8KMiles hives off healthcare vertical; resumes trading after 10 months

PTI Mumbai | Updated on September 07, 2020

Cloud computing provider 8KMiles Software Services has hived off its flagship healthcare business into a separate entity as part of reorganisation of the firm with more focus on profitability, a top official has said.

Besides, the company’s shares resumed trading on Monday after a 10-month hiatus following auditor concerns.

The firm is hopeful of winning back the confidence of investors as it has resolved all the issues flagged by auditor Deloitte Haskins & Sells last November.

The company has also moved to a new revenue model wherein it focuses on recurring income and more margins instead of projects-based topline growth model that has kept its margins low all these years.

After the auditing that flagged as many as 20 issues, the BSE and NSE had suspended it from trading from November 4, 2019, and by that time its stock had lost over 98 per cent of its value from its December 2017 peak. Trading suspension was due to its inability to declare annual FY19 results.

The company counter hit the upper circuit at ₹25.25 on the BSE as it resumed trading on Monday, up from the November 3, 2019 close of ₹23.70.

8KMiles is also confident that its new recurring monthly revenue model will help it achieve more profitable growth and not just thin-margin topline growth that was its earlier focus, said Suresh Venkatachari, chairman and chief executive, who founded it in 2008.

“We’ve hived off our healthcare and pharma business into a separate vertical -- Healthcare Triangle Inc -- which we are planning to take public in some time. The new vertical will also include insurance, pharma and life sciences. This has been our flagship vertical contributing close to 70 per cent of our income.

“Our customers have continued to partner with us and place their trust in us as is evidenced by the increase in business. Also, our business has evolved from one-time revenue to a long-term recurring revenue model which will support more profitable growth as is visible from our June quarter numbers,” Venkatachari told PTI from the US.

For the June quarter, 8Kmiles reported a 29 per cent growth in operating income at ₹ 88 crore, primarily driven by recurring revenue and margins that jumped to 30.4 per cent from 10.9 per cent in Q4 of FY20 and a net income of ₹3.9 crore against a net loss of ₹20 crore a year ago.

That we could attract key leadership talent even after the auditor flagged concerns, shows the quality and sustainability of what our business model, he said, adding the group has since then hired nearly a dozen senior-level management personnel to head finance, delivery, sales, and human resource, among others, to ensure better governance along with a new auditor.

“We are confident that over the next two-three quarters we will have enhanced internal controls and governance in place for all operating activities,” he said.

Venkatachari admitted that many things went wrong in the past, and blamed it on their focus on top-line growth at the cost of profitability and lapses in the internal process owing to the accelerated growth.

“In addition, there were also professional disagreements in some accounting practices with Deloitte, this led them to give a ‘disclaimer opinion’ in FY19 with nearly 20 audit observations. But now we have addressed each one of them,” he said.

The other vertical will continue to be known as 8KMiles dealing with manufacturing, automotive, aviation and banking among other sectors, he said, adding this vertical contributes 30 per cent of group revenue.

Venkatachari further said 8KMiles will no longer capitalise its IP (intellectual properties) investments after it had made a one-time write-off a whopping Rs 624 crore towards this in the March quarter. Going forward, the IP investments will be part of profit & loss account, he said.

Published on September 07, 2020

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