinivasagopalan Rangarajan decodes Q1 earnings and shares outlook for the coming quarters. #BQLive
Company’s Chairman and MD Srinivasagopalan Rangarajan decodes Q1 earnings and shares outlook for the coming quarters. #BQLive
Transcript
00:00 Hi, thanks so much for tuning in.
00:02 You're watching BQ Prime.
00:03 My name is Alex Mathew and this is an earnings conversation.
00:05 We're speaking with the management of data patterns.
00:08 Let me in fact introduce you to my guest today.
00:11 We've got the chairman and managing director of the company, Mr. Rangarajan joining in.
00:15 Thank you so much, Mr. Rangarajan for taking the time.
00:18 Let's start with a brief overview of the quarter gone by.
00:20 I believe that the first quarter is generally a slow quarter in terms of execution, but
00:25 what can you tell us about the numbers?
00:27 Yeah, normally we're not a quarter to quarter business.
00:31 We're more a year-end business.
00:32 For the last two years, we've been trying to even out the quarter so that the cash flows
00:36 are more clear.
00:37 We've managed to do that in the last two years and slowly we are trying to bring in the quarter
00:43 delivery, increasing the quarter to quarter delivery.
00:45 We're not still there.
00:46 It will still be a large year-end business.
00:49 But yes, there is a change which is happening because the good thing is we have orders on
00:52 hand and we're able to position the orders and deliver as against not having orders and
00:58 everything pushed in the March end.
01:00 So that we've been able to do.
01:02 Some of the products we wanted to actually deliver this quarter, we could not due to
01:06 other constraints.
01:07 Though the products are ready, we could not deliver.
01:09 These will get delivered next quarter.
01:12 Okay.
01:13 You've got new orders though, considerable wins, Rs. 132.7 crore in the context of your
01:19 overall order book is a considerable number.
01:22 And it's up, I mean, it's doubled on a year-on-year basis.
01:25 What can you tell us about the latest orders?
01:29 These are for avionics and radars and EW.
01:33 Areas we've been already working on and some of the orders have come now.
01:38 We're expecting more orders in the course of the year.
01:41 So the order book could go for, we're participating in a number of tenders, but we're not projecting
01:45 the tender orders because we don't know it's a zero-one situation.
01:48 But we're expecting, we have a lot, a large pipeline of orders already we executed, where
01:53 repeat business will happen.
01:54 We've taken development contracts earlier and the production contracts will happen now.
01:59 So we expect in the course of the next two to three quarters, the order book should start
02:02 increasing.
02:03 You know, I understand that you won't give me an exact number, but just to give a sense
02:09 of where you're seeing the potential, how much could it grow?
02:14 Where do you see it at the end of the year?
02:15 See, we expect upwards of 500 crores this year order intake.
02:20 Maybe it's going to be more, but I want to be more conservative here.
02:26 But what we need to look at data patterns is we are a very differentiated business.
02:30 We do product development from scratch, absorb development costs through our life cycle,
02:34 we've done that.
02:36 And now what has happened is Indian market has opened out to Indian defense industries.
02:40 Now this is very, very new.
02:42 Technology framework got in place and people are looking at buying within India.
02:45 Now this gives two options.
02:47 Either you tie up with foreign OEMs and then manufacture the products here, or you try
02:52 to build your products yourself.
02:53 We have taken the option number two, try to build the products ourselves, for which we
02:58 have raised 500 crores in QAP in March.
03:02 And this is essential product development in four segments.
03:05 And we want to build those products in-house, take to market in the next two years and rapidly
03:10 scale our business.
03:12 So we are looking at a multiple times scaling business three to five years down the line,
03:17 because the opportunities are very, very large.
03:19 And we've built up a competency model, which is unmatched.
03:21 So we want to back ourselves and build products.
03:23 This is where we want to go.
03:24 I understand.
03:25 So I also understand 167 crore out of those proceeds of the QAP was reserved for product
03:31 development.
03:32 Have you started spending that already?
03:36 Actually it's more than 167 crores.
03:37 There's a lot of other general corporate expenses and all that which comes in, all of which
03:41 will go into product development.
03:42 We have just started.
03:43 We have put the designs in place.
03:45 We have started the development work.
03:47 So in the next one year, we will probably bring some of the products out and some of
03:51 them will come in the second year.
03:52 They've given us a three year window of product development, but I think we should do this
03:56 within two years.
03:57 We should start building the systems.
03:58 You also have to create infrastructure to produce the products once we get contracts.
04:02 This also takes time.
04:04 So we want to initiate that in the next six months.
04:06 Yes, we have started product development in Radars and EW.
04:10 We are also starting some programs in satellites and in communications.
04:16 Progress will be slow now and it will go up.
04:20 The next six, eight months, you will see a lot more progress happening.
04:23 I'm sure you've already done the math on this.
04:26 So I'm hoping that you'll give me an answer.
04:30 Based on the product development that you're currently doing, what is the addressable market
04:34 for these new products that you're working on?
04:39 The potential is very large, several thousand crores of business.
04:43 So that is the reason we've taken a substantial money from the market to see that we develop
04:47 this.
04:48 And this will give me a predictable revenue model coming the next three, five, six years.
04:52 It will give you a predictable revenue model.
04:54 This is the reason why we took up this product development.
04:57 No country, foreign OEM, if you look at Defense OEM, works with on that year contracts.
05:05 They have already have three to five year order book and they have strong product alliance,
05:09 which only helps them scale the business.
05:11 And then you go for merger acquisition to scale it better.
05:14 We need to position ourselves like that in India.
05:16 In India, we don't have an equipment company at all.
05:18 We rely too much on international business, OEMs to make products in India.
05:23 We want to do a different trend, build products in India and maybe export them as we go along.
05:30 Last question on the margins, and I understand that this is a relatively slow quarter and
05:35 therefore 31 percent.
05:37 As I understand it, the steady state that you want to achieve is 35 percent.
05:41 The expenses were higher than usual in the quarter gone by.
05:44 What can you tell us about the move to 35 percent?
05:48 I think we will go beyond 35 percent on EBITDA.
05:50 We'll go nearer 40 percent is what we think.
05:54 Our margins profile for these products, which will execute this year, will be better than
05:58 last year.
05:59 So it will be slightly higher margins than last year.
06:04 So we will move up as we go along second, third, fourth quarter, we would overall average
06:08 out to more than 38, 39, nearly 40 percent EBITDA is what we want to go.
06:12 So that will go.
06:14 And our expenses are also going up now.
06:16 See, we are trying to scale our business, create infrastructure for future business.
06:21 So we already crossed 1,300 people in the company now, recruiting more engineers.
06:25 Nearly more than 700 engineers working with us.
06:28 We also built a second factory.
06:29 We may have built up another couple of factories as we go along in the next two years.
06:33 So there are going too many things are going in parallel.
06:36 Not only looking at product development, also create infrastructure and people to deliver
06:40 on future orders.
06:41 And this takes time in this kind of business.
06:44 So they are really looking at long term value addition and we are trying to put in the investments
06:49 now.
06:50 Fantastic.
06:51 Mr. Rangarajan, thank you so much.
06:52 Pleasure speaking with you.
06:53 And thank you so much for taking the time and speaking to BQ Prime.
06:56 Thank you.
06:57 Thank you.
06:58 Thank you.
06:58 Thank you.
06:59 Thank you.
06:59 Thank you.
07:00 Thank you.
07:01 Thank you.
07:02 Thank you.
07:03 Thank you.
07:04 Thank you.
07:04 Thank you.
07:05 Thank you.
07:05 Thank you.
07:06 [BLANK_AUDIO]