Digital transformation consultancy KaarTech secured $30 million in funding in July 2023, contributing to a notable 56% increase in its revenue in FY23. However, despite this growth, its profitability remained stagnant during the same period, largely due to a significant rise in employee benefit expenses.
KaarTech’s revenue from operations surged to Rs 359 crore in FY23 from Rs 230 crore in FY22, as per its consolidated financial statements submitted to the Registrar of Companies.
Established in 2006 by Maran Nagarajan, Ratnakumar N, Selvakumaran M, and George Guardian, KaarTech specializes in SAP and S/4 HANA implementation, providing consultation, implementation, and support services for SAP-based enterprise software solutions to businesses.
The company primarily generates income from IT services, including software development, support, and maintenance, with 97% of its revenue coming from exports, mainly from markets such as Saudi Arabia, Qatar, Oman, and the UAE.
Similar to many other technology companies offering products and services, KaarTech’s employee benefits accounted for 71% of its overall expenditure, witnessing an 81.3% increase to Rs 243 crore in FY23 from Rs 134 crore in FY22. Various other expenses such as legal services, rent, website maintenance and development, and marketing contributed to a 65% rise in total expenditure to Rs 340 crore in FY23 from Rs 206 crore in FY22.
The substantial increase in employee benefits had a significant impact on KaarTech’s profitability, which remained unchanged at Rs 22 crore in FY23. Its ROCE (Return on Capital Employed) and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin stood at 28% and 11.5%, respectively. On a unit level, KaarTech spent Rs 0.95 to earn a rupee of operating income in FY23.
Having raised a total of $35 million across various funding rounds, including the $30 million led by A91 Partners in July 2023, KaarTech’s co-founders, including Maran Nagarajan, Selva Kumaran, Chandrasekaran Venugopal, N. Ratnakumar, and Guardian George, collectively hold 78.25% of the company, according to data from TheKredible.
Despite its notable presence in West Asia and the EU, KaarTech aims to strengthen its foothold in North America with the recent funding. However, this expansion plan, along with other strategic initiatives, has led to a sharp increase in employee costs and other expenditures. While KaarTech may still have some distance to cover before achieving true scalability and a successful IPO, its trajectory suggests promising prospects for future growth and success.
