Mr. Biju Nair, CFO, Four Soft Ltd.
"Four Soft is poised for continued growth with improving margins"
Four Soft is one of the world's largest transportation and logistics software products company providing innovative and integrated enterprise solutions. The company is headquartered in Hyderabad, India and has 10 development centres across the globe. Its portfolio of products comprises logistics software solutions for freight forwarders, NVOCCs, customs brokers, container freight stations, ships agents, warehouses, cartage, trucking and 3PL/4PL companies. Four Soft currently has 300 customers with 50,000 plus users in across 120 countries.
Mr. Biju Nair, CFO, Four Soft Ltd. Nair is a chartered accountant and has over 16 years of experience in finance, accounts, audit, legal, human resources, mergers & acquisitions, takeovers, IPO and funding exercises. He is the founder manager of Four Soft and has contributed valuable services, efforts and expertise for the development of the company. He heads the finance, legal, secretarial and human resources globally of the company.
Replying to Rajiv Mehta of India Infoline, Mr. Biju Nair says, "Four Soft is poised for continued growth with improving margins"
Could explain the business model and key offerings of the company in brief?
Four Soft Ltd (FSL) is an enterprise solutions company that develops innovative software products and provides IT services for the logistics and supply chain management market place. The group operates across globe with development centers in India, Australia, Denmark, England, Singapore, Netherlands, Japan and United states.
FSL has 100% web-centric end-to-end enterprise solutions connecting the entire complex transportation and logistics business of the customers. This is an execution product which is mission critical to the customers. This provides visibility to the entire supply chain processes of the customers which brings immense efficiency to their business.
FSL also offers procurement and distribution supply chain solutions to enterprises with its order management, transport management and vendor management functions.
FSL provides cutting edge solutions both readymade (products) and tailor-made (services) for the transportation and logistics and supply chain industry. FSL uses the power of leading edge internet technology. So service providers/other companies can quickly and affordably realize the full power and potential of their operations.
What would be the current revenue mix in terms of products/services, verticals, geography and onsite/offshore delivery?
Revenue mix in terms of products/services:
- License - 12%
- Annual Maintenance - 20%
- Customization (Services) - 68%
Revenue mix in terms of verticals:
- Transport and Logistics (service providers) - 95%
- Supply chain execution (manufacturing companies) - 5%
Revenue mix in terms of geography:
- Europe - 78%
- USA - 12%
- Asia - 10%
What is the competitive landscape, domestic and global? What are the key differentiators of Foursoft?s offerings in the market?
As of now there is no competitor in the domestic market but globally we do have three competitors:
- Kewill Systems - Revenues US$105mn
- Descartes - Revenues US$52mn
- EDI Cargo - Revenues US$32mn
Key differentiators of FSL are:
- Age in the industry and so the maturity of the products we have
- Technology advantage, 4S has 100% web-centic next generation products compared to old technology which is not scalable as FSL?s
- Management team comprises of technocrats with rich industry experience
- New and flexible delivery models that suit to large and SME market segments
- Having leading players of the industry as our customers (12 of the Top 20 players use FSL products)
- Rich resource pool - efficiencies of cross-function collaboration cutting across technology
- Strong acumen to provide product maintenance & support and product extensions/hot patches
- End-to-end solution providers right from software, implementation and support
- Strong domain knowledge
Who are the top clients and what would be their revenue concentration? Could you give some colour on level/depth of engagement with top 2 or 3 clients?
The top clients of the company include:
- DHL - Revenue share 16%
- Schenkar - Revenue share 7%
- Ceva logistics - Revenue share 6%
- Geodis Wilson - Revenue share 6%
- PNL - Revenue share 5%
There are 5,000+ users of FSL products within DHL using since 1995 at various locations. There are unlimited users in Schenkar since 1992 and the application is in use in more than 30 countries.
Can you provide a brief snapshot of acquisitions done between 2004-2006? What was the rationale behind aggressive inorganic strategy at that time?
From 2004-2006, FSL acquired companies in Netherlands, UK and Denmark. In 2004, we acquired Cargo Mate International, a Netherlands based premier transportation and freight forwarding software solutions company. Then in 2005, we acquired DCS Transportation and Logistics Solutions, a UK headquartered transport & logistics software solutions major having operations in UK, Netherlands, US, France & Germany. Also acquired Transaxiom Holding A/S, a Denmark based company with regional offices in Australia, UK, USA and Hong Kong.
The acquisitions were mainly targeted to get customers, geographical presence, management team across globe and rich domain knowledge in terms of products as well as people. The key rationale was to offshore product development to low-cost regions like India to improve profitability while enjoying the billing rates in European and North American markets.
Can you emphasize on the domain expertise company has in the targeted verticals? A couple of examples would provide great understanding?
The promoter has immense knowledge of supply chain domain while he was heading the supply chain in Singapore for large multination company and also has established and built a transportation and logistics company in India to greater success for a large multinational company. The entire management team has wide experience in the domain areas of the company as they are all from the industry.
Please comment on the current business environment especially spending outlook of key clients? What is the extent of volume/pricing pressure faced by the company?
The existing clients have extended the life of old products for another 2-3 years due to budget constraints. This has helped FSL in retaining its US$29-30mn business intact for next 2-3 years. In the meanwhile, company has been successful in adding new customers in markets such as India and other countries in West Asia. FSL also has two major implementations apart from various mid-sized implementations in various parts of globe, including US.
What have been the main reasons behind chequered revenue growth and margin movement over the past many quarters?
Main reasons were new sales of e-products, offshoring of legacy maintenance and services revenues and cost rationalization in high cost regions. Also, there has been a tremendous improvements in utilization and chargeability of people by various quality and process measures.
What is the company?s revenue target for FY10 and FY11 and outlook on the operating margin? What is the rationale behind these assumptions?
We don?t provide any guidance for the future.
What according to you would be the impact of the recent protectionist steps proposed by the US President on the Indian IT sector?
It may have an impact on IT services companies but as a product company we do not foresee any impact. Moreover, we are less dependent on US market at this stage.
What is the cash and debt on books? What is the receivables cycle?
As of today we have a cash balance of US$3.2mn and accounts receivable is US$4.2mn. During FY09, the total debts reduced by 65% and the total debt outstanding as of today is US$2.2mn. The receivable cycle is 45 to 60 days and any receivable more than that is provided for in the books.
Who are the key institutional investors in the company?
Key large shareholders of the company include:
- Palem Srikanth Reddy - 20.9%
- India Growth Fund A Unit Scheme Of Kotak - 10.1%
- Six Rivers Group Limited - 2.8%
- West River Investments Ltd - 1.31%
- Winning Alliance Aps - 2.7%
- Parle Biscuits Private Limited - 1.8%
- Regency Creations Limited - 1.4%
Any message for the shareholders of the company?
With the support of investors, we as a product company have survived all difficult times. This would not have been possible without understanding of our business model by all strategic investors in the company. Though the economy is facing challenging times, due to our strategy and actions of previous years, we have been insulated reasonably well against risks. We are at a stage where, we are poised for continued growth with improving margins from investments in e-products and integrated acquired businesses.
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India Infoline Research Team / 10:47, Aug 24, 2015
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