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Embarking on a makeover which will take Nucleus Software to the next level

May 30, 2013 | IRIS

In an interview with Shweta Dhoka of Myiris.com, Pramod K Sanghi, president - finance & chief financial officer, Nucleus Software Exports says, "Nucleus Software is embarking on a makeover which will take it to the next level. This endeavor demonstrates our passion for perfection and relentless commitment to deliver world class products to our customers."

Do you think FY2014 revenue growth will remain under pressure?

We believe that there are sufficient market opportunities which facilitate growth and Nucleus Software is in the right position to cater to these market opportunities. We are focusing on both new customers and leveraging the existing 150 plus customer base in over 50 countries

How do you see growth in EBIDTA margin and profit for FY2014?

The year 2013 has been a significant year for Nucleus Software. In the coming months, the company will implement a plan to focus on strategic partnerships, strengthen its domain-rich expertise, and invest in new platforms initiatives to sustain the company's performance. Our EBITDA for FY13 was Rs 459 million, 16% of revenue, 29% up against Rs 355.5 million, 13% of revenue in the previous year. As a policy, we do not provide any specific revenue or earnings guidance.

Could you highlight Forex management policy? Could you also comment on likely impact of fluctuations in currencies on company?

The company follows a well-defined policy of hedging close to receivables through forward contracts which are designated as highly probable forecast transactions. We adopt a conservative approach and do not speculate in foreign currency markets. Forwards are held to maturity and regular reporting and monitoring systems are in place including quarterly updates to the audit committee.  In terms of foreign currency hedges, we had on March 31, 2013, 10.50 million US dollars of forward contracts at an average rate of 56.15, designated as highly probable forecast transactions. There is a mark-to-market gain of Rs 7.39 million reflected in the hedging reserve in balance sheet.

A major portion of our business transactions is in currencies other than the Indian rupee. More than 80% of our revenue is denominated in foreign currency, predominantly the US Dollars. 75-80% of our expenses are in the Indian rupee and therefore the company is exposed to continuing risk of foreign exchange fluctuation. Movements in the value of the Indian rupee against the US Dollar, and the Japanese yen can cause significant variation in our revenue and profitability. 

How you plan to deploy cash balances in current year?

Nucleus Software continues to retain its status of a debt-free company and maintains sufficient cash and cash equivalents to meet its strategic initiatives. The company has been conservative in its investment policy over the years, maintaining a reasonably high level of cash and cash equivalents which enable us to completely eliminate short and medium term liquidity risks. We have increased the dividend payout to 30% from 25% in the previous year and are actively looking at acquisitions.

How do you see order inflows going into FY2014?

In line with its global expansion plans, Nucleus Software has recently expanded its footprint by entering into newer markets such as South Africa and Switzerland. We have enabled deeper penetration in key markets where we are already present with our extensive product portfolio of IT products and solutions for retail banking, corporate banking, auto finance and cash management. We are entering into new market segments such as captive auto finance, retail lending, transaction banking, mobility and islamic banking while exploring strategic partnerships across technology alliances, channel partners and system integrator partners for business growth. In the quarters ahead, we are confident of entering into new geographies while offering localized relationship management for our customers through our expanding channel partner network.

What was attrition rate for last year? What is employee utilization rate? What is your employee addition target for this year?

Our attrition last year was around 15%. Employee utilisation rates are not strictly applicable to product companies like Nucleus Software, being an IT products and solutions company. Our CEO Vishnu Dusad has recently stated that we will be hiring about 150 freshers and about 100 experienced professionals in FY14.

What is your overall outlook for your business verticals?

Our main product offering, FinnOneTM, is a comprehensive solution for origination, servicing and collections of retail loans .Our customers are banks and non banking financial companies across the world. FinnOneTM, uniquely, caters to all categories of retail loans, be they housing, automotive, education or plain vanilla consumer durable loans.

Retail loans are major business segments for banks and the primary business of NBFCs. Post the financial crisis in 2008, banks focused on reduction of balance sheet size and risk off thereby reducing the appetite for technology for retail loans. We believe this process is almost over now with Europe; the only region struggling to meet capital adequacy norms. It is strongly evidenced by car sales in the USA and in the pickup of automotive loans.

We expect this vertical to show significant growth in the coming year/s across developed and emerging markets.  We also think that going forward; Africa is expected to lead emerging markets.

We also have a product offering in the cash management space. This product suite
Cash@WillTM caters to the wholesale banking segment with banks providing collection, payments and liquidity management services to their corporate customers.  Over the years this vertical has assumed great significance with value added services to corporate customers being the major differentiator for selection of banks.  With the fast changing dynamics in this vertical, we foresee significant growth and, therefore, many opportunities for us in the near future.  

Is there any message that you would like to convey to investors?

FY2012 -13 has been a significant year for Nucleus Software. Our customer base in 50 countries and the focus on domain-rich expertise has helped sustain the company's improved performance. We are confident of continuing to be the preferred partner of our customers in the year ahead. In this era of intense competition, we are constantly striving for improved customer experiences with focused efforts.  Nucleus Software is embarking on a makeover which will take it to the next level. This endeavor demonstrates our passion for perfection and relentless commitment to deliver world class products to our customers.