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HRH Next Services Ltd

| Q3 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤23rd Jan 26

Summary : HRH Next, a vernacular CX and BPO specialist, is aggressively pivoting to AI with its AINA platform, targeting 100 crore revenue and a main board listing by 2027, despite current working capital challenges and client concentration.

Management Perspective positive : Management expressed being "very proud" of the company's journey, "very happy" about its listing, and "pretty confident" in achieving future revenue and main board targets. They highlighted the "huge scope" and "promising step" of their AI division, indicating strong optimism for future growth and profitability.

Concall Report Analysis & Insights

Business Overview

  1. HRH Next is India's leading vernacular CX outsourcing and BPO specialist.
  2. Operates 8 South India delivery centers with over 2,500 employees.
  3. Provides contact center solutions for telecom, BFSI, retail, FMCG, e-commerce, and utilities.
  4. Employs a language-first approach to boost engagement in Tier-2/3 markets.
  5. Offers omni-channel solutions including voice, non-voice, and backend services.

Future Growth Prospects

  1. Launching an AI division, AINA, to enhance customer experience and drive revenue.
  2. AINA will offer multilingual voice, chat, and video bots across 11 languages.
  3. Aims to achieve 100 crore revenue and list on the main board by January 2027.
  4. Plans to expand presence to North and West India, and internationally with AI tools.
  5. Expects AI division to significantly increase PAT margins to 10-12% by 2027.

Management Insights

  1. Proud of HRH Next's two-decade journey and rich legacy since 1938.
  2. Happy about 2024 listing and looking forward to a positive journey ahead.
  3. Confident in reaching 100 crore revenue and main board listing by 2027.
  4. AI division (AINA) is a broad and promising step, expected to add significant revenue.
  5. Believes the market is yet to fully realize the company's potential, especially its AI division.

Signs of Skepticism

  1. Management downplays high client concentration as "not a bad strategy" despite competitor risks.
  2. Persistent negative cash flow for two years, attributed to client advances, needs closer monitoring.
  3. Claims of superior AI tools with higher accuracy lack specific comparative data.
  4. The 10-12% PAT margin target for 2027 seems ambitious given current figures.

Risk Factors

  1. Persistent negative cash flow in FY24 and FY25 due to client advances for AI development.
  2. High client concentration, with top 5 clients contributing 87% of revenue.
  3. EBITDA margins are lower than some competitors, requiring AI monetization to bridge the gap.
  4. GPU price fluctuations introduce variability in AI service pricing.
  5. Reliance on large clients for growth, which could pose a risk if a client leaves.

Good To Know

  1. HRH Next was established in 2007, with a legacy dating back to 1938.
  2. The company got listed in 2024 and aims for the main board by 2027.
  3. Top 5 clients (Swiggy, Meesho, Mpocket, Cars24, Vodafone India) contribute 87% of revenue.
  4. Client tenure is high, with Swiggy since 2016 and Vodafone for 14 years.
  5. Capex is planned for AI divisions and two new centers in Mysore and potentially Indore.

Key Drivers

  1. AI division (AINA) drives new revenue.
  2. Main board listing by 2027.
  3. Achieving 100 crore revenue target.
  4. International market expansion with AI.

Key Analyst Discussions

Competitive Environment

  1. Competitor One Point One has 25% EBITDA margins but high client concentration.
  2. HRH Next avoids outcome-based pricing in traditional BPO due to high risk.
  3. Aims to be a top AI services company, differentiating with proprietary vernacular technology.
  4. Market has rewarded other listed BPO players with high PE and revenue multiples.
  5. HRH Next believes its AI division will make it a unique listed AI services company.

Market Trends & Consumer Behavior

  1. New-age consumers seek quick resolution and excellent customer support.
  2. AI is expected to evaluate customer experience and mirror human emotions.
  3. Voice remains the fundamental truth of conversations in the Indian market.
  4. AI tools are designed to understand sentiment, emotion, and propensity to pay.
  5. The company focuses on vernacular language support for broader market reach.

Financial Highlights

  1. Revenue increased by 11% year-over-year, maintaining profitability (EBITDA, PAT, PBT).
  2. PAT margins are projected to reach over 10-12% by 2027, driven by AI services.
  3. Negative cash flow in FY24 and FY25 due to client advances for AI software development.
  4. Debtor days are approximately 60 days post-invoice approval.
  5. AI services will adopt an advanced payment mechanism to improve cash flow.

Product Composition

  1. Transitioning from conventional contact center to technology-driven AI solutions (AINA).
  2. AINA offers voice, chat, and video bots supporting 11 multilingual languages.
  3. AI services are sector-agnostic and will be applied across various industries.
  4. Traditional BPO services are per-seat model, while AI will be minute-consumed based.
  5. AI division is expected to have significantly higher profit margins than traditional contact centers.

Strategic Considerations

  1. Long-term vision is to be the largest vernacular contact center and best in-house AI services company.
  2. Plans to diversify client base by pitching AI technology to existing and previously rejected clients.
  3. Expanding services to international markets with language-agnostic AI tools.
  4. Considering international clients and offshore service delivery with AI-enabled BPO.
  5. Significant Capex is planned for AI divisions and new contact centers to support growth.