Aim to become a debt free company in 6-9 months: Megasoft

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Megasoft has announced their Q3CY11 numbers. The company has reported their consolidated revenue at Rs 42.85 crore versus Rs 42.19 crore QoQ. Their PAT has gone up to Rs 6.08 crore versus Rs 5.19 crore QoQ.

GV Kumar, MD & CEO of the company, in an interview with CNBC-TV18 spoke about the results and what the road ahead was for the company.

Below is a verbatim transcript of GV Kumar's interview with CNBC-TV18's Reema Tendulkar and Sonia Shenoy. Also watch the accompanying video.

Q: This time around your numbers are not comparable on a YoY basis. Could you tell us on a YoY basis, what is the kind of improvement and the outlook for the rest of the year?

A: We have only one focus in our business which is the mobile telecom products and applications. That is what is driving the growth.

Mainly our revenues come from three broad segments - one, is the prepaid market predominantly focused in the US. Because of the credit crunch and the kind of pressure in the US economy, prepaid is now becoming the preferred method of cellular connections which is helping prepaid companies like us. That is driving a lot of our topline growth.

The other two markets are mobile commerce and roaming which are seeing a big upswing especially in Asia and Latin America. The topline growth from a business like mobile telecom has always been a high margin business for us.

Last quarter our EBITDA margins were 31%. The last three quarters we have been holding at the 30% range. With the consistent generation of cash in the last 12 months, we have brought down our outstanding debt from about Rs 240 crore in October 2009 to less than Rs 90 crore. That has also driven down about Rs 10 crore of our finance cost as compared to last year.

We recently made the announcement where we sold off our corporate building and paid off another Rs 50 crore. I think in the fourth quarter, the finance cost is going to further reduce by more than a crore adding to the bottomline. So overall, there is topline growth, high EBITDA margins as well as reduction in finance cost which is resulting in a good comeback for the company.

Q: You spoke about monetization of your assets in terms of the selling off some property in order to reduce your debt levels. What does your debt level stand at - post retirement? Will you retire this entire Rs 90 crore which is outstanding and what is the total utilization of funds from this entire monetization?

A: We paid our bank Rs 50 crore. The total outstanding including working capital as well as terms loans have come down to about Rs 90 crore out of which Rs 40 crore is working capital and close to Rs 50 crore is term loan.

We have other real estate assets which we are putting up in the market. From a net point of view, a sale of a couple of assets, the debt will be reduced to zero. That is our aim for the next six-nine months.

Q: What is the current valuation and what is it that you are looking to offload maybe in the next six months?

A: We have a large piece of land in Vizag which is today worth more than Rs 40 crore. If we are able to knock that off, the entire term loan portion of our loans will come down to an almost zero level. The working capital assets are completely covered by less than 90 days receivable, so current assets and current liabilities match up.

In addition to this, our new corporate buildings are coming up. We might or might not monetize a portion of it because we need space for our expansion. From asset perspective alone, we should be in a position to meet all our loans. The rest is purely operational.

For example, the first nine months of this year - January to September, we generated about Rs 28 crore of operational free cash. Moving forward, with a further deduction in finance cost that number should go up on QoQ basis. Overall, I think that our cash reserves are getting more and more comfortable.

Q: What is the total land bank which you currently have and also would you be acquiring more real estate moving forward. Would that be a diversification you would see yourself getting into as a company?

A: We will get out of more real estate and focus on our core business. We probably will utilize these proceeds more for any acquisitions that may be of interest to us next year rather than the other way round.

Q: What is the acquisition or inorganic plans that you have - would it be domestic or international?

A: We are a product company. We constantly look for inorganic growth as well. We usually apply three criteria - one, where there is technology synergy which will enhance our offering to customers. Two, if it adds to the revenues especially from areas where we are not present.

For example, Megasoft has almost no presence in Europe or Africa. So any acquisition adds those set of clients or telecom operators. Three, we as a company, are moving from a pure software license provider to a software service provider.