5paisa Capital Limited (NSE: 5PAISA) Q2 2025 Earnings Call dated Oct. 18, 2024
Corporate Participants:
Gourav Munjal — Whole-Time Director & Chief Financial Officer
Ameya Agnihotri — Additional Whole-Time Director & Chief Technology Officer
Analysts:
Dhaval Gada — Analyst
Shreyans Jain — Analyst
Aalia — Analyst
Presentation:
Operator
Good afternoon, ladies and gentlemen. I am Pelcia, moderator for the conference call. Welcome to 5paisa Capital Limited Q2 FY ’25 earnings conference call. We have with us today Mr. Gourav Munjal, Whole-Time Director and CFO; Mr. Ameya Agnihotri, Whole-Time Director and CTO; and Mr. Mehul Jain, Product Head 5Paisa Capital limited. [Operator Instructions] Please note, this conference is recorded.
I would now like to hand over the floor to the management. Thank you and over to you, sir.
Gourav Munjal — Whole-Time Director & Chief Financial Officer
Hello, everyone. Good afternoon and welcome to our Q2 FY ’25 earnings call. On this call, I am joined with Mr. Ameya Agnihotri, Whole-Time Director and CTO; and Mr. Mehul Jain, our Product Head. Quarter two FY ’25 has been an excellent quarter for the investors as well as for the broking industry. During this quarter, both indices Nifty and Sensex touched all [Technical Issues] for good profit booking to the investors. Also, the overall industry saw an significant addition of more than 13 million Demat accounts. The total Demat accounts of this country stood at 17.54 crore as on 30 September.
In Q2 FY ’25, we have acquired 1.62 lakh customers reflecting 20% growth Y-on-Y and our total customer base has reached to 46.28 lakh. This drop in acquisition is a result of our conscious goal that we took from last quarter to improve the quality of customers, which are acquiring — which we are acquiring and ultimately improvement in first year revenue, payback period and LTV, which is called lifetime value of customers. During this quarter, our ADTO which stands to average daily turnover grew to 3.78 trillion, a growth of 4% Y-on-Y. Our client funding book stood at INR245 crores, down by 9% Y-on-Y and our mutual fund AUM reaches to IINR1333 crores, almost 100% growth Y-on-Y.
Coming to financial performance. In Q2 FY ’25, our broking revenue has grown to INR41 crores, a growth of 3% Y-on-Y. Allied income is INR27 crores, a bit down by 2%, but majorly because of minor drop in client funding books and our total revenues stood at INR100.1 crores, a growth of 4% Y-on-Y. In this quarter, as you can see, our employee benefit expense are showing increase by 49%. This is because in last quarter this includes a one-time positive impact of INR8.6 crores with respect to unvested ESOPs and RSU as per Ind AS 102 and now it is showing our normal course, which includes increment of employees, RSU course as well as annual variable performance incentives. With a focused approach on quality customer acquisition, product improvement and cost optimization, we are happy to report that we have achieved lifetime highest ever PAT of INR21.9 crores, which is a growth of 15% Y-on-Y along with achieving highest PAT margins of 22%.
Regarding some regulatory updates. SEBI continued to work towards trending the corporate governance practice of store brokers and exchanges and protecting the interest of retail investors. Towards the same step, two major changes have been announced. First is this effect from 1 October, brokers can’t charge transaction charges from customers more than exchange defined charges, which are single rate now and not on flab basis system. Second, some changes have been announced related to index derivative effective from 20 November, 2024 like increase in contract size, limiting weekly expiry contracts and collecting additional margins on expiry date.
We believe that both these things will give more transparency and safety to investors and further increase the confidence in market. At last, I want to ensure investors that we will continue to work towards product development, better technology infrastructure, customer experience, compliance first approach and cost optimization and confident that these all efforts will accelerate our revenue and profitability in coming quarters.
Now, Mr. Ameya Agnihotri, our CTO, will take you through our technology and product re-initiatives, and after that, we will be happy to answer your own queries and questions. Ameya, over to you.
Ameya Agnihotri — Additional Whole-Time Director & Chief Technology Officer
Hi, everyone. I am Ameya Agnihotri, CTO and Whole-Time Director of 5paisa Capital Limited. Digital innovation and technology first approach has always been our focus area. In our pursuit to provide best-in-class product experience to our users, we have made significant progress. We have launched new web trading platform with user-friendly intuitive and rich user UI/UX. The revamp focuses on reducing latency in ensuring smooth performance and unifying 5paisa experience all across. We migrated our open API gateway to reducing our latency by over 50 milliseconds. Flutter app with new user experience is fully rolled out for all our iOS users.
Additionally, FnO 360 is now available on iOS for all our users. FnO 360 dashboard offers real-time market insights, advanced trading tools and easy access to derivative data via streamlined interface in the dashboard or in market section. Advanced order forms on iOS consolidates order tools on a single screen, displays charts, orders, positions and market depth, supports SLCOBO search and ZTT order types as well. We have added BTT OC of support. This allows placing stop loss and target orders simultaneously valid for up to a year. When once triggered, the other automatically gets canceled out for seamless trade management. The trade on charts platform now includes an option change offering real-time options data, greeks, OI and volume allowing traders to analyze and trade options seamlessly within the same interface.
Additionally, the platform provides corporate action information detailing events like dividend, stock price and bonuses helping traders assess their impact on the stock prices. Flutter on Android platform including FnO 360 on Android will be rolled out to all our users this month. In Q3, we intend to enhance user experience for key workflows, add exciting new features in FnO 360 and mutual fund sections and optimize latencies on our APIs.
With summary of our performance as explained by Gourav and me, I open the floor for further discussion. Please feel free to ask questions if you have any. Operator, you may proceed.
Questions and Answers:
Operator
[Operator Instructions] First question comes from Dhaval Gada from DSP. Please go ahead. I repeat question comes from Dhaval Gada from DSP. Please go ahead.
Dhaval Gada
Yeah. Hello. Am I audible?
Gourav Munjal
Yes, you are audible.
Operator
Yes, sir.
Dhaval Gada
Okay. Yeah, thanks. Just a few questions. First is on the product upgrade. So last quarter you mentioned that there will be a big upgrade that will happen at the end of the second quarter. So just wanted to get an update. So are the changes that you mentioned in the initial remarks, are these all been done and the new product is out or is some major part still pending? So that’s the first question.
Gourav Munjal
Yeah. So Flutter app with revamped user experience has been completely rolled out to all our iOS users. So that is one big upgrade. Apart from that, Fno 360 was initially available on web. It is now available on iOS completely for all our users. In terms of Android rollout of app on revamp pack on Flutter platform as well as FnO 360 on Android, it will be rolled out by end of this month. Over and above that, obviously, we have launched a revamped new web trading platform, which focuses on rich user UI and UX. So even that has been rolled out to all our users. So overall, we believe that major changes and user experience and usability improvements as well as performance improvements have been rolled out in last quarter as committed.
Dhaval Gada
And you said that the FnO 360 for iOS — sorry, for Android will happen by end of this month and so that should complete all the migration or upgrades that you committed. Post this, if you could just talk a little bit around the product upgrade pipeline, anything major or these are going to be incremental changes from here on? Just if you would give some thoughts on the pipeline for the next six, eight months.
Gourav Munjal
So with respect to our product or user experience updates, I think the key work that we are going to do is to enhance our user experience workflows. So these are going to be incremental changes in order to make sure that whenever user interacts with our application, it has least cognitive load and the quickest way to achieve certain task capabilities. So lot of incremental changes will be obviously done on our web as well as on our mobile interfaces. Over and above that, in terms of our back end, we are planning to — we have an extensive plan to ensure that our latency performance and availability is significantly improved and the overall objective in next few months is to make sure that these optimizations in our back end API contribute towards improvement of performance and overall experience on our app as well as web platform.
Dhaval Gada
Understood. Just the second part on the acquisitions, customer acquisitions. So if I just take a sort of commentary journey of how we thought about at the start of this calendar year, we were trying to use the resources wisely to improve the incremental customer acquisition. And some kitty was sort of the aggression was supposed to come after these product launches are through so that the load is taken well care of, etc. Given that now last two quarters sequentially we are seeing the run rate decline and from here on, how do you see the overall customer acquisition growth to be for, let’s say, the next three to six quarters? If you could give some perspective that would be useful.
Gourav Munjal
Yeah. Actually, this step is towards in respect to acquire quality customers. Although there is a 17 crores Demat account in the country, but most of the customers having a balance of less than INR10,000 only. In this kind of a market, you should play very cautiously that whatever the expenditure which you are doing in terms of advertising and branding should attract more traders and investors who are relevant to our industry and not just for the sake of numbers. This number is reduced only in respect of that category. But I can assure you that overall FYR which is called first year revenue has been improved. So with this reduction, there will be no impact on revenue. Going forward, yes, definitely, we will — from now onwards, we will accelerate our growth in terms of customer acquisition and we are hopeful and we will try our best to increase our customer acquisition quarter-on-quarter for the next three or four quarters.
Dhaval Gada
And would it be fair to assume that with these upgrades, the investment that you’ve made, the run rate right now we are doing roughly about 1.6 lakh per quarter. And at the peak in the fourth quarter, we did about 2.7 lakh in the fourth quarter of ’24. We should exceed that in the next two, three, four quarters or the run rate is going to be somewhere between these two numbers? I mean, how should one think about your acquisition run rate for the next, let’s say, four quarters?
Gourav Munjal
To be honest, I can’t give exact numbers to you as you mentioned, but I can give the direction to the company that yes, we wanted to acquire more customers and these all changes we are expecting that our organic growth will also increase due to all these changes and we will continue to spend on our marketing and advertising also so that we can acquire more and more customers. But numbers wise, I can’t give exact numbers to you.
Dhaval Gada
Okay. Got it. And just final two things in terms of the regulatory changes that are out there, what’s the sort of financial impact if you could quantify whatever is in your view a basic assessment at this point of time? And specifically, on the weekly options expiry related impact, how are you sort of looking at navigating that? If you could just talk a little bit around regulatory impact and how the company is looking to navigate?
Gourav Munjal
Yeah. So the first change is related to broker can’t charge more transaction charges income from customers. So this will impact at the industry level 10%. For 5paisa, it was 8% of income — of total income. But internally we do have a lot of levers and we already took action towards the same. In the industry, we were charging INR12.5 DP charges. Now we have increased to INR20. In industry, we had the product of subscription on which we charged INR10 per order instead of INR20. We have abolished that product because INR10 somehow it’s not feasible for us. So that will compensate our TOT income. Second change is coming from 20 November, which is that weekly expiry and increase in contract size. Actually, we have seen in past that when exchange started to collect 100% margin two, three years back, there were many expectations at that time that volumes may drop, but actually that didn’t happen. Volume has gone up to 3 times in last two years. We need to wait and watch after 20 November and see investor behavior, whether it is shifting to Nifty and Sensex or whether it will discontinue. We need to review the situation after 20 November. Although the industry perception is that there can be a slightly drop in revenue in this regard.
Dhaval Gada
So we’ll look at pricing post the initial assessment of the impact to offset whatever loss in volumes, if any? I mean, how are we thinking about it?
Gourav Munjal
We will review the situation after 20 November. Also, we need to check industry participant actions, competitor actions, what they are doing and after that, we can strategize. If everyone is increasing the price and there is a major drop in volume, then we can also go for the increase in price or take any other action also.
Dhaval Gada
Got it. Just last question in terms of the opex. So could you just give a direction around — so this is more like a normalized quarter in some sense. From here on, how should the opex sort of move both in terms of your acquisition thought process as well as other investments that you intend to make in people, etc, back end — middle and back end infrastructure? So just how should one thing about opex grow?
Gourav Munjal
Yeah. So our total cost is INR71 crore. I must say that most of the cost has been optimized and normalized. I don’t see any increment increase in the same. But yes, I see increase if we acquiring more customers. So if we see the opportunity and got the 1 lakh customer per month and achieved 3 lakh, then definitely there will be an increase in advertisement expenditure, but apart from that, I don’t see any material increase in coming quarters.
Dhaval Gada
So this INR71 crore should grow at what, like 15%, 20% and then the rest is dependent on acquisition run rate? Is that a way we should model or…
Gourav Munjal
Yes, absolutely right.
Dhaval Gada
Okay. Got it. Thanks. I’ll come back. Thank you.
Gourav Munjal
Sure.
Operator
Thank you. Next question comes from Shreyans Jain from Electrum Capital. Please go ahead.
Shreyans Jain
Hi. Good afternoon. Most of my questions have been answered already. I just want to know what is your strategy regarding your MTF book because that has been declined — that has declined a lot in the past two quarters. So how are you planning to increase it and do you have some internal targets? And what is the interest we charge on MTF book?
Gourav Munjal
Okay. So regarding MTF, what is happening in the industry, many new players have come and they are charging very reduced rate and paying from their own pocket. Many players who is giving 7%, 8% when there is a cost of fund is 11%, they are paying from their pocket and yes, you are right. It has impacted to us and our book has — slightly goes down, but we have done many improvements towards the same. First, we are doing some changes in our app related to the MTF section so that customer can view and check easily. Second, we have already increased the limit to 4 times. Earlier it was 2 times or 1 times. We have changed the limit to 4 times. Third, we are sending a digital nudges to on the basis of covert, I mean, that the customers who can avail, and there are more chances to — he can avail, then we are sending a digital measure. And lastly, we have also reduced our rate from 1 November. Earlier, we used to charge based on network and our average return was 19% to 20%. But now we have standardized to only a single rate, which is a 16.42 per annum, but usually we charge on a day basis, which comes around 0.045%. With all these efforts, we are confident that our book size will increase in future.
Shreyans Jain
Do you have some targets for the next, let’s say, two to six quarters like by FY ’25 and FY ’26 end?
Gourav Munjal
Targets is definitely yes. We wanted to grow 2 times, 3 times and we are doing all the actions towards the same. But again, I can’t give the numbers, but yes, target is there.
Shreyans Jain
Thank you, sir.
Operator
[Operator Instructions] Next question comes from Aalia from Motilal Oswal. Please go ahead.
Aalia
Hello. Am I audible? Hello?
Operator
Yes, ma’am.
Aalia
Yeah. I just wanted to know what is the current share in FnO markets?
Gourav Munjal
There’s lot of noise. What is your question?
Aalia
I wanted to know what is your current share in FnO markets?
Gourav Munjal
Our market share is in between 2% to 2.5% for both cash segment as well FnO segment.
Aalia
Okay. So like compared to your previous quarter, the market share present is the same, so any plans or any strategies you want to apply so that you can increase the market share?
Gourav Munjal
Yes. The main thing is to acquire quality customers who can contribute to our ADTO and acquire more and more customers. This is our strategy and we are working towards the same to increase our market share.
Operator
[Operator Instructions] We have a follow up question from Dhaval Gada from DSP. Please go ahead.
Dhaval Gada
Yeah, just a couple of follow ups. First is on the CAC. What’s the run rate right now in terms of per user, etc? How the numbers are shaping up? And any sort of benefit of the NASDAQ implementation that was talked about a couple of quarters back? Just if you could talk a little bit around how the CAC has moved in the last two, three quarters. Thank you.
Gourav Munjal
There is an improvement has been made in CAC. There is a 12% to 13% reduction in CAC. It is in the range of 650 to 750 as of now and yes that mark — and all these efforts helps us to increase our organic acquisition in 1.62 like I said which we have acquired. The mix of organic is more competitive to previous quarters or more organic means more FIR which ultimately gives you proper and healthy payback period of six to seven months.
Dhaval Gada
And is there any further scope of improvement or this is very well optimized as you see it based on your target segment that you are trying to acquire?
Gourav Munjal
If I go in detail and check proper mix, there is a scope, but not more than 10% to 12% as of now.
Dhaval Gada
Understood. And the other bit is on the CEO search, any sort of update or any thought process? And how is the involvement of Narayan, if there is any?
Gourav Munjal
So Narayan sir is not involved in 5paisa day to day operations as we already informed and we will update all investors through our exchange filing and announcement as soon as possible.
Dhaval Gada
Understood. And on the market share target so that will be firmed up post the new CEO being finalized or like is there a plan? Earlier we used to have that 6% market share target. Any sort of thoughts on that?
Gourav Munjal
Actually. Every CXO is working towards the same target, which given to us and there is no change in our target strategy, rather other we are improving every day. Yes, with the new CEO, there will be a new major changes will be done, but as of now, every target is same and we are trying to achieve the same.
Dhaval Gada
Got it. Thank you.
Operator
[Operator Instructions] We have a follow up question from Shreyans from Electrum Capital. Please go ahead.
Shreyans Jain
Yeah. Hi, sir. I think a few quarters ago, sometime back, you mentioned that your first year revenue from customers is around INR75 or something around that line, I can’t remember exactly, but can you provide an update on how that has changed or what that — update.
Gourav Munjal
As per strategy, I can’t disclose the exact number, but I can tell you that there is an increase in first year revenue because we have moving towards the quality customer acquisition and it is as per industry, it is not less than that, not more than that. It is as per industry and for the industry, I guess the range for the FIR is 1,300 to 1,700 and we are into the same range.
Shreyans Jain
Okay. Got it. Thank you.
Operator
[Operator Instructions] There are no further questions. Now I hand over the floor to management for closing comments.
Gourav Munjal
Yeah. Thank you for joining us on the call today. I hope we have been able to answer all your queries. If you have any further query or need any assistance, please feel free to get in touch and mail us at ir.5paisa.com. Bye and Happy Diwali to all of you.
Operator
[Operator Closing Remarks]