NUCLEUS - Nucleus Software Exports Ltd Share Price

Management Outlook:
Nucleus Software's management remains optimistic about future growth, citing ongoing initiatives like Hoshin Kanri (lean management) to drive productivity gains and operational efficiency. They emphasize investments in AI and product innovation to enhance customer value and address digital transformation demands in banking and NBFC sectors globally. While revenue growth has been stagnant due to prolonged customer decision cycles, the order book of Rs.700 crores (90% product-based, executable over 3"“5 years) reflects long-term visibility. Management anticipates improved margins and profitability as these initiatives mature, despite current cost pressures from strategic investments in sales, marketing, and R&D.

Major Points:

1. Financial Performance:

   • Q3 FY25 revenue: Rs.205.7 crores (flat QoQ/YoY).
   • Product revenue: Rs.174.8 crores (stable QoQ).
   • Net profit: Rs.35 crores (up 5.7% QoQ).
   • Cash reserves: Rs.877.9 crores.

2. Operational Initiatives:

   • Hoshin Kanri: Driving process improvements in engineering, HR, and sales, with early customer recognition of enhanced SLAs and turnaround times.
   • AI Integration: Focus on hyper-personalization, fraud detection, and operational efficiency across lending and transaction banking products.

3. Market Expansion:

   • Strong traction in Southeast Asia, Middle East, and ANZ markets for digital transformation.
   • Leadership hires in key geographies to bolster sales pipelines.

4. Product Development:

   • FinnAxia (transaction banking): Re-architected with API-first strategy; handles $15 trillion/year in transactions.
   • FinnOne Neo (lending): Enhanced features driving customer interest, with price increases accepted by existing clients.

5. Challenges:

   • Extended sales cycles due to customer caution and board-level scrutiny.
   • Rising employee costs (1,903 employees vs. 1,938 QoQ) offset by productivity gains.

6. Future Focus:

   • Leverage AI for new revenue streams.
   • Expand digital payment solutions and cross-border transaction capabilities.
   • Optimize marketing spend to accelerate deal conversions.

Management refrained from specific guidance but reiterated confidence in long-term value creation, emphasizing patience as strategic investments yield results.

Question 1:
"Yes. Hi, sir. Sorry, I missed the order book number, if you can repeat that. And secondly, the number of employees for September '24 quarter end and December '24 quarter end."
Answer:
The order book executable in the remaining tenure is Rs.700 crores. Employee count decreased from 1,938 (September 2024) to 1,903 (December 2024).

Question 2:
"Hello. Good evening, sir. Just want to know how many new customers are added in last quarter? And how the traction looks like? I do not want any guidance or numbers, but how the traction looks like for the Q4 and going forward?"
Answer:
No specific customer addition numbers were disclosed. Traction is strong in digital transformation across India, Southeast Asia, the Middle East, and Australia. Sales cycles are longer, but optimism exists for closures by fiscal year-end.

Question 3:
"I want to understand across our key products, if you could give some color as to how the growth has been over nine months and how is the order book break up between these three products?"
Answer:
Product revenue (90%+ of order book) saw positive traction with new features and customer feedback. FinnAxia (transaction banking) handles $15+ trillion annually. Order book execution spans 3"“5 years, with AI investments driving future growth.

Question 4:
"The initiative that you have been talking in your opening remarks, I mean, what is it pertaining to? And what are the numerical benefits that we would derive out of this?"
Answer:
The Hoshin Kanri (lean management) initiative focuses on eliminating waste and improving processes (e.g., faster SLAs). Early benefits include productivity gains and customer appreciation, with financial impacts expected in ~3 years.

Question 5:
"Your sales have been stagnant between Rs.200"“205 crores quarterly, but employee expenses are rising. Are you exploring new revenue avenues?"
Answer:
Revenue stagnation stems from prolonged customer decision cycles. Investments in human capital and AI aim to leverage future growth. Focus remains on lending and transaction banking, with no immediate sector expansion plans.

Question 6:
"How is the pricing increase acceptance among customers, and when will growth reflect?"
Answer:
Customers acknowledge past under-pricing, with some adopting new solutions. Growth is expected as more transition to updated products, likely in FY26, though no specific timeline was shared.

Question 7:
"Why is profitability volatile in non-domestic geographies?"
Answer:
Volatility arises from uneven implementation cycles and AMC revenue timing. Recent leadership hires aim to stabilize profitability, with confidence in steady growth across regions.

Question 8:
"What are the AI initiatives, and will they command premium pricing?"
Answer:
AI use cases include fraud detection (FinnAxia), hyper-personalization, and operational efficiency. Value is bundled into products; pricing premiums are not explicit but tied to ROI for customers.

Question 9:
"Can you share the license vs. implementation revenue split?"
Answer:
Not explicitly disclosed. Product revenue (Rs.174.8 crores this quarter) dominates, with services/projects at Rs.30.9 crores.

Question 10:
"How does FinnAxia's traction compare to FinnOne Neo?"
Answer:
FinnAxia serves corporate banking/payments, handling $15 trillion annually. Re-architected with API-first strategy, it targets digital payment growth globally. Customer logos differ due to product focus, but value alignment is strong.