5paisa Capital Ltd (5PAISA) Q3 FY22 Earnings Concall Transcript

5paisa Capital Limited (NSE: 5PAISA) Q3 FY22 Earnings Concall dated Jan. 11, 2022

Corporate Participants:

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Gourav Munjal — Chief Financial Officer

Analysts:

Rishikesh Oza — RoboCapital — Analyst

Bhuvnesh Garg — Investec Capital — Analyst

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Jeetu Panjabi — EM Investco Capital Advisors — Analyst

Deepak Poddar — Sapphire Capital — Analyst

Karthi Keyan VK — Suyash Advisors — Analyst

Prateek Saini — Myriad Asset Management — Analyst

Vijay Karpe — Bryanston Investments — Analyst

Jenish Karia — Elara Capital — Analyst

Kajal Gandhi — ICICI Securities — Analyst

Ray Pohanda — BCP Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the 5paisa Capital Limited Q3 FY ’22 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded.

I now hand over the conference to the management. Thank you, and over to you, sir.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

A very good afternoon, everyone. Myself, Prakarsh Gagdani, CEO and Director of 5paisa, along with my colleague, Gourav Munjal. We welcome you all for this conference call. On behalf of the entire team of 5paisa, I wish you all a very, very happy and prosperous New Year.

Last few days we are seeing the third wave of corona hitting our country, especially Mumbai. And I’m sure that most of us are ourselves down with COVID or some of our loved ones are. I hope and pray for your family, hope all are — all of them are safe and healthy. And I also pray that we all come out of this — out fast and very soon.

Friends, 2021 has been a milestone year for us in many ways. One, we crossed 2 million customer mark in the month of October. We took almost five years to cross the first 1 million customers. But just one year to double that number to reach 2 million mark. I’m confident that will reduce our doubling number even further going ahead.

Second, our mobile app, which is our main product which attracts maximum turnover and revenue, crossed a milestone of 10 million downloads with an improved rating of 4.24. We also concluded a fund raise in the second quarter of this year, first quarter of this financial year, where — by raising INR250 crores from marquee investors for our — and this capital raise was for our future growth. With such a strong year gone by, we enter 2022 with high optimism.

Talking about numbers, after our fund raise, in my previous calls, I had clearly said that our focus will be on acquiring new customers, more and more customers and this has to be followed up with revenue growth. I’m happy to say that consistently for five quarters our quarterly run rate of customer acquisition is consistently improving. Even in this quarter, we acquired 4.05 lakh customers, which was 18% higher than previous quarter. Even on the revenue front, our growth has been in tandem with our acquisition growth. This quarter, we are reporting a 17% sequential growth in our top line and 62% sequential growth year-on-year. Our margin funding book has also grown in line with our broking activity by showing a 24% rise and hitting an all-time high of INR360 crore of funding book.

Friends, our consistent growth for last — for previous quarter gives me a confidence that 2022 will also be a much better year for us.

I would now like to take questions from you. Thank you.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Sir, our first question from Mr. Rishikesh Oza from RoboCapital. Please go ahead, sir.

Rishikesh Oza — RoboCapital — Analyst

Hi, sir. Am I audible?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yes, Rishikesh. Please go ahead.

Rishikesh Oza — RoboCapital — Analyst

Thank you. Very good afternoon, sir. Sir, my first question is, if you could just provide a breakup of the allied broking revenues?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Sure. So, our allied broking revenues was around INR30.9 crore. And the maximum revenue is coming from margin funding interest income.

Gourav, can you give the exact numbers?

So before that, I’ll — let me just give you that typically these — it consists of margin funding income. It consists of DB transaction income and DP AMC income. The three income put together is our allied broking income.

Gourav, can you give number?

Gourav Munjal — Chief Financial Officer

Yes. So, our client funding book has grown up from INR293 crore to INR361 crore. So, in the allied broking income, out of INR30 crore, approximately INR20 crore income is related to the client funding book. There is a 3 or 4 to — approximately INR4 crore related to the DP charges and the DP — INR4 crore that is DP AMC and rest is other, INR2 crore to INR3 crore. So this is the major bifurcation of INR30 crore.

Rishikesh Oza — RoboCapital — Analyst

Okay. That was helpful. And, sir, my second question is, if you — what is revenues can be done in the cross-sale in FY ’23?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Sorry, can you repeat the question?

Rishikesh Oza — RoboCapital — Analyst

So, sir, in our cross-sales, what revenue can be done in FY ’23?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

FY ’23?

Rishikesh Oza — RoboCapital — Analyst

Yes.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Okay. Okay. So, see, cross-sell consists of all the products that we sell. Subscription is our — the largest contributor to the revenue. And we’re seeing a very good growth in our subscription product and that product is picking up. So — but it is difficult to put in terms of numbers that — so, for example, for nine — for current quarter, it is almost — our cross-sell income is INR4.9 crore. But for the full-year of FY ’23, it is difficult to put down the numbers, but I can tell you that subscription followed by mutual funds and gold. These are the few products that will be our main core products that we will be selling and these are the products that will be contributing to our revenue.

Rishikesh Oza — RoboCapital — Analyst

Okay. Okay. No problem, sir. That is all I want [Phonetic]. Thank you.

Operator

Thank you, sir. Our next question from Mr. Bhuvnesh Garg from SBI Capital Markets. Please go ahead, sir.

Bhuvnesh Garg — Investec Capital — Analyst

Yeah. Hi, sir. Thank you for the opportunity. This is Bhuvnesh from Investec Capital. So, actually, I have couple of questions. Firstly, sir, I would like to know what would be our customer acquisition costs? And what would be our payback period? And what is the quantum of customer Demat assets? These are my three questions. Thank you.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

So, our customer acquisition, we have acquired around 4.05 lakh customers this year and our broad customer acquisition cost is around INR769 for this quarter.

Bhuvnesh Garg — Investec Capital — Analyst

Okay.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah. What was your — and — yeah. In terms of payback, so payback time is consistent between eight to 10 months.

Bhuvnesh Garg — Investec Capital — Analyst

Eight to 10 months? Fine. Okay. And, sir, customer Demat assets?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Demat assets, we would be around INR4,500 crores.

Bhuvnesh Garg — Investec Capital — Analyst

INR4,500 crores? Okay, fine. Thank you.

Operator

Thank you, sir. [Operator Instructions] So our next question from Mr. Prayesh Jain from IIFL. Please go ahead, sir.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Yeah, hi. This is Prayesh Jain from Motilal Oswal. I just wanted to check on a couple of things. Firstly, this — the customers that we have acquired are first time possibly had seen some kind of a market correction in the month of November and December. We’re into in the fag end of the November, the volatility increased and December, there was some correction in the market. So, what are the key important trends that you would have witnessed in the customer behavior changes regards to the trading mechanism in this period?

And my second question is on the margin funding book which you have increased on a sequential basis, whereas, if I understand correctly, the cash volumes in the industry were quite weak. So, do we mean that the cash volume for us have also — have increased against the trend of the market and we have been able to support that MTF book — support the volumes with MTF book?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Sure, sure. So, I think — so the answer for both the questions, I can give you together. One is that, see, from — in last few months if you see, after this peak margin reporting got implemented, even from the time it got implemented 75% and then from December it became 100%. The overall cash market volume has been consistent and it went down. And so, broadly, today, a majority of the cash market volume as compared to what it was earlier, now it is a majority delivery-driven. So, though, the markets were down for last one, two months where it was sideways, but the delivery — and because most of the customers that we’re acquiring, they are new and then they are coming for the first time, so they are entering the markets and buying deliveries. So that has not impacted much in terms of the people buying deliveries.

What has impacted is the people who are trading intraday in cash segment. So that has impacted. But that has been compensated by the growth in the derivative turnover. So despite market being sideways or down, the derivative turnover has compensated for that. So, if you see our turnover for last quarter, which was at around INR80,000 crore ADTO, we are now at an average of INR98,000 crore ADTO. So consistently that turnover and the participation, both from customer perspective and the number of trades the customers are putting in derivative segment, that has gone up. So, a combination of these two has not impacted the revenue for this quarter.

Now, on the second part, because most of the people today are trading in delivery on the cash segment, there is definitely a need for margin funding and that’s why our margin funding book is also has gone up. Now, obviously, margin funding book is also very directly correlated to the market activity. So if there are sudden spurts or sudden spikes in terms of our market or if there is a downturn in the market, then it may have an impact on the book. But what it looks like that consistently, if we are increasing the customer base and the customer base broadly trades in delivery, then the funding book will also increase in line with that and will not have much impact.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Okay. Got it. And any behavioral aspects of the traders — the intraday traders that you would have witnessed in the — in a downturn out of the inbound markets, which would — which was possibly different from what would have been the trend, say, two months before?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

See, in such a short span of time it is difficult to see a trend. And so, if you ask me in terms of last two, three months if there is a trend change, I wouldn’t say there’s any trend change. But broadly, if you see that in last four or five quarters what has happened or maybe eight quarters, consistently, the trading activity, which was — whatever, if you — you may call it a speculative activity, intraday trading or short-term trading, has moved completely towards derivative and completely towards options. And there are large section of customers who are now trading in options. So that is a change, which has happened over a period of time. When the markets are sideway, the activity increases. Why? Because then, obviously, in derivatives you can take a sideways view or you can take a bullish or bearish view, any kind of view you can trade and — you can trade even in weekly option. So because of weekly options and more knowledge about options and more customers coming towards derivative so that volume has shifted. But this is happening and is only increasing quarter-by-quarter. So there is no change in last two months, except for the fact that more number of customers are now coming into derivatives and trading.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Okay. Okay. Got that. That’s helpful. Thank you. If I have few questions I’ll come back in the queue. Thanks.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Thank you.

Operator

Thank you, sir. The next question from Mr. Jeetu Panjabi from EM Capital Advisors. Please go ahead, sir.

Jeetu Panjabi — EM Investco Capital Advisors — Analyst

Yeah. Thank you so much and Happy New Year to the team. Sir, one question is, we’ve seen you focus on customer acquisition and ramping up the customer book over the last three, four quarters. The question is, is the next four quarters over the next year, year and a half, is that trend going to continue or is that focus going to continue? And how — and do you have a number in terms of number of customers you hope to acquire over the next 12 months?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

So, Mr. Jeetu, obviously, so I have said in my previous calls also and I’m reiterating again, that, as an organization our focus is only on two things that: one, we acquire customers and we improve our run rate on acquisition of customer. We acquire good quality customers, not just for the sake of acquiring it. And the measurement of a good quality is the translation of the acquisition growth in the revenue growth. So we are not deviating from that focus and that will continue. We will keep investing money in branding activity, in customer acquisition, in our product and technology. So that is sacrosanct, that will remain and that will continue for foreseeable future. And the result of that should be the growth in terms of our customer acquisition and growth in terms of revenue.

Having said that, I have not put down a number because not — because I don’t want to because — but — because any number can be a conservative number and can also be a very optimistic number if tomorrow market looks — suddenly falls 20%, 30%. So — but in a normal business as usual, I see that the trend will continue for next four quarters at least.

Jeetu Panjabi — EM Investco Capital Advisors — Analyst

Okay. Second linked question is from a product suite perspective, are there new products you plan to add to the portfolio over the next three, four quarters? And how — what do you think of the missing products in your portfolio which are very obvious that you should be having as the management thinks about it?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

So, if you see our product suite, we already have a wide range of product suite. I think even now in all the comparative competitive brokers, we have the widest product offering from mutual funds to derivative products to US stocks, gold, loans, everything. So I don’t see a new product addition, where we are — by the way, we just launched one product sometime back. I don’t know whether I have taken that in my previous call or no, but we’ve launched a product called as 5paisa Wealth. That was at this — I think September end or October first week is what — where we launched that.

So what we also — what we realized is, when market speak, a lot of people would now be needing advise or a professional advise, where they can park the money and the decisions are taken by experts and portfolio is managed. We’ve started a product called as 5paisa Wealth. It’s a discretionary portfolio management service, a portfolio advisory service, where we have tied up with Renaissance, which is run by Pankaj Murarka and Abakkus, which is run by Sunil Singhania. So — and obviously, they don’t need any introduction. So they run this portfolio. It is in the first quarter. So we are seeing a good traction. Though, the ticket size is INR2.5 lakh for an investment, minimum investment. So it’s a niche product, but we are seeing a good uptick, so that’s something that we felt was not there. We had small cases, which is basically on a lower side of entry ticket, where you can enter as low as INR1,000, INR2,000, INR5,000, but we did not have a product in somewhere in the mid-segment, so we launched that. But apart from that, right now we don’t see new product addition, but we are working on improving the concentration of revenue that we are getting — that we are having from our existing products.

Jeetu Panjabi — EM Investco Capital Advisors — Analyst

Okay. And one final question, Nithin Kamath from Zerodha has been pretty public about saying that investor reaction and a lot of other stuff can go pretty awry and market volumes can go pretty awry if there is a correction. Do you kind of, one, agree with him? And two, think that you could grow the business enough to go through that dip and come out bigger and larger, even in the [Technical Issues] 12 months to 18 months horizon?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

See, I mean, there is — this is an obvious fact that market — stock markets are cyclical business. We have had a consistent bull run for last two years and obviously it’s not something which will be perpetual or it will be always here to state. There will be sideways market. There will be downturns in the market. And because it’s cyclical business and suddenly, you can see a 20%, 30%, 40% kind of a revenue drop or a drop in the customer activity. That — and it is not just the first time it is going to happen, it has happened in past as well. But obviously that is something that no one knows and it’s a hypothetical situation. So it is — I can’t plan for that.

So, the way we do it is that, we keep our costs in control. We always work on reducing our acquisition cost. We don’t — we see to it that we don’t have a large fixed cost, which in case of downturn comes back to bite. And so, there are few things that we do, we keep — a second way of insulating yourself to a certain extent is obviously cross-sales and getting more product, which is — which gives you annuity revenue. So we are focusing on stock SIP, we are focusing on mutual funds SIP, which are typically low revenue businesses, but they’re at least consistent annuity business. So these are some things that we do. But yeah, obviously, there is — there will always be a possibility of markets going down and revenues shrinking and the customer activity also shrinking.

Jeetu Panjabi — EM Investco Capital Advisors — Analyst

Yeah. Thank you very much. Good results there [Phonetic].

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Thank you.

Operator

Thank you, sir. [Operator Instructions] So, our next question from Mr. Deepak Poddar from Sapphire Capital. Please go ahead, sir.

Deepak Poddar — Sapphire Capital — Analyst

Yeah. Thank you very much, sir, for the opportunity. Sir, I just wanted to understand like out of 2.37 million customer mark, so how many of them would be active? And similarly, for the newly acquired customer of 4 lakhs in the last quarter?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah. So typically from the 2.37 million customer, almost 1.4 million, 1.45 million customers are active. So that’s broadly 55%, 60% kind of a number. So that’s the number. And — sorry, typically, that is the number that we get in the first — so not in the first 30 days, but the 45 to 90 days, typically 60%, 65% of our customers become active and they continue to trade with us. That number is in line.

Deepak Poddar — Sapphire Capital — Analyst

Sir, 4 lakhs — so about 2.4 lakh might be the active customer out of that 4 lakh acquired?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah.

Deepak Poddar — Sapphire Capital — Analyst

Okay. Fair enough. And in the past as well we have been talking about maybe a 20% kind of a sequential growth and — in our customer base and whereas the revenue is likely to follow those — so follow the customer acquisition trend. So, is that what you expect likely to continue for maybe next four to six quarters?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yes. I have always said that our acquisition and revenue — I mean, there is no point in having an acquisition, which does not complement revenue. So, our revenues and our acquisition will always be in tandem, and that’s something that will definitely continue in foreseeable future.

Deepak Poddar — Sapphire Capital — Analyst

In foreseeable future? Okay. Fair enough. Fair enough. Yeah. Okay. That’s it from my side. Thank you.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Thank you.

Operator

Thank you, sir. The next question from Mr. Karthi Keyan VK from Suyash Advisors. Please go ahead, sir.

Karthi Keyan VK — Suyash Advisors — Analyst

Sir, good afternoon. Congratulations on the customer acquisition. A couple of things: one, I missed the breakup of revenue. So, the other operating income comprises what exactly?

Gourav Munjal — Chief Financial Officer

So, other operating income is mainly related to interest on FD.

Karthi Keyan VK — Suyash Advisors — Analyst

Interest on FD? Okay. The second thing is, I’m assuming that the fixed cost-to-income ratio that you’ve shown a 60%, that is a direct reflection on the accelerated customer acquisition cost.

Gourav Munjal — Chief Financial Officer

Yeah.

Karthi Keyan VK — Suyash Advisors — Analyst

No. I’m sorry. That is excluding that. So, can you explain why that has gone up?

Gourav Munjal — Chief Financial Officer

So it is not has gone up much. It is 59% to 60%. Basically, that we are doing that [Phonetic] hirings, and there is some IT cost. I mean, which is kind of fixed, so that has gone up a little bit.

Karthi Keyan VK — Suyash Advisors — Analyst

It’s gone up from 46% in the first quarter to 60% on the rising income base, therefore, I was asking this question.

Gourav Munjal — Chief Financial Officer

Yeah. So, in the last quarter presentation, Prakarsh sir has asked and told to the investor that there will be a increase in our IT cost for one or two quarters. So — and it will be consistent for one or two quarter, then it will be stable. So that is — that 46% to 59% is the reflection of IT cost.

Karthi Keyan VK — Suyash Advisors — Analyst

Okay. Fair, fair. Thank you so much. Thank you.

Operator

Thank you, sir. The next question from Mr. Prateek Saini from Myriad Asset Management [Phonetic]. Please go ahead, sir.

Prateek Saini — Myriad Asset Management — Analyst

Hello? Hi, sir.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Hello.

Prateek Saini — Myriad Asset Management — Analyst

I just want to ask, I mean, I have a follow-up on this one. So the cost-to-income, what’s your target, say, for the next three years?

Gourav Munjal — Chief Financial Officer

Regarding cost to?

Prateek Saini — Myriad Asset Management — Analyst

Regarding cost-to-income ratio. It’s currently around 60%, what’s your target, say, for the next three, four years?

Gourav Munjal — Chief Financial Officer

So, definitely we should — we are trying to reduce it. So, our target — I can’t — I mean, tell the exact percentage. But yes, over the period of time, we can expect approximately 50% in coming quarters.

Prateek Saini — Myriad Asset Management — Analyst

All right. Okay. Thank you.

Operator

Thank you, sir. Next question from Mr. Vijay Karpe from Bryanston Investments. Please go ahead.

Vijay Karpe — Bryanston Investments — Analyst

Thank you for the opportunity and Happy New Year to the entire team of 5paisa. I have two questions.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Hi. Same to you.

Vijay Karpe — Bryanston Investments — Analyst

Yeah. So the first question is, how is the Wealth product that we have recently launched different from our PMS product? And what are the legalities over there because for PMS we require as a minimum INR50 lakh investments and here, I think so, we require INR2.5 lakh for one of the product and INR5 lakhs for the other product?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah. So this product that we have — it’s a discretionary portfolio. So basically, it’s not a PMS where the fund manager, he’s been given the money and he is managing it. Here it is more of an advisory. So there is an advisory portfolio which is there for a customer and the decision to invest is depending on the customer. So that’s the difference. And hence — and we follow all the investment regulation rules where this entire — we don’t manage the funds. As I said, it is managed by professional fund managers. I said there are two with whom we have tied up. One is Abakkus and second is Renaissance. They are the ones who manage this fund. But the decision of investing, rebalancing and selling lies with the customer. And it happens with the consent of the customer.

Vijay Karpe — Bryanston Investments — Analyst

Okay. Okay. And also, we talked about the MTF income for us being INR20 crores. So I was just doing my back of the envelope calculation. So, if I take the average of the two quarters of the MTF book and use a 15% interest rate, it works out to INR11 crores. So, your number is INR20 crores, my number is INR11 crores. So what am I missing?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

What is the interest rate that you have taken?

Vijay Karpe — Bryanston Investments — Analyst

15%, 1-5.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

No. So, at the customer level, we charge interest 0.06% per day. So on an annualized basis, it comes to around 21.9%.

Vijay Karpe — Bryanston Investments — Analyst

21.9%?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah.

Vijay Karpe — Bryanston Investments — Analyst

Okay. 21.9%. Okay.

Gourav Munjal — Chief Financial Officer

Also, while taking the average — we’ll give the monthly average — I mean — but if we go at a ground level that — if we calculate for every day, the average maybe a slightly different. So there is a small variation can be that — due to that. Otherwise, it’s just more or less stable.

Vijay Karpe — Bryanston Investments — Analyst

Okay. And also I missed the payback period. How much was it for the new customers?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Eight to 10 months.

Vijay Karpe — Bryanston Investments — Analyst

Eight to 10 months? Okay. I got it. Thank you so much.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Thank you.

Operator

Thank you, sir. The next question is from Mr. Jenish Karia from Elara Capital. Please go ahead, sir.

Jenish Karia — Elara Capital — Analyst

Yeah. Thank you for the opportunity. Sir, I just had one question. Can you just help me with the cash market ADTOs for this quarter and last quarter?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Cash market ADTO is consistently in the range of INR1,000 crores to INR1,200 crores for both the last quarter as well this quarter.

Jenish Karia — Elara Capital — Analyst

Okay. Thanks. That’s helpful.

Operator

Thank you, sir. We have a follow-up question from Mr. Prayesh Jain from Motilal Oswal. Please go ahead, sir.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Yeah, hi. Thank you for the follow-up again. Firstly, just on previous question, you said INR1,000 crore to INR1,200 crore of cash ADTO, how much of that would be delivery?

Gourav Munjal — Chief Financial Officer

Almost today 40% to 50% of the turnover is delivery, anywhere between — ranges in the market, but yeah, that’s broad range.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

40% to 50%? Okay. Got it. And secondly, client acquisition, you mentioned about activation rate of around 55% to 60%, right?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Sorry, acquisition rate?

Gourav Munjal — Chief Financial Officer

[Technical Issues] activation.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

The active clients upon the [Technical Issues] client.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah. Yeah, yeah. Around 60%, correct.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Yeah. So my question is, why would the other 40% actually come on the app or download the app or am I missing something?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

That’s a good question. I mean, see — that’s something that even lot of us also figure out that people open Demat account and one of the reason can be that we don’t charge for opening an account. So, sometimes people open account and they do not trade for a while and some people then they come up after maybe three months, six months below later.

But there is no definite answer that why people open account and don’t trade, but typically we have seen historically that there is always some percentage of customers who do not end up trading. One can be — one of the — we can also be — that people might open one more extra account in just case of having a redundancy. Because today, opening a Demat account is very easy, it’s app-based. It’s just downloading an app and opening and it takes normally 5, 10 minutes. So maybe, as a redundancy plan, people might be opening two Demat accounts and keeping one as standby, but that’s just an hypothesis. We do a lot of activities to much [Phonetic] customers to trade, but then you still get some customers who do not.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Okay. Thanks for that. Also, there is a — is there any analysis that you would have on your — on a trade that the customer place, how much of the trades are based on the recommendations provided by 5paisa?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

So, see, we are not much into the recommendation, we don’t provide that. As a part of our subscription, we give long-term advisory calls. But broadly, we don’t — we are not a research house in first place. So we don’t go give intraday calls and derivative calls. Yeah. So, largely customers do on their own.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Okay. We plan to add anything in terms of the research side?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

No, not in the near future at least.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Got it. Thank you so much.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Thank you.

Operator

Thank you, sir. The next question from Ms. Kajal Gandhi from ICICI Direct. Please go ahead, ma’am.

Kajal Gandhi — ICICI Securities — Analyst

Hello, hi. Good afternoon, sir.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah.

Kajal Gandhi — ICICI Securities — Analyst

Most of the questions were answered. Hi. I just wanted to know what is the impact of these margins and various regulations which have not kicked fully? And also that in the money options are also now delivery, there also retail investors are getting stuff. So, is there any runaway we are seeing, any impact on volumes we’re seeing?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

See, one, the first part is definitely there is an impact on the cash market turnover after this peak margin reporting has been there. So if you see for last four, five quarters, the cash market turnover — retail, I’m talking about retail, has broadly been the same, somewhere in the range of INR33,000 crore to INR40,000 crore — on a best month you get a INR40,000 crore turnover and on the worst month you get around INR25,000 crore, INR28,000 crore turnover, but that’s something, which is consistent. So, despite being the bull market for — sustaining for two years, the volumes have not gone. So typically the impact of the peak margin reporting has definitely come on the cash segment. The impact of that, as I’ve said earlier also, that is — so, now it is more delivery-driven.

Second, the trading has shifted to derivatives, and hence you see the derivative volumes going off the roof. So, there is an impact, but — see, on the revenue side the impact has been insulated by the rise in derivative, but on the cash there is definitely impact.

Now, the second point is very interesting because it has happened in the previous expiry and then we have also written to exchanges seeking clarification, because that is something which is extremely dangerous. Now, as a broker, earlier we used to also square off the position in the — especially in the stock option. We used to square off the position a week before. We used to communicate to customers saying that, just one week left for the expiry. So we’ll square off. Now customers register a lot and there were lot of complaints we got that how can you square off a week before. So we came to not squaring off and let people do it, but then Hindalco happened. So we have written to exchanges seeking clarification that in the last few minutes, if there are things changes and the auctions go from out of the money to in the money. And the funniest part is, none of the customers understand this. So, I might pay just INR2,000, INR3,000 to buy a lot in any stock option, but if it comes to a delivery it might be lakhs. And then, unnecessarily and most people to do short, so they might end up in auction.

So right now, there is no solution, but yes, it is not a good trend. Typically, there should be an option given to customer whether they want compulsory delivery or no. But as a broker we have now taken option where we’re just releasing a product version, where we are giving — asking customers to choose whether they want to take delivery or no. And if they choose not to, then we will square up a bit in time and not wait till the last minute. But, yeah, this is an unfortunate incident which happened.

Kajal Gandhi — ICICI Securities — Analyst

Thanks. Okay. And, sir, what are the views on the margin funding book? So in case the book expands further, you — what are your borrowing cost and what is the margin that you make?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

So typically we raise anywhere around 9.5%, 10.5% from all the external parties wherever we get funds from financial institutions, banks, but broadly, 10%, 10.5% would be our cost and we charge, as I said, 0.06% per day. So annualize it comes to around 21.9%. So difference is our earning. But typically our outstanding are not for full-year. So customers keep a debit for 30 days, 45 days, not much.

Kajal Gandhi — ICICI Securities — Analyst

Okay. And last question is about the acquisitions. So what are the — whether we have seen change in acquisition pattern or acquisition sources over a period because now we are seeing lot of competition across?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah, that’s a very good question because in this competition, everything — when you go out and do marketing and paid marketing everything becomes too costly because everything is competitive. So we changed our strategy sometime way back last — at Q3 of last year where we said that there is no point in going out and spending money just to acquire a customer, right, left and center you spend money without revenue in sight. So we changed our strategy. We’ve consolidated our avenues from where we were acquiring customer, we started focusing internally.

And if you see, today, almost 65% to 70% of our acquisition either is happening through organically or through referrals. So, I think if more people use it and spread a word, I think that is the best acquisition that we can get. Obviously, that may have some limitation in terms of the number, but then at least you are rest assured of the quality of customer. So that’s the strategy that we follow and we continue to do so.

Kajal Gandhi — ICICI Securities — Analyst

Okay. Thank you, sir. Thank you.

Operator

Thank you, sir. [Operator Instructions] Sir, we have a follow-up question from Mr. Deepak Poddar from Sapphire Capital. Please go ahead, sir.

Deepak Poddar — Sapphire Capital — Analyst

Yeah. Thank you very much, sir. Sir, just a quick clarification, you said the cost we can target about 50% in coming quarters?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

No, I don’t think so. Gourav mentioned in the coming quarter. But over a quarter or two — sorry, two to three quarters we’ll get down that cost. You’re talking about fixed income cost, right?

Deepak Poddar — Sapphire Capital — Analyst

Yeah, yeah, yeah. So yeah, fixed income cost.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah, yeah, yeah. So not in the next quarter. But yeah, in the quarter — two or three quarters that percentage will bring down to around 50%.

Deepak Poddar — Sapphire Capital — Analyst

50%? And so, this includes your marketing and employee cost as well?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

No. This doesn’t include the cost which is associated with acquisition.

Deepak Poddar — Sapphire Capital — Analyst

Variable cost is not included.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah. Variable cost is not — yeah.

Deepak Poddar — Sapphire Capital — Analyst

Okay. Yeah. Thank you.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Thank you.

Operator

Thank you, sir. Sir, we have a follow-up question from Mr. Prayesh Jain from Motilal Oswal. Please go ahead, sir.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Yeah, hi. I just wanted to understand this. So from a cost angle you are saying that we will move to something like a 50%. So does that mean your customer acquisition cost will be trending down further from the current level that you’ve achieved?

Gourav Munjal — Chief Financial Officer

No. So, see, this doesn’t include customer acquisition cost. The whole idea that we wanted to achieve that we should be having some fixed cost and in coming quarters the income will be on a higher side. So definitely our fixed [Phonetic] cost should be on a reducing side. So our first target is to get the 50% in coming quarters and then later we can think about much better ratio. But the whole idea is to maintain a cost with the fixed percentage so that — I mean, the costing rise only if the client acquisition rise [Phonetic], otherwise, it should be on the same level.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Okay. So, if I understand correctly, it is you are mentioning that ex of customer acquisition cost, whatever the cost we are, you will be at 50%?

Gourav Munjal — Chief Financial Officer

Yes, yes, yes.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah. That is for near future, but typically in — our kind of a digital business your fixed income to your fixed cost-to-income ratio keeps going down over a period of time because then it’s more of an auto mode business where people trade on their own and you don’t incur recurring cost. But yeah, for — because we wanted to invest in technology and right now, after the fund raise that the cost — the percentage has gone up. It will come down. But this number is something that will keep floating downwards for some time, even a [Speech Overlap].

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Okay. And on your customer acquisition cost, we have seen a consistent reduction there. And if my curricular [Phonetic] is correctly, you mentioned in the previous call that we are very close to reaching the bottom of the customer acquisition cost. So, do you stick to that view or do you think that there is a possibility of even increasing, given that the competition is increasing?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

No. I still — see, there is definitely a room for 10% to 15% reduction in the customer acquisition cost, that — I still believe that we can still go further down. But in broking, as and when you scale your numbers, this is a number which will always be fluctuating and rather should come down. Why? Because if the brand becomes bigger and the more customers are being acquired organically, then obviously even if you get revenues, the cost of acquisition will be down. So rather than numbers, it might sometimes — for a quarter, it can be a blip that it might come up because we keep experimenting in terms of, if there is a new branding exercise or if there is new channel that we are looking at acquiring, but broadly, I feel that this is on a reducing trend.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Okay. Okay. And another question was, your customer cost includes only marketing or does it include advertising cost as well?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

So we — it excludes the branding expenses, advertising expenses that is not included in this, because those are adhoc one-time activities are not — so that is something that we don’t include here. But everything else…

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Okay. Got it. And last question from my side is on your cross-sell ratio, how many customers or anything — any color that you can provide on what is the number of customers having multiple products or any statistics there that you can provide?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

So, right now, it is very less. Current — our current penetration would be not more than 1.1 product per customer. But — so we are working towards improving that. But right now, it is very less, it’s around 1.1.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Okay. Okay. So when you say that your breakeven is at around like eight to 10 months and your CAC is around, say, INR750. So you’re talking about ARPU of somewhere around two-thirds of that, so around INR1,000, INR1,200 kind of a ARPU.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah. Not INR1,000, but [Speech Overlap]. Yeah.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

So, sir, that would be primarily broking ARPU more than any major coming in from the…

Gourav Munjal — Chief Financial Officer

Yes.

Prayesh Jain — Motilal Oswal Financial Services — Analyst

Okay, got it. Thank you so much.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Thank you.

Operator

Thank you, sir. We have a follow-up question from Ms. Kajal Gandhi from ICICI Direct. Please go ahead, ma’am.

Kajal Gandhi — ICICI Securities — Analyst

[Indecipherable] whether we have utilized all the funds from the fund raising that was done? And so, as you are mentioning that you have plan to operate on technology. What is the technology cost for the quarter or as a trend?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Gourav?

Gourav Munjal — Chief Financial Officer

Hello? Yeah. So our cost — so out of INR30 crore of — our software technology cost is approximately 35%, which is coming around INR12 crore for the quarter three.

Kajal Gandhi — ICICI Securities — Analyst

Okay. And…

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah. And to answer the first part, obviously, the entire fund is not utilized because — I mean, it is utilized as a part of our working capital but we had plan for investing that money into acquisition and technology and the new product line, so that is work in progress. But for now that capital is deployed for increasing our margin funding book and also working capital.

Kajal Gandhi — ICICI Securities — Analyst

Okay, okay. Thank you. Thank you very much.

Operator

Thank you, ma’am. [Operator Instructions] So, our question comes from Mr. Ray Pohanda from BCP Securities. Please go ahead, sir.

Ray Pohanda — BCP Securities — Analyst

Hi, thank you. Well, this is my first time dialing in, and I just have a very brief question. Is it possible — because I missed certain part of the call. Is this pre-recorded? We can hear it later?

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah. This entire call is recorded. You can read it later from our website, both the transcript and the recording.

Ray Pohanda — BCP Securities — Analyst

Thank you.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Thank you.

Ray Pohanda — BCP Securities — Analyst

Thank you so much.

Operator

Thank you, sir. [Operator Instructions] As there are no further questions, I would now like to hand over the floor to the management for closing comments.

Prakarsh Gagdani — Whole Time Director and Chief Executive Officer

Yeah. Thank you. Thank you very much, everyone, for joining the call. You can reach out to us at ir@5paisa.com in case you have further queries, we’re more than happy to answer. Thank you very much, and have a good day.

Gourav Munjal — Chief Financial Officer

Thanks.

Operator

Thank you, sir. Ladies and gentlemen, with this, we conclude our conference call for today. Thank you for your participation and for using Door Sabha’s conference call service. You may all disconnect your lines now. Thank you and have a good evening, everyone.