Hyderabad-headquartered small cap diversified player Magellanic Cloud has delivered a mixed bag in its Q1 FY25 financial results. The company’s revenue saw a drop of 4 per cent to Rs 132.16 crore during the quarter from Rs 137.77 crore in the same quarter last year. Despite the drop, the company’s profit figures told a more positive story.
Profit After Tax (PAT) grew by 40.3 per cent year-on-year (YoY), but it took a hit on a quarter-on-quarter (QoQ) basis, declining 32.8 per cent. EBITDA also showed strong growth, up 37.3 per cent YoY, but saw a dip of 1.7 per cent compared to the previous quarter. The EBITDA margin stood firm at 40.05 per cent.
In conversation with BW Businessworld’s Rohit Chintapali, Magellanic Cloud Global CEO Joseph Sudheer Reddy and CFO Sanjay Chauhan discuss Q1 FY25 results, growth prospects in drone segment, strategic acquisitions and geographic expansion plans. Excerpts:
Magellanic’s PAT and EBITDA seem to have soared year-on-year (YoY) while the revenue has dipped. What caused the drop in topline?
Chauhan: As you may know, we have three segments: IT/ITES, E-surveillance and drones. Currently, most of our revenue comes from IT/ITES and E-surveillance (the spilt is about 75:25), with only a small amount from drones. Our revenue decreased by 4 per cent, primarily in the IT business, due to the variability in SOW-based contracts. This fluctuation is normal, as order books are in place, but human capital costs can vary monthly. In Q1 FY25, our revenue was Rs 132.17 crore, down from Rs 137.78 crore in Q1 FY24. The PAT for Q1 FY25 is Rs 26.51 crore, up from Rs 18.89 crore in Q1 FY24. This growth has increased the company’s profit margin to 20 per cent.
What factors have contributed to the sharp increase in EBITDA YoY?
Chauhan: The EBITDA has jumped nearly 37 per cent YoY. While the EBITDA margin has grown from 28 per cent last year to 40 per cent this quarter. This jump is due to two main factors. First, the e-surveillance business, which had an EBITDA margin of 45-47 per cent when acquired in 2022, has now increased to 55-57 per cent. Second, cost reductions in the IT segment and higher margins in SOW-based contracts have also contributed to the overall EBITDA margin increase.
What’s your reading, Joseph, of this quarter? Any bright spots?
Reddy: Overall, this quarter has aligned with previous ones, with the key difference being our success in selling newly developed products. We have managed to sell our internally created video management system (VMS) and monitoring platform, and effectively utilised reusable frameworks we developed, including those for ML, AI and GenAI. These innovations have contributed to improved EBITDA and PAT, despite slightly lower sales this quarter. Moving forward, we plan to increase our focus on marketing and sales to scale these products, as we have successfully beta-tested and validated our solutions.
Among the three segments you address, which one do you see delivering most value in FY25?
Reddy: By FY25 end, we will see a big boost from our drone segment, largely due to our R&D investment so far. With minimal additional spending required, the focus now is on fulfilling orders. We are expecting to scale our order book to a minimum of Rs 100-200 crore this year. The Indian Army has allocated thousands of crores for drones and the Drone Didi scheme also has a budget of around Rs 500,000 crore this financial year. We aim to capture 10-20 per cent of the army’s allocation and potentially 20-50 per cent due to our superior logistics and surveillance capabilities. In the commercial space, we are targeting a 10-20 per cent market share thanks to our advanced technology. While drones will drive the growth, our IT/ITES and surveillance segments will stay in the same pace.
How are acquisitions playing into your growth strategy as you look at FY25 and beyond? You recently completed iVIS acquisition…
Reddy: Acquisitions are pretty much integral to our strategy. This strategy is centred around capitalising on opportunities where we can add value. For instance, when we acquired the company with Rs 110 crore in revenue, our goal was to enhance its technology and scale it substantially. The initial acquisition provided a foundation, but with our strategic model, we aim to grow it to Rs 200-500 crore in the future. But our model is designed for much higher growth.
Currently, our Monthly Recurring Revenue (MRR) stands at Rs 150 crore and we project it will reach Rs 200 crore by 2025. This is big expansion from the initial Rs 100 crore, with expectations to double or triple further in later phases. Our approach is to use acquisitions as a platform to establish a presence in new regions, including Europe, North America and the Middle East. We plan to pursue more acquisitions in the e-surveillance sector to strengthen our presence in these markets. By leveraging our technological capabilities, we can enhance EBITDA and PAT and drive substantial growth.
Tell us more about your expansion plans across geographies.
Reddy: We are focusing our expansion efforts primarily on North America, including the US and Canada, as these are key markets for our business growth. We are also expanding into Europe through exhibitions and other platforms. Our strategy involves leveraging both our IT/ITES and e-surveillance platforms, incorporating AI and generative AI models to enhance our offerings.
In e-surveillance, we are capitalising on the increasing demand for cybersecurity, digital security and video-based security solutions. This includes integrating facial recognition systems and collaborating with both public and private entities for comprehensive video analytics. The growing trend of public camera integration with police systems is a significant opportunity for us.
For drones, our next focus will be on expanding into Asian markets and exploring trade exchanges for exports. While IT/ITES remains a core area, e-surveillance represents a major growth opportunity, with North America as our primary target and other geographies also in our expansion plans.
How much are you investing in product innovation and R&D?
Reddy: The key lesson I have learned over two or three decades is the necessity of continuous innovation and R&D investment. For example, we have invested nearly Rs 40-50 crore in drone technology over the past year without even securing an order, knowing that this sector is crucial. Similarly, we have spent around Rs 10-15 crore to transform our surveillance products into enterprise solutions, making them scalable and customisable. In total, we have invested about Rs 60-65 crore in R&D over the last two years, focusing on areas that will yield better results in the future.
Chauhan: We have invested approximately Rs 50 crore in drone R&D and Rs 9 crore in e-surveillance over the past year.
_20240605152515_original_image_42.webp)
