Magellanic Cloud shares have surged over 4,000% in 2 years: CFO Sanjay Chauhan explains why

A small-cap diversified player has created humungous wealth for investors in the past two years. Shares of the company soared 4,049 per cent to Rs 460.15 apiece on November 24, from Rs 11.09 on the same day in 2021. On the other hand, the BSE SmallCap index advanced 39 per cent during the same period. This is Magellanic Cloud, which reported 151 per cent year-on-year (YoY) growth in consolidated net profit at Rs 73.99 crore in FY23.

What factors have supported Magellanic Cloud in the past two years? What are the company’s plans going ahead? In an interaction with Business Today, Sanjay Chauhan, CFO of Magellanic Cloud, said the company is committed to satisfying its shareholders. Edited excerpts:

BT: Which factors do you think have supported sentiments in the market?

Chauhan: At Magellanic Cloud, technology is the driving factor for our success. The surge of domestic and export sales from our IT division reflects our team’s hard work and dedication. With a focus on innovation and customer satisfaction, we are confident that we will continue to grow and expand our reach.

Our wholly-owned subsidiaries, iVIS and Provigil, have enabled us to achieve a fivefold growth in production capacity, going from 30 units to 150 per day. Our efforts to optimise cost through technology improvements and strategic vendor negotiations have resulted in a 20 per cent decrease in expenses, boosting overall efficiency. As pioneers in the banking segment, we anticipate a significant growth of business in adding new bank branch sites (public & private banks), NBFC and cooperative banks. At present, we are looking to expand in retail and wholesale segments.

Our acquisition of a 70 per cent stake in Bengaluru-based drone-maker Scandron Pvt Ltd, has significantly ramped up the drone manufacturing facility to 200 per month. This has allowed us to meet the growing demand for drone technology. Additionally, through our subsidiary, Scandron, we have also unveiled our Agri and Cargo drones, further establishing our leadership in the drone industry.

Our share price experienced growth largely due to the E-Security/Surveillance segment combined with the healthy demand for IT & ITES services across industries. We remain committed to delivering values and satisfaction to our shareholders.

We aim to achieve a consolidated revenue of Rs 650 crore and 25-30 per cent EBIDTA for FY24 and are actively pursuing one or more acquisitions to help us reach this goal.

BT: How the company’s business has transformed in the past 3-4 years?

Chauhan: Magellanic Cloud is a diversified company that offers a range of services including software development, digital transformation, DevOps space, and human capital businesses. We also provide IT consulting services. We have invested in leading companies operating in IT services. With a human resources strength of over 1,200, MCloud has serviced over 100 companies, including those in the Fortune 1,000 league. E-surveillance and drones are the other two segments to have a competitive edge at scale.

In January 2020, we acquired 100 per cent shares in Motivity Labs Inc, a software company based in Texas that helps, including Fortune 500 ones, implement and develop software. Post-acquisition and with proper planning the revenue from operations in this company has increased to 4 times.

In May 2022, we acquired 100 per cent shares of Ivis International & Provigil Surveillance for cash considerations of Rs 327 crore to expand our horizon to electronic surveillance and security services. We are the top runner in the nation in the banking sector serving both public and private banks in terms of bank ATM’s and branches and we are also serving the NBFCs plus exploring ways to generate revenue in retail and wholesale divisions. Post acquisition we have put a lot of effort into bringing IT technology into the surveillance division which helps us to increase production efficiency and reduce cost with more accuracy than in the past.

With Scandron, we entered the agri, cargo and customised drones manufacturing segment. The company has an edge over others in cargo or logistics drones with multiple ranges, endurance, capacity and time. We are currently executing collaborative drills across high and low altitudes for military and defence tenders. In addition, Scandron has entered agreements with prominent entities to offer inspection services. We anticipate the DCGA licence in the December quarter, which will pave the way to sell hundreds of commercial logistics drones.

BT: What factors supported the company’s top and bottom lines in FY23?

Chauhan: The significant surge of local and export sales from our IT/ITES division coupled with the e-surveillance segment by means of acquisition has led to a significant increase in consolidated revenue from operation to Rs 427.47 crore in FY23 as compared to Rs 252.68 in FY22. The return on equity (RoE) was reduced to 24.88 per cent in FY23 as compared to 38.16 per cent in FY22 primarily due to the increase in equity capital to a couple of preferential allotments and bonus 3:1 in FY23 which in turn increased the size of share capital. Return on capital employed has been the same in the last two years which is around 25 per cent.

BT: How much profit and sales do you expect in FY24 and FY25?

Chauhan: With a solid order book in both IT and e-surveillance segments, we anticipate a revenue jump to Rs 650 crore and profit after tax (PAT) to be maintained at 15-20 per cent in FY24. Looking ahead to FY25, we see a further significant growth of 100-150 per cent in revenue and profit, ranging between 22-27 per cent. This surge is likely to happen in the increase in drone sales and strategic acquisitions.

BT: Can you throw some light on the company’s expansion plans?

Chauhan: We are actively looking for opportunities in the IT sector, e-surveillance and drone technology for acquisitions. We would like to consider acquisitions to facilitate our entry into the Middle East market. We are also open to offering equity for a smooth acquisition process and we believe that it would be mutually beneficial. Our main focus is on scaling up our drone division more efficiently to capitalise on 125 the immense potential of this emerging technology. The notable ICICI Bank has recently joined hands with our subsidiary iVIS for AI/ML and IoT-powered e-surveillance services. This collaboration enhances the branch security through real-time video monitoring, facial recognition, incident detection, and automated response systems.

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