‘India offers good growth prospects in drone and e-surveillance spaces’

India is betting big on many emerging technology areas including drone technology space. There are many technology companies in the country with international presence that are aggressively investing into this space to cash in the new opportunities. Hyderabad-based Magellanic Cloud is one such technology company that operates in three segments including IT services, drone technology and e-surveillance. The publicly listed company is confident of higher growth in its e-surveillance and drone segments in coming years. In a conversation with Bizz Buzz, Joseph Thumma, CEO of Magellanic Cloud said its e-surveillance and drone segments will grow faster in coming years. After hyper-growth during the pandemic years, growth in the IT services segment is likely to be stabilized in the current financial year. On the revenue growth, the company is likely to clock a revenue of around Rs 600 crore in the financial year 2023-24. The company with its varieties of drones is participating in military tenders for providing drones to the Indian arms forces. In the e-surveillance space, the company is gaining new clients at a faster pace and is taking these services to foreign clients

Can you a give a brief overview about Magellanic Cloud? Will you also provide some light on the revenue contribution of different segments?

The company has three segments. We started up with IT staffing. In 2020, we acquired Motivity Labs under JNIT Technologies. That’s an offshore development company, which is majorly run from India. We have around 400 people in Motivity Labs and around 250 people in JNIT Technologies. In 2022, we acquired a technology-enabled e-surveillance company where we have close to 20,000 sites monitoring ATMs, jewellery stores, warehouses, and other areas. Revenue from this surveillance business was around Rs 120 crore to Rs 140 crore with a EBIDTA of around 50 per cent. From IT services business, we receive around Rs 300 crore. The third segment is the drone segment that we have entered in. Under that business, we have acquired a company ‘Scandron Solutions’. Earlier, we used to provide the services solutions to many marquee clients including DRDO, many refineries and others. We saw the bigger opportunity in the drone space after the policies came in. So, we have ventured into the drone manufacturing space through this acquisition. We are confident of good prospects for the drone business with orders coming in. Also, we operate in both industrial and services sides of the drone segment. In manufacturing side, we have agri drones, cargo drones and others. We are also developing the anti-drone system where in we will install these anti-drone systems in those government premises where it is required. So, these are areas, we are currently working on.

What kind of growth prospects do you expect in the segments you operate in coming years?

We see substantial growth opportunities in the drone segment. Not only drone, but also our software services business is likely to grow around 20 per cent in the current financial year as we have won two large contracts. Our e-surveillance company iVIS, have done a lot of installations, which is going to grow by Rs 40-Rs 50 crore this fiscal year. As far EBIDTA margin is concerned, the margins are around 10 per cent on the IT services business. On the e-surveillance business, margins are higher at around 50 per cent.

It’s a wide array of businesses. Will you look at spinning off some segments to make the operating structure simpler?

Definitely, we will look at it. Once the drone business grows, we may look at another listed company. Because the PE (price to earning) ratio of drone business is different from IT services and e-surveillance business. We are waiting for huge orders. We are waiting for DGCA license. We are also participating in an army tender. That is where our focus is, which can be a game-changer.

There is a lot of interest around making India self-reliant on the drone technology space with many enabling policy measures. What kind of investment commitment do you have for the drone segment and what are your growth expectations?

We are looking for revenue of Rs 100-1,000 crore from the drone segment with bagging of new deals. Based on the order flow, we are likely to require an investment of Rs 200 crore. We have already invested around Rs 35-40 crore on manufacturing lines and various R&D activities. Once we get the GDCA license, we will take couple of months to start our new drone manufacturing line for which we will require around 20-25 acres of land. For setting up such facility, we will require somewhere between Rs 25-50 crore.

What kind of capital support do you require for executing these plans? Can you throw some light on the cash reserve that the company has?

We have minimal cash reserve as we have paid our acquisitions from the cash flow. We have to pay around Rs 50 crore towards the acquisition cost of iVIS. For deployment, we are using the term loan facilities. We are also raising around Rs 100-150 crore through preferential allotment. Once this amount is raised, we will have enough cash reserve to take care of our investment commitments.

Are you looking at raising money through PE or VC funding route?

We have not explored that route of funding as the ratio of dilution may be higher.

What kind of revenue growth Magellanic Cloud can see in the current financial year and during the years ahead?

We are expecting around Rs 550-600 crore of revenue in the current financial year, which will be about Rs 150 crore more than the previous fiscal year. The capex deal that we are going to do under iVIS probably will be around Rs 50-75 crore. Organically, our revenue will grow by around Rs 50 crore. In the IT services segment, it will grow but will not grow as expected because of the current downward trend. Post Covid, we have seen good growth but it is stable now. There are two major contracts coming in the IT services segment. We are replacing a very big vendor in one of our accounts due to the value added services given by us to the client.

How do you see the company’s growth prospects in the next three years?

We always want to solve problems leveraging technology. We are optimistic about the future growth. I have invested in chip design space. Apart from strategically investing in the company, I have made investment in the emerging areas. All our units are managed by professional people. We are taking our e-surveillance services to the international markets. I am confident that this segment can grow a lot more in the international markets.