Aiming $100-m revenue in next couple of years: Kellton

Kellton’s current total debt stands at USD 8 million.

Below is the transcript of Niranjan Chintam’s interview with Sumaira Abidi and Reema Tendulkar on CNBC-TV18.

Sumaira: Promoters have been continuously hiking stake as of March, 2015. Their stakes stood at just under 63 percent, we now understand that there has been a preferential allotment as well to promoters of about 25 live warrant. Can you tell us a, the rationale behind this and b, whether if converted, what it will take the promoter stake to?

A: Let me tell you the rationale behind it. We are in a process of acquiring companies. One of them, we already announced to Bombay Stock Exchange (BSE) that we will be closing by the end of the month. For that there is an equity part that we are taking which is why we decided to take warrants at the price of Rs 90 and even though the stock is trading at Rs 74 because we believe that our stock is under-priced and we as promoters would like to signal to the market saying that this is something that we believe in and we are here for the long-term and we are continuing to look out for acquisitions as well as increase our stake wherever it is possible so that we are showing that we have confidence in our own work styles and what it is that we want to do.

Reema: With respect to this acquisition, it is the US based IT company with a revenue of USD 40 million, that should close in one month?

A: We are going to be closing by end of this month.

Reema: By the end of May itself?

A: End of May itself, yes. We are just waiting for the financial closure before we close it. So, that is the reason why we told the BSE that we are in the final stages of acquiring this company. Once we have the financial closure, we will be able to disclose fully of what the company is and the rest of the transaction details.

Reema: Roughly, how much will you be paying for this acquisition and walk us through the balance sheet strength of the company?

A: Our balance sheet or are you talking about the acquisition balance sheet?

Reema: Both. If you could tell us how much you need to pay for this company as well as the strength of your balance sheet.

A: It is about USD 14 million is what we are paying for this company. This is over a period of three years. There will be an upfront payment and as well as in earn-outs as we call it, that is paid over a period of three years. So, the balance sheet of the company, like we told you, the top-line is about USD 40 million, for the acquired company and the earnings before interest, taxes, depreciation and amortization (EBITDA) is about USD 3.2 million.

Sumaira: We also understand that over FY16, that you plan to achieve a target of about USD 100 million in terms of your revenues. Can you tell us what is the plan to actually get there?

A: In FY16 we probably around USD 80 million. What we told in the press release that we will be at USD 100 million by August-September of next year. So, our strategy is to grow both organically as well as inorganically. We have a few contracts that we would be getting shortly, both from private companies as well as Indian Central Government companies. So, hence both our India based revenues as well as the US based revenues would go up. That is I am talking about organically. When it comes to acquisitions we are looking for other companies to acquire. We are in discussions with a few. That usually takes us about six months before we close any company.

Reema: In your management vision you also have plans to raise about USD 25 million. Now part of it will come through from this preferential allotment that you are doing, how were you planning to raise the rest of it and by when?

A: Some of it is going to be debt the 60:40 ratio that we said, so the equity part probably another six months down we would like to do some Qualified institutional placement (QIP), we will be ready by then. Until then the promoters will be funding and that is the reason why we went with the preferential route for the promoters at this time. So maybe six months, I am thinking about October, November time-frame we will be ready for a QIP.

Sumaira: North America is a major contributor to your revenue; it is contributing nearly half if not more. Are there any headwinds that you are seeing and is there any increased focus on the European markets or even India for that matter?

A: India is going to be a significant contributor the next year. You are correct, majority of the revenue is coming from North America, North America as you probably been hearing there is lot of momentum in the job market there so companies are opening up their purses to start spending on IT again, so we believe that we are on the right spot there. Hence the reason why we are targeting and also my brother and I we lived and worked there in the US for 19 years so we understand the US markets very well, so we are comfortable with that market. Coming to the European markets, because of the euro crisis that is going on we don’t want to be there yet, hopefully in the next one year euro would stabilize, that is when we want to go after the European markets.

Reema: In your target to reach USD 100 million by August-September next year, do you need to do more acquisitions or will you hit it organically?

A: We probably think that we might need one or two acquisitions , now these will be smaller acquisitions. The acquisitions the way we do is either we acquire the customers or we acquire technology. What I mean by that is if you want to go after a certain industry vertical, the best way that we believe to get into that industry vertical is to acquire customers instead of competing with everybody there and it is easy for us to get there. The other strategy that we have is to acquire technology, we are focused on W SMAC we call it, the Web, Social, Mobile, Analytic and Cloud, so we are acquire companies that would give us that bench strength or a deeper capability there. So, that is how we go after companies.

Sumaira: I understand you are in the growth phase right now, you might be also taking on some debt, could you tell us what the figure actually stands at? I am just seeing your finance cost, they have been creeping up a bit so they are now over that one and a half crore mark so can you tell us what your debt is and whether there are any plans to bring it down?

A: Yes there are plans to bring it down. The debt is probably about close to USD 8 million, of that USD 5 million is working capital, working capital is a combination of cash that is required to run operations as well as the BG’s and the LC’s that are required specifically when it comes to the contracts that we go after in India where there is Central government contract, we do need to provide some bank guarantees and LC’s as we need to acquire some equipment we provide LC’s so that we can stretch the money.

Reema: With respect to this upcoming acquisition that you have planned, will it be EPS accretive immediately?

A: Yes, we think that for this quarter it will be because the acquisition that we are doing is going to be effective 1 April, so there is going to be an improvement in EPS.