Q2 Review | NELCO's Profit Jumps While EBITDA Contracts
#Q2WithBQ | NELCO's profit jumps 27% but EBITDA contracts marginally.
MD & CEO PJ Nath explains the company's earnings and growth going forward in conversation with Tamanna Inamdar. #BQLive
MD & CEO PJ Nath explains the company's earnings and growth going forward in conversation with Tamanna Inamdar. #BQLive
Transcript
00:00 Welcome, we are talking today about Nelco which has come out with its Q2 numbers and
00:08 the picture seems to be a bit of a slide in revenues this quarter.
00:13 Let me just go through the broad numbers for you before we have that conversation with
00:17 the management.
00:18 I am going to be speaking today with Mr. P.J.
00:20 Nath.
00:21 He is MD and CEO of Nelco.
00:24 So in Q2 FY24, revenue has been up 1.6% at 76.65 crores.
00:30 EBITDA has been down about 1.98% at 13.91 crores.
00:36 Margin slightly pared down slightly at 18.14% versus 18.8% and net profit has been up 27.29%
00:45 at 5.69 crores versus 4.47 crores.
00:49 This is year on year.
00:51 Some interesting and important acquisitions in this quarter including of the Paisa's network
00:56 which has seen a stock impact at that point.
00:59 But what is the outlook looking like?
01:01 Mr. P.J.
01:02 Nath, thank you so much for speaking with us and welcome.
01:05 Let's first start talking about the numbers where there has been a bit of a, I would say,
01:11 marginal slide in revenue.
01:13 What would you put that down to?
01:14 Good afternoon.
01:15 I've said in earlier interviews as well, for our business, our individual quarter is
01:24 not indicative of the whole year, that's number one.
01:27 And what is the 1% revenue dip really is not indicative of the business really not doing
01:32 well or anything of that sort.
01:34 So overall, I think we are pretty happy with what we have done this quarter because there
01:38 was some expectation in terms of what was happening in the market.
01:42 You may be aware that we are also in the maritime business and during the monsoons, the maritime
01:48 revenue also comes down because the traffic is lower.
01:50 There is an impact of seasonally impact of that as well.
01:54 But we're very happy that our bottom line has significantly improved over the same time
01:58 last year.
02:00 That shows that the business is becoming much healthier than what we were earlier.
02:03 Our revenue mix is changing, improving for the better.
02:06 We have more service revenue as compared to equipment revenue.
02:10 So overall, we are happy with whatever happened.
02:13 And going forward, we see a much better run for the remaining part of the year.
02:17 So that's where we are.
02:18 Okay, so obviously, the maritime business will pick up because that seasonality factor
02:24 is out.
02:25 You said you're happy with the revenue mix, which is changing.
02:27 Can you elaborate on that?
02:29 Yeah, see, for our satellite communication service provider, we need to sell some equipment
02:35 so that the customers can become operational for being connected on satellite communication.
02:42 And then we have the annuity services in terms of the services that we deliver.
02:46 And the more services that we deliver is better for us because that's more sticky, that's
02:50 got better margins, et cetera.
02:52 And that shows how healthy your company is as you go along as a service provider.
02:57 So when we say a better revenue mix, it's more about service revenue as compared to
03:02 the equipment revenue that comes in now during that period.
03:05 All right.
03:06 So now your client segments are big in government sector or public sector, but you also have
03:13 banks, oil and gas, renewable energy, maritime, aviation, any kind of broad breakup you can
03:18 give us of revenue shares from these client segments?
03:21 Yeah, I'll give you a perspective.
03:23 So we are present in three different markets.
03:26 One is enterprise business.
03:27 The other one, that is B2B sector.
03:28 The other one is in-flight and maritime, in-flight connectivity, which is aircraft communication
03:34 and maritime communication.
03:36 So we are into all the three parts of the market.
03:40 So a typical revenue breakup between the enterprise market and the IFMC, in-flight and maritime
03:47 communication is about 75-25 or maybe 73-27.
03:52 Within the enterprise market, we've got major blocks in terms of the energy, which is offshore
03:59 oil rigs, the banking and finance, and the rest of the enterprises, including renewable
04:06 energy.
04:07 So that's what the whole split is.
04:10 Australia is large in terms of the banking sector as well as the energy sector.
04:15 These are the two of the larger ones within the enterprise sector.
04:19 And the enterprise business is also growing because more customers are connecting their
04:26 remote locations on satellite communication.
04:28 And that's where we see the business growing as well.
04:31 Of this enterprise business, what would be the broad share of government-run businesses
04:36 and private businesses?
04:40 As of today, our business is predominantly from the private sector, although we have
04:45 some government sector.
04:46 In my mind, the government business would be within the enterprise about 10% or so.
04:51 And beyond that is the enterprise market.
04:53 And beyond that is more private sector.
04:55 And some robust outlook in the defense space.
05:01 I mean, whatever you can share concerning the sensitivity of these spaces, but a robust
05:08 outlook in the defense space?
05:09 Yeah, I don't want to go to specific to any segment at the moment because of obviously
05:14 sensitive nature, but if you really look at the defense sector, normally the defense sector
05:20 has their own dedicated setup for doing any satellite communication.
05:24 And whereas we are a satellite communication service provider where we offer end-to-end
05:30 services using satellite communication, to that extent, defense sector has not been that
05:36 open to service providers.
05:39 But this is the maximum change.
05:40 And obviously, we are looking at all the sectors in the country, be it defense, paramilitary,
05:47 the enterprise, in-flight and maritime communications.
05:50 So we'll be looking at all of them.
05:52 As and when the opportunity comes, we'll be there.
05:54 What about aviation versus maritime?
05:56 What is the split looking like there?
05:59 There it is about 60-40 today between aviation and maritime for us.
06:05 But that revenue mix also will keep changing as we go along, depending on how soon the
06:11 domestic airlines start picking up in terms of offering in-flight connectivity, and which
06:16 we believe will take about a year and a half from now.
06:21 That long, is it?
06:22 What is the hiccup there, Mr. Nath, in your view?
06:26 Because that's definitely the time has come.
06:29 Yeah, no, no.
06:30 I'm saying that it'll be around one and a half years.
06:33 It could be earlier.
06:34 What really happens in any domestic, any aircraft, for the aircraft to be, to offer Wi-Fi, there's
06:41 a fair amount of work that needs to be done in terms of making the right equipments on
06:45 top of the, on the aircrafts, making it ready for delivering the service, etc., which is
06:49 a slightly longest process.
06:52 Along with that, the discussion that are going on with the different domestic airlines operators,
06:59 we believe in about a year, year and a half's time, we should be seeing that happening.
07:03 But as we speak, we have a very large number of interested aircrafts flying over India,
07:08 who uses our services for offering the in-flight connectivity, while they're over the Indian
07:14 skies.
07:15 Can you share any details of which carriers these are, or which domestic carriers you're
07:19 speaking with?
07:20 I would not like to give that detail at the moment.
07:24 But suffice to say that we are, as I said, from our revenue today, 25 to 27% is from
07:30 in-flight and nighttime communication speeds, that we are definitely in that business.
07:36 Yes, you are in that business, but at least the ones which are already offering your service,
07:41 the international carriers, any details there that you can share?
07:44 Yeah, there are quite a few of them, I would not like to go into this specific at the moment.
07:50 Okay.
07:51 Tell me about the investment in the Pisces network, which you did in this quarter at
07:57 a cost of about three crore rupees.
07:59 What are you hoping to achieve with this?
08:02 What is the sort of contribution you see from this investment?
08:08 We are a satellite communication service provider.
08:11 So far, we've been only offering satellite communication, but increasingly, we are required
08:17 to give a holistic connectivity solution, which has got satellite communication, as
08:21 well as either 4G or broadband connectivity.
08:25 And to do that, effectively, you require what we call a software-defined Virginia network,
08:29 SD-WAN, as we call it.
08:31 So we require an SD-WAN router.
08:32 Pisces is a company, which is an Indian company, which manufactures SD-WAN.
08:38 They have their own software, and they're a fairly intelligent bunch of people who are
08:45 running that company.
08:46 So we've taken 30% stake in that company, 31% to be precise, so that we are able to
08:53 create more innovative solutions for our customers in terms of offering total connectivity.
08:59 Right.
09:00 I saw a quote of yours, Mr. Nath, where you've talked about high SATCOM rates and the impact
09:08 they have.
09:09 Is there anything you can share with us on expectations on these bids or what is in the
09:16 pipeline?
09:17 What I have said in the past is that our input cost for satellite transponders in the country
09:25 has been high, and that is the good part that started coming down.
09:30 And as the input cost of satellite transponders come down, our services also become more affordable
09:36 to our end customers.
09:38 And while the satellite communication services prices come down, the takeoff for satellite
09:47 communication services will increase.
09:48 And that's what I said.
09:50 And we see a positive direction in that.
09:52 And going forward, we'll see the satellite communication services prices coming down.
09:57 By what extent?
09:58 Because SATCOM services are still relatively more expensive in this country.
10:04 When you say you see them coming down, what is that based on and by what extent?
10:09 It can come down for a couple of reasons.
10:13 One is that new technologies are coming.
10:15 The technologies are making it much more easier or much more efficient, and therefore the
10:20 price and the cost will come down.
10:22 The new space policy has been announced, which also makes it easier for the foreign operators
10:28 to offer their capacities over India.
10:34 That will also help in terms of having more competitive rates.
10:38 So together with better technology, with more satellite operators coming, more capacity
10:42 being available over India, the prices will come down.
10:45 To what extent?
10:46 I would not like to really give any specific number here, because as we speak, there are
10:52 different discussions happening with different operators in terms of capacities and different
10:58 rates.
10:59 You mentioned the space policy, the space policy of 2023.
11:03 And this has been an interesting year, because it's, you know, India's journey into space
11:09 and ISRO's achievements have been on top of mind of everyone, with Chandrayaan, et cetera.
11:13 Also the scope of the private sector in this place.
11:18 What are the opportunities you see in the space policy 2023 for your company?
11:23 The first thing about the space policy, the PM itself said that it's to give an impetus
11:29 to the private sector.
11:30 And that is very heartening to know that the government is looking at the private sector
11:35 to play a larger role in the space sector.
11:37 So that's one.
11:38 We believe that the ease of doing business will become much better.
11:42 It will be easier for us to get capacity.
11:45 It will be easier for us to get capacity on different frequency bands which are required.
11:50 It will be easier for us to be able to offer services beyond the country using the infrastructure
11:57 that we have in India.
11:58 So these are some of the main points which will help in terms of expanding our business
12:06 faster than what we've done so far.
12:09 What is the kind of competition, though, you see in your space?
12:13 There was some talk of Amazon getting into the Satcom space.
12:19 There is, of course, Starlink talking about an interest in widening its scope, including
12:24 in India.
12:25 Do you see any big foreign players as competition on the horizon as of now?
12:30 Let me just step back a bit.
12:33 Today we are mainly using geostationary satellites, geosatellite as we call.
12:40 And what you hear about Starlink and Kuiper talking about the new satellites.
12:45 As a service provider, we are agnostic to whether it's a geosatellite or a leo satellite
12:50 because the market will require both the types of satellites, capacities to be offering services
12:56 because there are different use cases for different types of satellites.
13:00 And to that extent, we'll be using both geosatellite as well as leo satellite.
13:03 So that's a direction in terms of where we're going.
13:07 So we welcome the different leo satellite operators coming into the country because
13:12 that will help us offer leo satellite communication services as well.
13:18 We also have announced a company called Delisat.
13:23 They are a satellite company who is offering geosatellite services today.
13:30 And they are coming up with a leo satellite constellation in the near future.
13:34 So we will offer that service as and when it comes.
13:37 Apart from that, we are also in talks with different leo satellite operators to see how
13:42 do we create services using their satellites as and when they are operational over India.
13:49 So we see that to be a positive thing happening for the country and we'll be also offering
13:54 services using geosatellites in due course.
13:56 All right.
13:57 So NetPet, Mr. Nath, before I let you go, is it safe to say that your outlook is positive
14:03 for Q3 and the broader picture?
14:06 Because as you explained, in your business, one quarter does not really move the needle.
14:09 Yeah, yeah, yeah, absolutely right.
14:12 If you look at it, since you compared with last year, if you see last year, our first
14:16 half and the second half, our revenues were almost the same.
14:19 It is a 50-50.
14:21 You will see a huge difference between the second half of the year versus the first half
14:25 as far as the FY23, FY24 is concerned.
14:29 And I'll leave it at that.
14:31 We hope to speak after three months and we'll talk of different numbers at that time.
14:37 Why is that, sir?
14:38 That smile elicits a follow-on question from me.
14:41 What is going to happen in the next three months?
14:43 Well, I've always said we don't give a guidance, but as I said, our second half of the year
14:52 would be much stronger than what has been in the first half.
14:55 And that's what you'll see, start seeing from the next three months onwards.
14:59 All right.
15:00 Well, we hope to speak to you three months later.
15:02 The famously reticent Mr. Nath today speaking with us on the NELCO numbers.
15:07 Thank you so much for all your time and answering our questions.
15:10 And we hope to speak with you soon.
15:11 Thank you so much.
15:13 Thank you.
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