Angel one ltd (ANGELONE) Q4 FY23 Earnings Concall Transcript

Angel one ltd (NSE: ANGELONE) Q4 FY23 earnings concall dated Apr. 18, 2023

Corporate Participants:

Hitul Gutka — Head of Investor Relations

Dinesh D. Thakkar — Chairman and Managing Director

Vineet Agrawal — Chief Financial Officer

Prateek Mehta — Chief Business Officer

Devender Kumar — Head of Online Revenue

Saurabh Agarwal — Chief Experience Officer, Head of New Business

Ankit Rastogi — Chief Product Officer

Ketan Shah — Chief Strategy Officer

Analysts:

Swarnabha Mukherjee — B&K Securities — Analyst

Sahej Mittal — HDFC Securities Analyst — Analyst

Aditya Chheda — InCred Asset Management — Analyst

Prayesh Jain — Motilal Oswal — Analyst

Nidhesh Jain — Investec India — Analyst

Ajox Frederick — Sundaram Mutual Fund — Analyst

Anand Bhavnani — White Oak — Analyst

Pallavi Deshpande — Sameeksha Capital — Analyst

Deepak Sonawane — Haitong Securities — Analyst

Jignesh Kamani — GMO & Co. — Analyst

Aejas Lakhani — Unifi Capital — Analyst

Sanketh Godha — Avendus Spark — Analyst

Sanjay Kumar — BMS — Analyst

Sakshi Goenka — Sohum AMC — Analyst

Dixit Doshi — Whitestone Financial Advisors — Analyst

Saptarshee Chatterjee — Centrum PMS — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Angel One Limited’s Q4 FY ’23 Earnings Conference Call. [Operator Instructions]

This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the Company as of date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.

I now hand the conference over to Mr. Hitul Gutka. Thank you, and over to you.

Hitul Gutka — Head of Investor Relations

Good morning, and welcome everyone. Thank you for joining us today to discuss Angel One’s Q4 FY ’23 financial and business performance. The recording of today’s earnings call and the transcript will be uploaded on our website, under the Investor Relations section. The financial results, investor presentation and the press release are also available on the website.

For today’s call, Angel is represented by Mr. Dinesh Thakkar, Chairman and Managing Director; Mr. Vineet Agrawal, CFO. We also have the other senior leadership team, along with SGA, our IR consultants. The leadership team will give us a brief overview of the operational and financial performance of the quarter gone by, followed by the Q&A session.

There may be certain forward-looking statements within the call, which must be viewed in aggregate with the risks that the Company faces.

With this brief introduction, I now invite Mr. Dinesh Thakkar for his opening remarks.

Dinesh D. Thakkar — Chairman & Managing Director

Thank you, Hitul. Good morning, everyone. I’m leading the call after a few quarters, however, let me reassure you that this is temporary. The leadership team at Angel One is built on a strong foundation, and needless to say, this professional team is capable of leading not only business growth and goals but overall communication as well.

With Narayan Gangadhar’s decision to move on, the day-to-day operation of the Company will continue to be led by the team of high-caliber professionals under my active guidance. I would like to take this opportunity to once again state on the record our appreciation to Narayan for having led the organization for nearly two years, while wishing him all the best in his future endeavors.

We continue to strengthen our core teams as we maintain our focus on immense growth opportunities, keeping in mind our desire to improve customer experience consistently. Our goal is to partner with all Indians in their wealth-creation lifecycle by offering them all financial products they need, as they grow.

The team is further strengthened by the addition of Mr. Amit Majumdar as an Executive Director for Strategic Initiatives of the Company. It gives me great pleasure to welcome Amit, who has had a variety of experience in the BFSI, health, consulting business and has also been associated with Angel One in the past. Amit brings deep rigor and experience in the area of business growth and profitability. He will oversee various strategic initiatives that Angel One wishes to explore going forward. This is on the leadership front. The leadership team is aligned with the vision of making Angel One India’s most trusted fintech brand, empowering billion lives, leveraging the power of data and technology.

FY ’23 have been another year of strong performance for Angel One in which we continue to strengthen the business with each passing quarter. We launched the Super-App and have seen successful migration and transition of all clients to the new app. It will be fair to say, that this was perhaps one of the largest migration in digital space achieved by any company in India, within the shortest possible frame.

Even in tough market conditions, our performance in FY ’23 has demonstrated great resilience across various parameters, such as; our market share in India’s incremental [Phonetic] DEMAT accounts grew by 366 basis points to 18.4%. We concluded the year with a client base of 13.8 million, making us one of the India’s largest retail stockbroker. Our orders, a key revenue driver for our business, grew by 36% year-on-year to 926 million. The underlying ADTO more than doubled to over INR13 trillion, thereby expanding our market share in overall retail equity turnover by 57 bps, to 21.8%.

Our digital playbook very clearly demonstrates the strong foundation on which our business is premised. Some highlights; include our total client base grew by 7.6x over the last three years, as we penetrated more deeply into Tier 2 and beyond pockets and onboarded many new-to-market clients. Our net revenues correspondingly grew by 4.9x over this period. Our digital model offers significant operating leverage, as shown from margin expansion and a 10-fold jump in our profits over the last three years. This superlative performance has come without any compromise on profitability or investments to spur the growth of our businesses. The fact that our operating margin has remained above of our desired range of 45% to 50% gives us very strong headwind to achieve our aggressive growth targets.

Let me share with you some insights about quality of our business the team has built at Angel One. The fundamental principle at Angel One has always been to stay focused on unit economics and run a profitable business. Keeping clients at the center, while enhancing their experience and wow quotient with the Angel One App. Our business model is geared towards attracting young cohorts who do not have physical access to capital market. These young digital natives have a long runway in their carrier with sustainable revenue potential across multiple product offerings on our Super-App.

As we speak, approximately 43% of our clients acquired in FY ’23 fall into this category of less than 25 years in age. Our digital model has enabled us to penetrate deeper into Tier 2, 3 and beyond cities, acquiring such client and serving them profitably. Empirical data on past client behavior, suggests, they continue to contribute healthy revenue over a five-year period and beyond. Our digital business model demonstrates further improved revenue progression, as clients continue their journey on our platform.

In our quarter four FY ’23 investor presentation, we have shown some strong datapoints, evidencing this behavior, wherein the robustness of our digital model demonstrates a very healthy LTV to CAC of 7.8x based on first three years of aggregate client revenue. We firmly believe that as a client spends more time on our platform and consumes more service, this LTV to CAC has a long run rate of growth. This strong LTV to CAC trend further strengthens our mission of aggressively taking advantage of massive growth opportunities in under-penetrated geography, while maintaining our robust contribution margin profile. Our seamless digital offering coupled with our trusted brand fulfills the basic principle pursued in any multigenerational product suite.

The inherent success of our Super-App strategy is further strengthened by the strong growth in monitoring unique SIPs observed in the first quarter of its full-fledged rollout. As we offer other financial products catering to an evolving niche of these clients, we are confident about expanding our relationship across their long tenure, thus achieving the true potential of our Super-App.

Our low fixed-cost structure built on a very stable, agile and scalable digital model, insulates our margin profile under all market conditions. This places us amongst the few highly profitable cash-accretive business in the ever-evolving fintech industry. More details are provided in the presentation.

We continue to believe that the strengthening regulatory framework across various aspects emphasizes providing stronger guardrails, especially for growing retail investor base. This has been proven with continual growth across the multiple regulatory interventions in the past, ensuring regulatory — regulations on client funds management and the further decisive steps in building the confidence of retail participants. Our purpose is to collaborate productively with regulators in achieving this goal. I hope this incremental insight has enhanced your understanding of our business.

Vineet will now take you through our financial performance, post which we will be happy to answer your questions.

Vineet Agrawal — Chief Financial Officer

Thank you, Dineshbhai, and good morning everyone. FY ’23 has been a breakthrough year for us, as we increased our client base from 9.2 million to 13.8 million clients. As we registered record-high net revenue, EBDAT and profit after tax. During these four quarters, Angel One has outpaced the industry to gain market share while delivering a strong performance across multiple operating and financial parameters.

Our quarter four financial year 2023 financial performance continued its strong trajectory, with the gross revenues growing by 9% quarter-on-quarter to INR8.3 billion. Gross broking revenue grew by approximately 14% quarter-on-quarter to INR5.8 billion. This accounted for about 70% of our total gross revenues for quarter four FY ’23 as compared to 67% in quarter three of FY ’23.

Interest income, which includes interest earned from our client funding book and from deposits with exchanges has remained stable sequentially at INR1.4 billion, accounting for about 16% of our gross revenues in quarter four of FY ’23. The ancillary transaction income linked to the turnover grew by nearly 21% sequentially. This accounts for 9% of our gross total revenues.

The aforesaid has been achieved due to a strong 24.5% [Phonetic] market share in India’s incremental DEMAT accounts, 16% quarter-on-quarter growth in orders to 263 million, 28% quarter-on-quarter growth in ADTO to INR18.5 trillion, leading to an expansion of 124 basis points in our overall retail equity turnover to 22.8%.

Our consolidated EBDAT margin for the quarter stood at 57.5% in comparison to 53.9% for quarter 3. Our quarter four FY ’23 margin has been positively impacted by INR300 million on account of reversal of stock option grants. Our consolidated profit after tax from continuing operations increased by 17.1% quarter-on-quarter to INR2.67 billion.

Taking into consideration the reversal of grants, which positively impacted by INR300 million, the consolidated profit after tax on adjusted basis would be INR2.45 billion. For FY ’23, consolidated gross revenues grew by 32% year-on-year to INR30 billion. EBDAT grew by 43% year-on-year to INR12.2 billion, which translates to 53% margin.

Profit after tax from continuing operations grew by 42% year-on-year to INR8.9 billion. For FY ’23, the aggregate dividend payout is 37%, totaling to INR3.3 billion. The period-end cash and cash equivalent increased to INR55 billion, client funding book was INR11 billion, whereas borrowings stood at INR8 billion. Robust profitability along with efficient capital utilization led to an improvement in return on average equity to 47.5% for FY ’23.

With this, I conclude the presentation and open the floor for further discussions. Thank you.

Questions and Answers:

Operator

[Operator Instructions] We have our first question from the line of Swarnabha Mukherjee from B&K Securities. Please go ahead.

Swarnabha Mukherjee — B&K Securities — Analyst

Yeah. Thank you. Good morning, sirs. Congrats on a great set of numbers. The first one I wanted to understand, you have mentioned that your margin requirements might go up as a result of upstreaming of client funds and the incremental cost could be around INR40 crores for the nine month FY ’24. So just if you could throw some — a little bit more color on this, why would the margin requirement go up? Is this because you will have the [Technical Issues] and funds to be placed in [Indecipherable] with exchanges, some color on that, please?

Dinesh D. Thakkar — Chairman & Managing Director

Sure, sure. Vineet, if you could answer this question?

Vineet Agrawal — Chief Financial Officer

Sure. So, Swarnabha, in the SEBI Board Meeting dated 29th of March, the Board approved the framework for upstreaming of clients’ funds effective 1st of July 2023. Under this framework, the fund shall be upstreamed only in the form of cash, for earmarked fixed deposits or pledge of units of mutual funds, etc. This means that bank guarantees submitted as a margin to these stock exchanges have been kept outside the purview of the upstreaming framework. So this was allowed earlier, but in this current upstreaming framework, this has been kept out. So this will lead to increasing the proprietary capital required under the segregation and allocation of collateral at a client level, and hence the calculation which we’ve done, this means that it requires additional working capital for the Company.

Swarnabha Mukherjee — B&K Securities — Analyst

So that would be to the tune of around INR600 crores of additional working capital requirement? Would that be — is my calculation correct, sir?

Vineet Agrawal — Chief Financial Officer

Sorry, I couldn’t understand the question clearly.

Swarnabha Mukherjee — B&K Securities — Analyst

So I mean your additional working — I mean, the additional borrowing that may be required would be around — to the tune of INR600 crores for…

Vineet Agrawal — Chief Financial Officer

It would be around INR700 crores to INR800 crores and the incremental cost for that would be about INR40 crores for these nine months and tentatively about INR50 crores, INR55 crores on an annual basis.

Swarnabha Mukherjee — B&K Securities — Analyst

Sure, sure, sir. A couple of questions on the revenue side. First of all, in this quarter, particularly in the month of March, we have seen very strong momentum in terms of number of orders. Just wanted to get your views on, if you think this should be sustainable or is that — is it — was it a mirror [Phonetic] reflection of what the market conditions were? And we can maybe see some normalization going ahead? And also on the ancillary transaction charges that you have, that has also gone up a bit — although number is relatively small, [Indecipherable] it has gone up quite a bit compared to last quarter? So also wanted to understand what is going on there.

Dinesh D. Thakkar — Chairman & Managing Director

Let me take your question on order first, then on ancillary business transaction, Vineet will answer on that. See in terms of order, we don’t go month-by-month, there would be — for this market like, would continue to be a bit cyclical. But what we have seen during all the cycles like orders — number of orders that we get per quarter or per month has — also has progressively increased.

So if you look at the block of like three months, six months and one year, we look at trajectory — when we plan our year, we look at the trajectory based on number of orders which increases on every quarter basis. Every quarter, we’ll be having a good month, bad month, it’s a combination of different, different kind of factors, which impacts retail participation. But overall, our observation is that, during all the cycles we have seen, number of orders from retail have constantly increased.

On this ancillary transition, Vineet, if you can answer?

Vineet Agrawal — Chief Financial Officer

This ancillary income is linked to the transaction, the turnover charges that the exchanges levy on us, and then we levy on the clients. So this will increase in tune with the increase in the ADTO. So as you see, the ADTO quarter-on-quarter has been growing and that is linked to the increase in these transaction charges or ancillary transaction income, as we call it.

Swarnabha Mukherjee — B&K Securities — Analyst

Sure, sure, sir. And Vineet, on the interest income part, what we report as part of your P&L, has there been some kind of reclassification between interest income and other income?

Vineet Agrawal — Chief Financial Officer

Yeah. We’ve consolidated the income, which was reflecting in two parts of the financial statement into interest income. Otherwise, there is no change, just for the ease of understanding.

Swarnabha Mukherjee — B&K Securities — Analyst

Okay. So now your interest income will have the margin funding book interest income plus your float income as well as your other own — income from your own proprietary book, would that be correct?

Vineet Agrawal — Chief Financial Officer

That’s right, that’s right.

Swarnabha Mukherjee — B&K Securities — Analyst

Okay. Understood. And lastly, a couple of things on employee expenses and other expenses, if you can give some color how to think about these numbers, because other expenses have gone up this time and employee expenses have come down slightly, ex of the ESOP costs selected [Phonetic]. So if you can give some color, that would be [Indecipherable]?

Vineet Agrawal — Chief Financial Officer

So in quarter four, the employee expenses other than the ESOP expenses have come down, primarily due to some reversals in the provision of variable pays etc, which we made throughout the year. That’s the only impact, otherwise, there is no major change in that.

Swarnabha Mukherjee — B&K Securities — Analyst

Okay. And Other expense, will it remain close to that — close to INR100 crore [Phonetic] mark [Indecipherable]?

Vineet Agrawal — Chief Financial Officer

Yeah. So other expenses — a large driver of the other expenses, are the client acquisition cost. So as we keep on increasing the acquisitions quarter-on-quarter, this cost is going to grow, it’s a variable cost. And other costs are primarily on account of cloud expenses, which again are linked to the turnover or the volume that happens on our platform. So that also are going to grow.

Swarnabha Mukherjee — B&K Securities — Analyst

Sure. So last question on the ESOP side, so if you could highlight one the reason for the stock [Phonetic] grant and any reversal we need to — expect to see?

Operator

I’m sorry, sir your voice was breaking, can you repeat, please?

Swarnabha Mukherjee — B&K Securities — Analyst

Yeah, so I was asking on the ESOP cost if you could highlight the reasons for reversal of the grant and any subsequent such reversals if we can expect in upcoming quarters?

Dinesh D. Thakkar — Chairman & Managing Director

Yeah, Vineet you can take this.

Vineet Agrawal — Chief Financial Officer

So in terms of the future impact of the reversal, there will not be any future impact, because once the stock grants have been reversed whatever cost that was there, we’ve taken the reversal. So there is not going to be any impact in the future.

Swarnabha Mukherjee — B&K Securities — Analyst

Okay. That’s helpful. Thank you so much for all your answers.

Operator

Thank you. We have our next question from the line of Sahej Mittal from HDFC Securities. Please go ahead.

Sahej Mittal — HDFC Securities Analyst — Analyst

Hi, morning, all. Thanks for taking my questions. So first is on the other expense, right? If I look at the slide number 24 — printed slide 24. So you have been saying that the other expenses are sort of elastic, right? But if I look at the costs for second quarter FY ’23 and the customer additions in FY — in Q2 FY ’23 versus Q4 FY ’23, right, the customer additions have only gone up from 12 lakhs to 13 lakhs, but our other expenses have shot up 30%, right? So what explains this, I mean if you could split it out in terms of the marketing expenses, maybe some branding expenses? Because this is not indicative of elasticity or if I’m reading out something wrong in these numbers?

Dinesh D. Thakkar — Chairman & Managing Director

See, you have to read this way that what we are showing as a variable cost, this is something that we can control in bad market conditions. So most of the costs what has been shown, like finance costs or commission that we pay to sub-broker or a variable cost which is combination of marketing and all that, that can be like — we have levers to control that.

Now on your question of that — cost of acquisition, like how much we acquired quarter three and quarter four, I’ll ask Prateek to reply this — on why this cost varies. Because as we said that, we are going into an area where actually pockets which are underpenetrated, which are difficult to capture and Angel has been very successful in terms of acquiring customer who are [Technical Issues] in those pocket, and an age group of around 25. So it is really like unique to Angel that we have acquired those customer, and we are profitable acquiring those customers.

So as we are going deeper into this pocket, these are the pockets which are growing at a higher rate and because of our unique approach in terms of like, we acquire customer, we see that their journeys are creating revenue, and we are profitable in terms of each and every acquisition that we do on-prem [Phonetic] and this kind of cohort. Our costs definitely would not be comparable to previous quarters, we were referring to that.

So Prateek, if you can just throw light on that?

Prateek Mehta — Chief Business Officer

Sure. Thanks, Dineshbhai. Mr. Mittal, just to add to what Dineshbhai has already shared with you, broadly, the 8% incremental market share, if you look at it, our 8% increment in number of customers has come in an environment where the actual additions in the — DEMAT additions in the industry has come down, right? So while the industry additions have come down, we’ve actually expanded both the number of customers, and we’ve also expanded our market share, in the new acquisitions. And this primarily is a function of the acquisition engine that we perfected, looking at the younger customers and looking at Tier 2 and Tier 3 geographies to expand our reach.

As far as the breakeven on these customers is concerned, we continue to breakeven within two quarters, so we are comfortable with our product experience and customer experience, and we know that once these customers come in, we are able to engage them meaningfully and continue our — both our acquisition of market share and the profitability of these clients, both of them are concerned, and hence — we are definitely very comfortable about the increases that we might see temporarily.

And the long-term building block on this will continue to remain by — LTV/CAC that we have shared in the presentation. And that, as you’ve seen, continues to remain at 7.8 for the three years — the first three years, and then it continues to add enduring revenue to us in the long term. So as long as we’re comfortable of that, we’ll continue expanding.

Sahej Mittal — HDFC Securities Analyst — Analyst

So, with the…

Dinesh D. Thakkar — Chairman & Managing Director

And one second, like our Revenue Officer would like to add something. Devender, you would like to add on this last quarter acquisition?

Devender Kumar — Head of Online Revenue

Yeah. Hi, Sahej. So I think from quarter three to quarter four point of view, Sahej, the number of sales has grown by almost 30%, as mentioned by Dinesh, and I think the cost, in terms of acquisition also has grown in line, but the overall — it remains — the overall performance remains as — we run by the — we are a growth company, we are driving growth, so we are going to enter new pockets and we have been entering pockets in a very profitable way, where we maintained our breakeven points at around two quarters. So that’s the two things that has been there, but just to answer that part also, I think the quarter four sales has also grown by 30%, which is in line with what you were seeing.

Sahej Mittal — HDFC Securities Analyst — Analyst

Right. Because if I look at the cohort-based revenues, right — because if you are seeing that in a difficult DEMAT addition environment, if you’re going out and spending higher expenses on a per customer basis, but the incremental revenues, which these new customers are contributing, I mean, in no way, we understand even from the ecosystem is that, they will be contributing in such a way that the payback period would remain at six months. So I mean, the numbers don’t seem to add up — I mean, what kind of efficiencies are we looking at, because the payback period will definitely shoot up, right? And if you could also — yeah, please, go ahead.

Dinesh D. Thakkar — Chairman & Managing Director

No, currently, like whatever cohorts we are acquiring, will give current position. Whatever we are saying six months, it is based on this current quarter. So the way we analyze is that, whatever cohorts we acquire, month on month, so whatever costs you are seeing, we analyze based on what [Indecipherable] revenue we’ll get from those particular cohorts. So what we are mentioning right now, is based on current cohorts that we have acquired.

Sahej Mittal — HDFC Securities Analyst — Analyst

Right. And if you can please quantify the cloud expenses which we have recorded in this quarter, and maybe for the full year?

Dinesh D. Thakkar — Chairman & Managing Director

Vineet, do we disclose cloud expenses separately?

Vineet Agrawal — Chief Financial Officer

No, we don’t disclose the expenses in that detail. So when we release the financials with the schedules, we’ll have some data around the other expenses.

Sahej Mittal — HDFC Securities Analyst — Analyst

Right, right. And one last thing is on the employee expense. So if you can please give out the split between your employee — in your staff costs, what proportion would be fixed and what is the variable component?

Dinesh D. Thakkar — Chairman & Managing Director

Vineet?

Vineet Agrawal — Chief Financial Officer

Yeah, so typically the increments — the variable pay and the ESOP costs that we onboard as part of our total costs are variable in nature and can be managed or reduced.

Sahej Mittal — HDFC Securities Analyst — Analyst

Right. And of our — I mean of our overall staff costs, what proportion would be variable pay? I mean, my question was around that.

Vineet Agrawal — Chief Financial Officer

So, total of all of these would be about 30%, 35%.

Sahej Mittal — HDFC Securities Analyst — Analyst

35%. And I mean of this INR30 crore reversal in ESOP expenses, what proportion of those ESOP reversals is attributable to the CEO exit or the ex-CEO exit?

Vineet Agrawal — Chief Financial Officer

The entire INR300 million is on account of that.

Sahej Mittal — HDFC Securities Analyst — Analyst

Right. Got it, got it. This was all from my side. Thanks a lot and all the best.

Operator

Thank you. We have our next question from the line of Aditya Chheda from Incred Asset Management. Please go ahead.

Aditya Chheda — InCred Asset Management — Analyst

Yeah. Hi. Can you break down the cash and cash equivalents and investments into the cash, which company has and cash which is for the margin requirements?

Dinesh D. Thakkar — Chairman & Managing Director

Vineet?

Vineet Agrawal — Chief Financial Officer

Yeah. The cash and cash equivalent of INR55 billion [Phonetic], of that almost INR40 billion is the clients’ funds, and the rest is the net worth of the company that has been used for margins or…

Aditya Chheda — InCred Asset Management — Analyst

Got it. Thanks. That’s it.

Operator

Thank you. We have our next question from the line of Prayesh Jain from Motilal Oswal. Please go ahead.

Prayesh Jain — Motilal Oswal — Analyst

Yeah. Hi, congratulations on a good set of numbers and much appreciate the kind of presentation that is uploaded every time with more granular details on the various aspects of the business. Coming to my first question, I just wanted to extend the point on that INR40 crore impact, what you’ve spoken. Is it pertaining to the client who gives 100% collateral against which you have to kind of deposit cash to the clearing corporation?

Dinesh D. Thakkar — Chairman & Managing Director

Vineet?

Vineet Agrawal — Chief Financial Officer

Yeah, segregation of margins that the client has to bring in at least 50% in cash, and 50% non-cash. Where the clients offer more non-cash collateral, there the broker has to pitch in with their stock funds, which can be in the form of cash, FDs or BG. So this is one reason why the working capital requirement increases and of course, there is also this element of segregation of margins across various segments, where also we need to have some margins with the exchanges.

Prayesh Jain — Motilal Oswal — Analyst

Okay, okay. And secondly, could you just explain this — the Slide 7 in a slightly more detailed manner?

Dinesh D. Thakkar — Chairman & Managing Director

Yeah. See, here we are trying to — like there were lots of questions in terms of what [Indecipherable] like LTV to CAC a broking firm [Phonetic] like a company can expect from their client. So we have kind of an historical record of people in that physical era, where we have seen that a customer’s life extends beyond five years and kind of like revenue that you get from customer drops, but gradually, it continues — or gets steady after third year. So when we are moving to digital era, we are seeing that — we are seeing an improvement in customers’ revenue, or lesser drop of customer revenue from first year to second year and from second year to third year.

And if you go by kind of an empirical data or evidences which are there, so customer lifecycle even in physical era, where actually there used to be lots of customer revenue loss because of dealers attriting and all that. In digital era, because clients are downloading an app, it remains on their phone. We are not only seeing improvement in progressive years, but this can continue beyond five years. So this is what we are trying to compare that customer revenue from stock broking, it is not just for a year or two, it continues beyond five years. And in digital era, we are seeing increment of customer revenue from — compared to what we were seeing in that pre-digital era.

Prayesh Jain — Motilal Oswal — Analyst

So if I have understood it correctly, a customer acquired in H1 ’20, gave INR100 or that cohort gave INR100. In H1 ’21, they gave INR69 of broking revenues. Is that assumption — is that understanding correct?

Dinesh D. Thakkar — Chairman & Managing Director

I’ll ask Devender to explain you the slide properly. Devender, if you can just explain that slide properly? You’re on mute, Devender.

Devender Kumar — Head of Online Revenue

Yeah. Sorry. So, hi, Prayesh. Can you just explain — can you just ask the question again for simplicity and clarity? I’ll answer…

Prayesh Jain — Motilal Oswal — Analyst

I just wanted to understand, so is my understanding correct that in that Slide 7, H1 ’20, you are mentioning 100% and in the year two, you’re mentioning that as 69%? So is that understanding correct that the customers who gave you INR100 — customers that you acquired in H1 ’20, gave you INR100 in H1 ’20. In H1 ’21, they give INR69 and then H1 ’22, they gave INR63, is that what you’re showcasing out here?

Devender Kumar — Head of Online Revenue

Yeah. Correct, correct. Prayesh, so, that’s what it is. That in the year one, they have given us INR100 and in the year two, if I look at H1 ’20 clients, they gave INR69 and then in the year three, they gave INR63. If I look at the recent most quarter where clients have completed year two, this is completed data of clients, so H2 ’21 gave INR100 and the year two, they gave INR86 to us.

Prayesh Jain — Motilal Oswal — Analyst

Okay.

Devender Kumar — Head of Online Revenue

Yeah, that’s right, Prayesh.

Prayesh Jain — Motilal Oswal — Analyst

Okay. Got it. And my third question — third and last question would be on the float income. There is a lot of thing now, that ASBA may or may not be get implemented. They could be forced, while it’s voluntary right now. But eventually, it may be — it will be implemented in some form for the secondary market. So just wanted to get some numbers around the float income that we generate and which could be at risk for, say, whenever that ASBA gets implemented.

And also Dineshbhai, if you can throw some thoughts on around how do you see the ASBA implementation really happening in the industry, whether that will lead to consolidation or how — what proportion of customers would be kind of willing to move to ASBA? Some thoughts there, that will be helpful.

Dinesh D. Thakkar — Chairman & Managing Director

Yeah. See, what we have seen is that whenever there is concern like regulatory changes, which helps bring in more confidence in retail, we see a huge improvement in terms of participation from retail in equity market. So we are very bullish, every implementation that regulator is doing, is bringing more confidence of retail customer and we are seeing huge penetration.

If you look at, like our TAM, almost like people who are holding PAN Card and all that, it is beyond 50 crores and all that. But what is stopping them from coming to the market, when markets are giving such an excellent return, is somewhat they’re not finding this market to be very kind of like reliable or trustworthy.

So my opinion is that all this concern like changes, which happens, it happens to expand the market, and people like us who have a huge market share, only they gain further market share when these are implemented.

So my view is that ASBA right now appears to be a bit far away. Right now, we are talking about gearing up for upstreaming and all that. ASBA does not seem to be coming in near future, but whenever it comes, we are not seeing a concern like — there can be impact in terms of float income and all that, but we are not dependent on broking income and other income related to financial services. So I feel a huge consolidation will happen in terms of — clients would move towards more digital platform [Phonetic]like brokers, because they have a perfect ecosystem to take care, about [Phonetic] online transfers and all that.

The point is that even RBI and banks will be ready with those kind of — like real-time technologies. According to my opinion, it is big time away from here.

Prayesh Jain — Motilal Oswal — Analyst

Okay. Got that. And lastly, any thoughts that you have that whether the brokerage rates should increase or [Indecipherable] because the cost of operations, cost of compliance and by every announcement of the regulation — the regulator is just going on. So do you have any thoughts around as to how the brokerage rate should kind of move and who will bring the ASBA [Phonetic] because in next year, you have a INR40 crores impact possibly, analyze this INR60 crore impact because of the upstreaming of funds, there is additional I think regulator had put in on identifying fraudulent accounts, that system has to be in place. So there are many compliance costs that have gone up. So do you think this INR20 per order is a fair cost or do you think that will be — that will have to be increased in the near future?

Dinesh D. Thakkar — Chairman & Managing Director

See, for industry, there’s been huge cost — operating cost increases, as well as if you look at our technology and all that, regulators coming heavily on having proper like a datacenter and proper concern like cybersecurity and all that. What it suggests that, you need a scale to beat this business. A medium size or a small-size brokerage house cannot continue to be profitable, unless and until they raise the rate. But clients like — players like us who have huge operating levers, they are very kind of — like profitable, because incremental business what we get straight away, it is the same improvement in our bottom line.

So I don’t think that bigger brokerages like us would think about changing the way. That is my personal opinion, because we are seeing — we have a huge operating margin and we would not like to be very much concerned about, costs increasing here and there. If you look at total concern [Phonetic] like the way we do compliance and the way we handle technology and all that, already we have taken lots of kind of an upfront cost to fulfill that requirement of regulators.

With this also, we are saying our margins are quite decent enough. Every business works based on operating margin. We are getting 50% and we can accommodate all these costs, and because of scale, we have advantage. So this just adds up their advantage of getting more market share, when mid-sized broker is unable to like adjust this cost in their cost structure and increase the rate. So that is where I feel people like us would be having — organizations like us will be having an advantage of more dependent on acquiring or getting more market share and offsetting this increased cost.

Devender Kumar — Head of Online Revenue

Hi, Prayesh. Just to add on your first question, right, which was around slide number 7. Just to give you a little more color on the data that we’ve shown there, if you look at the pre-digital era, for any customer who used to give INR100 in year one, year two used to become INR47 and then year three used to become INR32. And then it could become stable at about 26% into an annuity business. So what we have done, when we’re showing this LTV information to you, we are showing that 47%, which used to be year two has now improved to 86% and 32% in year three has now improved to 77%.

And hence, what we have done is that in the model, we’ve taken the current behavior of the customer cohort that we’ve seen, and we’ve modeled out for every INR100 that we’re getting in year one, we are just taking INR86 for year two and INR77 for year three. And we also know from our historical experience that this customer is going to stay with us for the long term and will continue to give us revenue at a stable rate over a window, which extends beyond the five year that we have modeled here.

Prayesh Jain — Motilal Oswal — Analyst

That’s helpful. But just one line item in that estimation, the Slide 8, what is the direct cost that is at INR100 crores in year one, and also INR60 crores in year two and year three?

Vineet Agrawal — Chief Financial Officer

Prayesh, this is the cost to serve the client. So the first year costs that you’re seeing at about INR100 crores, it includes the cost of onboarding the client and thereafter, whatever is the cost to serve the client, the direct cost.

Prayesh Jain — Motilal Oswal — Analyst

Okay. So roughly around INR40 crores is what you’re saying is onboarding and rest is kind of closer to services?

Vineet Agrawal — Chief Financial Officer

Yeah.

Prayesh Jain — Motilal Oswal — Analyst

Yeah. Got that. That’s a very — this is a very interesting slide [Indecipherable]. Thank you.

Dinesh D. Thakkar — Chairman & Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] We have a question from the line of Nidhesh Jain. Please go ahead, sir.

Nidhesh Jain — Investec India — Analyst

Thanks for the opportunity. Sir, on the Slide 7, where you’ve explained the cohort data, how is the trends for clients that we have acquired in FY ’22 — in FY ’23? I think that data, we have not shared in that cohort. And the clients that we acquired in FY ’21, two years, hence how is the behavior there?

Dinesh D. Thakkar — Chairman & Managing Director

Prateek, if you’d like to take this question?

Prateek Mehta — Chief Business Officer

Nidhesh, we have shared the data for the clients that we’ve acquired in financial year 2022 in the next slide, which is slide number 8. So this builds a scenario where we are seeing that, for those clients that we’ve acquired in financial year 2022, what was the revenue that we generated only from those clients in that period, what was the upfront costs that we incurred and then going forward, what is going to be the revenue, based on the trajectory that we’re seeing in slide number 7.

Nidhesh Jain — Investec India — Analyst

Yeah. I think in FY ’23, in slide number 8, it’s estimate, it’s not actual data for FY ’23, is that right? Or based on the clients, how they’ve behaved — FY ’21 clients, how they behaved in FY ’22, you’ve extrapolated that the clients that we have acquired in FY ’22, they will behave the same way in FY ’23?

Prateek Mehta — Chief Business Officer

Yeah. So in the second year when the clients, those that we have acquired in financial year 2022, when they move — some of them have moved to the second year, and some of them will move to the third year. So based on the trajectory that we have seen, their revenues will move in this progression.

Nidhesh Jain — Investec India — Analyst

Well, I think it would be an actual data, not an estimate for FY ’22 — 2023, that was one observation. Second is, sir, the other operating expenses that we have seen increase, is it reasonable to assume that the acquisition cost per customer has gone up now versus what we used to do in the past? Though breakeven period still remains less than six months, but per unit cost of acquiring a customer has gone up, is that a reasonable understanding?

Dinesh D. Thakkar — Chairman & Managing Director

See, we don’t disclose cost of acquisition, but just to answer your question, see, as I’ve said that, as we are moving towards deeper concern like pockets, like Tier 3 and beyond, what we look at business unit, when we have certain cost of acquisition, whether that unit is profitable. So we don’t clearly focus on increase or decrease in cost of acquisition. Currently, our focus is on increasing market share. So whichever pocket we feel that this LTV to CAC is profitable, or we can achieve certain X on that, we try to go into that pocket and get a new set of customers. So our current focus is on market share and LTV to CAC.

Nidhesh Jain — Investec India — Analyst

Sure. And then lastly on the last earnings call, we have mentioned that we will move towards — move towards LTV to CAC framework, which may lead to increase in operating costs. Because historically, we were focusing on payback period of two quarters or less. Now, we will be moving towards LTV to CAC model, so that we have — that movement has happened and consequently, how should we think about EBITDA margins in FY ’24?

Dinesh D. Thakkar — Chairman & Managing Director

Yeah. So that movement has happened as promised, that’s the reason the slides are included. that we will be now tracking LTV to CAC. So, now it is not that like this thing, like operating costs will increase. Now we are more kind of having visibility in terms of what revenue we can expect from a customer when it comes to projecting revenue for five to six years from the same cohort that we are acquiring. So based on that, we are re — fine-tuning our model in such a way that wherever we feel that, we would be able to maintain operating margin of 50%, we would like to go aggressive in terms of acquiring those cohorts.

So that’s the reason we told that we would be moving our model towards LTV to CAC and we would be disclosing all these numbers every quarter. But our focus would be to maintain this operating margin between 45% to 50%. Our focus would be to increase market share. Our focus would be to become a leader in this industry. We need to take very unconventional kind of [Phonetic] step, where these cohorts which are profitable, we should not over rotate [Phonetic].

Prateek Mehta — Chief Business Officer

So Nidesh, the purpose of including these slides as Dineshbhai mentioned is, just to bring that there is a long-term visibility in terms of the revenue and the profitability or the margins that we expect from clients that we acquire. Otherwise, what was happening is, we were fixated with a payback period of six months or seven months, or five months, and we were not looking at revenues beyond that. So what we want to portray here is that, in our business, once we acquire a client, there is a multiple-year revenue profile that the client has, and that is what we want to portray. So we can take the costs upfront and then there is a strong margin profile — a very strong contribution margin that these clients give over multiple periods.

Nidhesh Jain — Investec India — Analyst

Sure, sir. Just one follow-up on the Super-App. There we have seen that the mutual fund SIP has almost doubled after we have launched mutual fund on our Super-App. But that will not be a revenue-generating stream, because I believe that most of these will be direct funds. What are the rollout plans for other financial services products, which will be revenue generating?

Dinesh D. Thakkar — Chairman & Managing Director

Yeah. We have Head — Saurabh, who heads this — mentioned as other income on the Super-App. So we have started this journey of mutual funds just one quarter back and we have achieved a good concern [Phonetic] like, I would say uptick from that. So I would ask Saurabh to explain about other journeys that we are going to include on the Super-App. Saurabh?

Saurabh Agarwal — Chief Experience Officer, Head of New Business

Thanks, Dineshbhai. Well we have already launched mutual funds in the quarter starting in January and in two or three months, we have seen a number of steps grow 2x. The other products that we intend to launch this year, primarily fall into the unsecured consumer lending space, so where we’ll be acting as distributors to begin with and then move into creating our own risk models. So I think lending — unsecured consumer lending, just to answer your question, unsecured consumer lending for the retail space will be the key focus area for us to generate revenue in the future. We’ll also be delving deeper into the insurance business going forward.

Nidhesh Jain — Investec India — Analyst

Sure, sir. Yes, yes, yes. Thank you, sir. Thank you. That’s it from my side.

Operator

Thank you. We have a question from the line of Ajox Frederick from Sundaram Mutual Fund. Please go ahead.

Ajox Frederick — Sundaram Mutual Fund — Analyst

Hi, thanks for the opportunity. Sir, I have two questions. One is on the number of orders per NSE active client in the F&O space. If I do the math, it used to be about 40 orders per client and that has jumped to 50 orders in the quarter. For the last eight quarters, it used to be 38, 39, 40, but suddenly, there’s been a substantial jump in 4Q FY ’23. Can you please help me understand that?

Dinesh D. Thakkar — Chairman & Managing Director

Vineet, do we disclose this number of order, or it is calculated — like back-end calculated?

Vineet Agrawal — Chief Financial Officer

The segment-wise breakup of the orders per client. So that we have…

Ajox Frederick — Sundaram Mutual Fund — Analyst

Yeah.

Dinesh D. Thakkar — Chairman & Managing Director

Okay. Fine. Devender, if you can just answer this question [Phonetic]?

Devender Kumar — Head of Online Revenue

Yeah. Thanks, Dineshbhai. Yeah. Hi, Frederick. So, Frederick, when you look at NSE active client base that we — overall looking at — and it’s driven by overall investor category of clients. When you look at the whole industry, this number is driven by investor category of clients. And when we look at our business basically, it is driven by orders, where orders is really what is driving it, and where various segment penetration like F&O, commodity, currency, MTF and other [Indecipherable] categories will play a role.

So from an overall point of view, it’s not right to look at compare these two metrices, because they are not in the same space. One is driven by the overall investor and business is rather driven by investor plus other categories of products that we distribute, and then we give — provide on our platform. So from an overall point of view, I would say that we should not relate it to — in that sense.

Ajox Frederick — Sundaram Mutual Fund — Analyst

Okay. Got it, got it. And sir, again since our persistency is getting better and we have good visibility, why do we stick with 45 to 50 kind of percent an EBITDA margin? Because the contribution margin is very attractive and we are going to enter products, which are going to give us better contribution. So what makes us conservative is my question?

Dinesh D. Thakkar — Chairman & Managing Director

Yeah. We are not conservative. What we are saying, that cohorts that we acquire because of digital model, that particular cohort they improve on their contribution margin, but because we are into an investment phase where we want to become like most trusted brand in fintech, we would be into this investment phase for few years. So when we are investing, we are conscious about not to go overboard, but be within that reasonable limit of whatever additional cash we are generating, some amount should be put on innovation and upfronting on new technologies, acquiring new market share. So we will be conscious about spending and maintaining this margin — operating margin of 45% to 50%.

Having said that, that does not mean cohorts that we have acquired, over there margins will keep on increasing. As you saw that — what we have shown in that page number 8, that cohort that we acquired in ’22, that will continue to improve on their contribution margin, but because we are developing this Super-App, we have developed the Super-App on this year, we have launched it. We are launching mutual fund, we’ll be launching lending product, insurance product. We’ll continue to be into that kind of like heavy investment phase, where we would not lose an eye on operating margin between this 45% to 50%, which includes investment in all concern like new technologies and acquiring customers for those cohorts.

Ajox Frederick — Sundaram Mutual Fund — Analyst

Yeah. It is very helpful, sir. Sir, what is the ESOP outstanding right now?

Dinesh D. Thakkar — Chairman & Managing Director

Sorry. I did not get your question.

Ajox Frederick — Sundaram Mutual Fund — Analyst

The ESOP, sir. ESOP costs, which will be coming in — in the coming quarters?

Dinesh D. Thakkar — Chairman & Managing Director

Yeah. So you want to know what is the ESOP cost?

Ajox Frederick — Sundaram Mutual Fund — Analyst

Yeah, Yeah, Yeah.

Dinesh D. Thakkar — Chairman & Managing Director

Vineet?

Saurabh Agarwal — Chief Experience Officer, Head of New Business

The current year full ESOP cost is about INR53 crores as against that the ESOP cost for the next year tentative is going to be about INR110 crores, but that includes cost for some PSUs that have been granted, which is about INR85 crores, so only for the RSUs and the stock options, it’s about INR25 crores. PSUs have been granted considering a very stretched business growth. So unless we achieve that stretch business growth, we are not going to…

Dinesh D. Thakkar — Chairman & Managing Director

I’ll answer that, Vineet. So like normal ESOP and RSU would be around INR25 crores as Vineet said. This year, as we already launched — we had launched Super App, we have got a stretch target for people. If they achieve that, then we have allotted PSUs for those segments and those targets.

Ajox Frederick — Sundaram Mutual Fund — Analyst

Okay. This is very helpful, sir. Thank you and all the best.

Dinesh D. Thakkar — Chairman & Managing Director

Thank you.

Operator

Thank you. We have our next question from the line of Anand Bhavnani from White Oak. Please go ahead.

Anand Bhavnani — White Oak — Analyst

Thank you for the opportunity. Two questions. One is there is a talk of extension of market hours for [Technical Issues].

Operator

I’m sorry, sir. Your voice is breaking.

Anand Bhavnani — White Oak — Analyst

Give me a second.

Operator

You’re sounding muffled.

Anand Bhavnani — White Oak — Analyst

Yeah. I hope this is better.

Operator

Can you speak again, please? Can you repeat your question?

Anand Bhavnani — White Oak — Analyst

Yeah.

Operator

No, I’m sorry, sir. It’s still muffled.

Anand Bhavnani — White Oak — Analyst

I’ll come back to you.

Operator

Thank you. We have our next question from the line of Pallavi Deshpande from Sameeksha Capital. Please go ahead.

Pallavi Deshpande — Sameeksha Capital — Analyst

Yes, sir. Thank you for taking my question. Just one was an observation on the rating on the Play Store for the app. It seems to have declined like four versus some peers now higher than us, just any comments on that? And second one would be if you could share any market share targets that you may have in terms of ADTO business?

Dinesh D. Thakkar — Chairman & Managing Director

What was the second question?

Pallavi Deshpande — Sameeksha Capital — Analyst

Any targets on market share for the ADTO business?

Dinesh D. Thakkar — Chairman & Managing Director

Okay. Let first Ankit cover this rating of our app.

Ankit Rastogi — Chief Product Officer

Yeah. Play Store ratings, which is Android app ratings are a reflection of the reviews and ratings combined, and it’s a moving number. Since we were migrating from the old app to the new app, obviously, there was an element of surprise to a few customers and that’s why there was a fluctuation. Earlier also by the way, we were at — just mentioned, we were at 4.2. The latest number by the way, as of now, today is 4.1, and it’s a moving number and we are very optimistic that it will touch 4.5.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right. And second one would be on the market share target.

Dinesh D. Thakkar — Chairman & Managing Director

Is it on market share of ADTO you’re asking?

Pallavi Deshpande — Sameeksha Capital — Analyst

Yeah.

Ankit Rastogi — Chief Product Officer

So what exactly is your question on market share of ADTO?

Pallavi Deshpande — Sameeksha Capital — Analyst

So would we have our FY ’24 target in terms of market share there? And this is actually tying in with the earlier question that was asked with regard to price increases, if the market share —

Dinesh D. Thakkar — Chairman & Managing Director

Like, increase in market share and all that, that will be more of a forward-looking statement that we don’t disclose or we don’t say, but in terms of rates and everything, all we have answered.

Pallavi Deshpande — Sameeksha Capital — Analyst

So I was just trying to churn that would that be, is it market share that drives us now and is that why we have —

Dinesh D. Thakkar — Chairman & Managing Director

Definitely. We would be spending to gain more market share. Already, we have done it every concerned quarter, so our focus would be increasing our market share. Yeah, right.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right. And on the operating margin, I think you mentioned 45% to 50%, so that implies a decline in FY ’24 —

Dinesh D. Thakkar — Chairman & Managing Director

Yeah. That includes even up-fronting costs that we take for new technology investments that we do in new segments and investments that we do to acquire more customers. When you acquire a customer for that year, our operating margin is not same. So what I was saying broadly, we will be guided by this operating margin of 45% to 50%, but if you look at cohort-wise, our contribution margin tends to increase for every cohort that we acquire.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right. Got it. Thank you so much.

Operator

Thank you. We have our next question from the line of Deepak Sonawane from Haitong Securities. Please go ahead.

Deepak Sonawane — Haitong Securities — Analyst

Yeah. Hi, sir. Thank you for the opportunity. Sir, my question is regarding our fees and commission expenses. So for FY ’23, we have reported around INR641 crore of the fees and commission expenses. And as I understand correctly, the majority of that will be to the sub-broker and paid to the sub-broker. So apart from that, I mean, are there any agencies, I mean, are there any stakeholder that we pay commission or else fees just for acquiring a client or else just getting those clients on, I mean getting those clients active? So do we account that expense as in this fees and commission expense?

Dinesh D. Thakkar — Chairman & Managing Director

Vineet will answer that and post that Ketan can.

Vineet Agrawal — Chief Financial Officer

Yeah. So the fees and commission expenses is purely the sharing of broking revenue with the sub-brokers with the authorized persons for whatever revenue that we generate from that channel. Nothing else is recorded in that.

Deepak Sonawane — Haitong Securities — Analyst

So this is just only authorized person and not, I mean, any entity, I mean, that you acquire clients through online channels or, right?

Vineet Agrawal — Chief Financial Officer

No, this is only sub-brokers.

Deepak Sonawane — Haitong Securities — Analyst

Okay. Got it. Thank you.

Operator

Thank you. We have our next question from the line of Jignesh Kamani from GMO. Please go ahead.

Jignesh Kamani — GMO & Co. — Analyst

Hi Dineshji. Just on the activation rate, so it has been declining since last couple of quarters. I just wanted to know the reason behind it and when it stabilizes. And if you further dissect, it is more due to the new client added in last two, three quarter where the activations are lower or in the old client also, we were seeing some fatigue and their activation is declining.

Dinesh D. Thakkar — Chairman & Managing Director

See, first of all, we have shown the slide where we are clearly showing that activation and number of orders are not really connected. As we acquire more customer, few customers become active in that quarter and when market condition changes, we see lots of more customers getting active. So, overall what we have seen is that there is no strong correlation. If you see slide number 38, where we are clearly showing, though based on market condition, activation ratio changes, but if you look at number of orders, they steadily grow.

So our assumption is that as market — currently, this quarter market was not great. There were like no volatility and not interest from retail as well as even other participants. But as this concern like market movement improves, you will see a better activation, but when it comes number of orders, we are seeing that steadily grow.

Jignesh Kamani — GMO & Co. — Analyst

But if I further dissect it, so if your two or three year old client, there also activation rate has declined or it’s mainly because of a new client is not being much active because of the current market condition?

Dinesh D. Thakkar — Chairman & Managing Director

Devender, will you be able to answer this?

Devender Kumar — Head of Online Revenue

Jignesh, it’s similar for old and new clients because it is the overall buoyancy of the clients, people are interested. So we are looking at 12 months, people who were invested at least once in 12 months because NSE active represents that. And this is primarily driven by how the overall market sentiment looks like, which had been subdued in the last quarter and it affects the new customers as well as the old customers in a similar way. This is not much different. Actually, for old customers, it is slightly little lesser. But from an overall point of view, it affects in similar way. There’s no difference between the two.

Jignesh Kamani — GMO & Co. — Analyst

Understood. Thanks a lot.

Operator

Thank you. We have our next question from the line of Aejas Lakhani from Unifi Capital. Please go ahead.

Aejas Lakhani — Unifi Capital — Analyst

Yeah. Team, firstly, again credit to all of you for putting out the incremental information quarter after quarter and providing incremental insights into here on the business. It’s really very helpful. So credit to all of you for that. Dinesh, my one question is that again on slide number seven, the data that you’ve put out in the post-digital era for the customers who are far more sticky as compared to the pre-digital era, the counter-narrative to that is that, Dinesh that they’ve not seen market cycles. So how would you comment or how would you advise us to think because these are fairly new customers, again, they’ve not seen seasoning and maturity across cycles? So how do you expect their behavior or if you could comment a little on that?

Dinesh D. Thakkar — Chairman & Managing Director

That’s an excellent question. When we are referring to empirical data, it covers almost like your dotcom, your global financial crisis. This is a sample concern, like what we are creating in front of you from FY ’15 to FY ’19. But if you ask my experience that clients who are active in that post-digital era also had a similar trend in crisis situation and market dip and again when it recovered, we saw same kind of trend panning out. So when you say five years and beyond, it includes one bull market, one bear market and all that. So behavior of a customer who comes to the market remains same.

So what we are saying is that if pre-digital era, this was kind of trend customer what we acquired, it is not that they remained only when markets were good and they ran away when markets were bad. They remained in the market for five years and beyond. Same thing we’re going to see in this digital era also, like it is not because of COVID or because of that, they are new to market.

People who are new to market in 2001 or 2005 to ’07, if you remember, there was a huge bull market. Post that also when we calculated five-years’ block and beyond, it remained almost same. So when we take an LTV of a customer for broking, we usually take five years and beyond, and then try to map it in terms of how this behavior would be from one year to two year and two year to three years and beyond.

So if you look at slide number 18 that we have shown, in that we have shown that despite all different market cycles, when we have seen this concern like huge concern, volatility in NIFTY, retail participation has progressively increased, the number of orders you see has progressively increased. What it means, every customer who was acquired in that phase remained active beyond certain period. It is not just only in that phase and markets were good, they were active. After that, they become inactive.

So if you take the whole cohort, what we look at that active customer base, they are the ones who contribute in the market. So when you look at active customer base, it does not drop like suddenly, if you look at NSE active client base, data is available to public. So when we go into granularity of our data, we have seen — I am talking about last 15, 20 years, if customers that we acquire remain active five years and beyond, so we are showing the trend in slide number seven and it was historical and how we are seeing improvement in digital natives.

The reason for improvement as I said previously in physical era, when we acquired a customer, it was served by our brand relationship manager. If they attrite, we lose that revenue from that active customer. In digital era, what we are seeing when a customer is acquired, they remain on our platform and are served on our platforms. That’s the reason we are seeing increment from like first year to second year compared to previous year.

Aejas Lakhani — Unifi Capital — Analyst

And Dinesh, going into the next year, what are the key metrics that you would track for growth that you are tracking, I mean?

Dinesh D. Thakkar — Chairman & Managing Director

As I said that we have been successful in terms of acquiring customers from Tier-2 and beyond, so we would remain aggressive in terms of acquiring those customers. Our model has been successful in terms of acquiring those customers and getting decent revenue. So if I look at operating margin from those customer also is very attractive, plus we have added mutual fund journey, so definitely that attracts stickiness of customers who wants to invest in some other product apart from stock broking progressively in might be fourth quarter of this financial year, we are going to introduce third party lending and all that.

So we’d like to be distributor of all services. That’s the reason I said that this year also we are looking at a concern like being into investment phase and we have worked out stretched target for our team and we are confident that we’ll be able to get good market share in areas, which are non-broking areas. So going forward, our focus now would be not only achieving good position in stock broking, like area but also achieving a good position in mutual fund, starting our businesses in lending, as well as going a bit aggressive on insurance side as well.

Aejas Lakhani — Unifi Capital — Analyst

Got it. All the best, Dinesh bhai. Thanks.

Dinesh D. Thakkar — Chairman & Managing Director

Thank you.

Operator

Thank you. We have our next question from the line of Sanketh Godha from Avendus Spark. Please go ahead.

Sanketh Godha — Avendus Spark — Analyst

Yeah. Thank you for the opportunity. My first question is basically of the same other expense cost. So if I do the math, is it fair to assume that to maintain the EBITDA margins around 45% to 50%, this overall expense will be like 27% to 28% of the total fee and commission income, that’s the way you want to operate these other OpEx given you said it is largely variable in nature?

Dinesh D. Thakkar — Chairman & Managing Director

Vineet, please answer this.

Vineet Agrawal — Chief Financial Officer

Yeah, it remains in that trajectory. So if you see the net income is about INR2,300 crores in our other income is in line — sorry, the other expense is in line of 25% or so.

Sanketh Godha — Avendus Spark — Analyst

Got it. And the question on the margin given to the clearing corporation, just wanted to understand that the float income, what you’re going to earn from the clients will remain, but the additional borrowing cost will be the additional cost, which will impact from FY ’24 onwards, right? So the float income is not going to go away, it’s only if ASBA becomes the reality, the only way to trade, then you have a challenge with respect to the float income. Thus, my understanding is right?

Vineet Agrawal — Chief Financial Officer

Absolutely right. So there is no impact on the float income under the upstreaming mechanism. It’s just that there will be some incremental cost of borrowing.

Sanketh Godha — Avendus Spark — Analyst

Can you break down, Vineet, the INR520 crores of interest income in the operating part into MTF interest income on your own money and float money or client money?

Vineet Agrawal — Chief Financial Officer

That right now I won’t be able to share. Once we applaud the schedules, you’ll have that data.

Sanketh Godha — Avendus Spark — Analyst

Got it. And finally, on the entire margin, what you give to the clearing corporation, can you give a broader breakup of the margin broken down into cash collected from the clients themselves and bank guarantee and the lien on FD? I mean, you indicated that INR40 crores is the cash and INR15 crores is closer to your own money, but what amount is bank guarantee? Is it the same amount what you are borrowing around INR700 crores to INR800 crores?

Vineet Agrawal — Chief Financial Officer

No. So, we don’t disclose the breakup and I mean, the underlying cash and cash equivalent, which we give to these exchanges is in that range of INR4,000 crores of client funds and the rest of our funds. How much of that is in the form of bank guarantee, that we don’t disclose.

Sanketh Godha — Avendus Spark — Analyst

Got it. And last one, MTF income somehow has not done great for us in FY ’23. Any measures internally you have taken to build this book over FY ’24 where that additional source of income can come, which has struggled in ’23?

Dinesh D. Thakkar — Chairman & Managing Director

Ketan, if you can take this question?

Ketan Shah — Chief Strategy Officer

Yeah. So MTF, we are working on that strategy to increase the book size and the market share there. So right now, we’ll not be able to disclose that, but yeah, we are on it.

Sanketh Godha — Avendus Spark — Analyst

But the trajectory is to make sure that in ’24, the fund size or the lending portion should be much better than what you have expected from — what we have witnessed in ’23?

Ketan Shah — Chief Strategy Officer

Yeah. So that’s the plan.

Dinesh D. Thakkar — Chairman & Managing Director

Sanketh, first of all, like we are not too much dependent on margin trading book because that is a concern like ancillary services given to customer who is onboarding for stock broking activity. There are lots of customers who do F&O and lots of customer who are doing on cash segment. So this cash segment is more dependent on market conditions. If at all we see a good rally in the market, they try to borrow more. So there would not be any linear correlation between like our revenue growth and growth in MTF, but having said that, we are working on lots of new products on MTF side. So we will see improvement on that side.

Vineet Agrawal — Chief Financial Officer

Just one correction. So a few minutes back, I had mentioned the ESOP cost as INR110 crores. The breakup of that into PSUs and the other stock options is — PSUs is about INR55 crores and not INR85 crores and the rest is again INR55 crores, so.

Dinesh D. Thakkar — Chairman & Managing Director

So it remains same as last year, almost same.

Vineet Agrawal — Chief Financial Officer

Yeah. Just that correction.

Operator

We have a question from the line of Sanjay Kumar from ithoughtpms. Please go ahead. Mr. Sanjay Kumar?

Sanjay Kumar — BMS — Analyst

So just one question. So I understand equity F&O structural trend since 2008, ’10. So, but what is happening in commodity ADTO? Because it’s also growing exponentially. Are we enjoying the efforts of MCX or is it down to what we are doing? Like now we’ve gone from 25% market share to 55%, it’s a phenomenal performance. So just wanted to understand this part.

Dinesh D. Thakkar — Chairman & Managing Director

Ketan, if you can take this question?

Ketan Shah — Chief Strategy Officer

Yeah. So if you look at commodity, largely the new volumes are coming on the options side and MCX is introducing various products on the options side. And given the fact that we were the early provider of options on our platform, on the mobile platform, that’s the benefit that we are getting today and hence our market share there is growing.

Sanjay Kumar — BMS — Analyst

Okay. Is this also a structural trend like equity F&O or is it linked to volatility in commodity prices, so it’s more short-term in nature?

Ketan Shah — Chief Strategy Officer

So MCX is bringing lots of innovative products there and MCX were — I mean so options were lacking on their platform, which now we are seeing lots of traction to it. So those products are actually helping business growing.

Sanjay Kumar — BMS — Analyst

Okay. So right now, I think it’s at 4%, 5% kind of contribution. So can it go to double digits or can it add more value for us going forward?

Dinesh D. Thakkar — Chairman & Managing Director

It would be too early to quantify that, but we are seeing good traction there for sure.

Sanjay Kumar — BMS — Analyst

Okay. Okay, sir. Thank you. That’s it from my side.

Operator

Thank you. We have our next question from the line of Sakshi Goenka from Sohum AMC. Please go ahead.

Sakshi Goenka — Sohum AMC — Analyst

Yeah, hi. Thank you for taking my question. Just one follow-up on the margin funding. Suppose a secondary ASBA is implemented and all customers go for secondary ASBA, is that INR4,000 crores on our balance sheet, which is in the form of trade payables, will that disappear? Is that understanding correct?

Operator

Sorry to interrupt. Ma’am, can you use your headphone, please, your handset?

Sakshi Goenka — Sohum AMC — Analyst

Yeah. Can you hear me now?

Operator

Yeah. Please go ahead.

Sakshi Goenka — Sohum AMC — Analyst

Yeah. Just a follow-up question on that margin funding, supposing a secondary ASBA is implemented and all customers opt for it, will the INR4,000 crores of trade payables, which are sitting on our balance sheet disappear?

Dinesh D. Thakkar — Chairman & Managing Director

Vineet?

Vineet Agrawal — Chief Financial Officer

It’s very early to comment on that because we still don’t have any visibility of how and when this ASBA mechanism is going to get implemented. Whether it will become mandatory both for the clients or the brokers or is it going to be optional, so it’s very difficult to actually quantify anything.

Sakshi Goenka — Sohum AMC — Analyst

No, but assuming that everybody opts for it because everything will be now blocked in your bank account and nothing will be coming to you guys, so is it fair to understand that INR4,000 crores will not be with you?

Dinesh D. Thakkar — Chairman & Managing Director

It is a very hypothetical question. Right now like, we would not be able to answer that because we have to look at, like how smooth and easy would be for a customer to use that ASBA. So we are dealing with customers who actively require funds, limits and all that. So they don’t appreciate even a delay of a millisecond. So this whole banking system has to gear up to those concern like transfers of funds and all that. So I would say this is hypothetical question. Right now, we’d not be able to answer it.

Sakshi Goenka — Sohum AMC — Analyst

Yeah. Just one follow-up. Any timelines on appointment of new CEO?

Dinesh D. Thakkar — Chairman & Managing Director

We are looking out for an appropriate candidate, looking at what plans we have for next three to five years. So as and when we are able to identify a candidate, we’ll announce it to the market.

Sakshi Goenka — Sohum AMC — Analyst

Sure. Thank you so much, sir. Thank you.

Operator

Thank you. We have our next question from the line of Dixit Doshi from Whitestone Financial Advisors. Please go ahead.

Dixit Doshi — Whitestone Financial Advisors — Analyst

Yeah. Thank you for the opportunity, sir, we have ancillary transaction revenue of around INR258 crores and so this is like over and above what we pay to the exchange. So generally many brokers charge their clients on an actual basis. So is it we charge transaction charges to our clients with over and above the actuals that we pay to the exchange? And is this revenue under risk of any regulatory thing because generally, we have seen practices in the broking community that they charge on actual basis?

Dinesh D. Thakkar — Chairman & Managing Director

No, we charge based on exchange basis of slabs, so definitely our turnover in exchange is different and client-wise slab is a bit different. So there is no concern like thing that concerns us right now because it is as per what business they want to promote and what we charge is also within that regulatory framework.

Dixit Doshi — Whitestone Financial Advisors — Analyst

Yeah. Okay. So because your volumes are high, you were charged at a lower slab by the exchange, that’s what you’re saying.

Dinesh D. Thakkar — Chairman & Managing Director

Right.

Dixit Doshi — Whitestone Financial Advisors — Analyst

And sir, in this interest income, our float income would be roughly around INR200 crore?

Dinesh D. Thakkar — Chairman & Managing Director

Vineet, if you can take this question?

Vineet Agrawal — Chief Financial Officer

We are not disclosing the breakup of the float income and the interest income, which we earn from client funding book yet. Once we release our full set of financials with the schedules, you’ll have that.

Dixit Doshi — Whitestone Financial Advisors — Analyst

Okay. And sir, since we are — what is the investment that we have done in our Super App and that investment is complete now or — and the Super App is live and active now?

Vineet Agrawal — Chief Financial Officer

So in terms of the capex spend that we’ve done, as I had mentioned earlier, it’s in the range of about INR30 crores and the entire capex has — the spend has been capitalized since the Super App is already live on the platform.

Dixit Doshi — Whitestone Financial Advisors — Analyst

Okay. And if I heard you correctly answering one of the questions earlier, you said that you’ll be distributing loan products and we will also take the loan book in our book or we’ll take the risk or we’ll just distribute the loan products?

Dinesh D. Thakkar — Chairman & Managing Director

No. We would be a distributor apart from this kind of stock broking and AMC business.

Dixit Doshi — Whitestone Financial Advisors — Analyst

So it will be a platform for loan?

Dinesh D. Thakkar — Chairman & Managing Director

Yeah.

Dixit Doshi — Whitestone Financial Advisors — Analyst

We won’t take the risk of the loans.

Dinesh D. Thakkar — Chairman & Managing Director

No.

Dixit Doshi — Whitestone Financial Advisors — Analyst

Okay. And my last question, sir, because we are generating a lot of cash, almost and most of these products that we want to diversify is kind of a service and distribution kind of product, which may not require this kind of investment. So what do you think about investing this cash flow that we generate every year?

Dinesh D. Thakkar — Chairman & Managing Director

I think, like we have a decent dividend distribution policy to take care of excess cash, and we are definitely looking at lots of concerned investment and opportunities in the market, which can help us grow our market share in other areas of services that we aspire to become a leader.

Dixit Doshi — Whitestone Financial Advisors — Analyst

And lastly sir, by when are we planning to launch our own mutual fund?

Dinesh D. Thakkar — Chairman & Managing Director

Vineet, if you can just.

Vineet Agrawal — Chief Financial Officer

Yeah. So we got an in-principle approval as a sponsor in February and we have some time to submit our final application. Once we submit the final application, the regulator takes anywhere between three quarters to four quarters to complete the processing and give us the final approval, post that we can launch our schemes. So technically it’s about at least six quarters away.

Dixit Doshi — Whitestone Financial Advisors — Analyst

Okay. Okay. Thank you. Thank you, sir.

Operator

Thank you. We have our next question from the line of Saptarshee Chatterjee from Centrum PMS. Please go ahead.

Saptarshee Chatterjee — Centrum PMS — Analyst

Yeah. Thanks for the opportunity, sir, and congratulations on great set of numbers. I have just one question that you have said that the activation rate that has slowed down, it is across the Board. But when I see your slide number 22, where you have given age-wise bracket of like cohort price, distribution of brokerage income. There I see that two to three years, you have very high growth compared to other cohorts. Is it that their like number of orders per client is very different from otherwise or like how to read about this slide?

Dinesh D. Thakkar — Chairman & Managing Director

Devender, would you like to take this question?

Devender Kumar — Head of Online Revenue

Yeah. Hi, Saptarshee. So when you look at this slide, Saptarshee, this basically tells us the clients in various age brackets, so our main uptick of client growth started in FY ’21 when post-COVID — in fact, pre-COVID and then post-COVID, it just jumped up heavily like liquor industry as well. So what you’re seeing here, when you see INR242 million going to INR845 million, this is the large influx of clients that came in comparison to previous two to three years, that is being represented here.

If you look at the recent time where I think we are acquiring at a very healthy rate of clients, that represents — that is a more clear-cut understanding of how the revenues are progressing in terms of that. But if you look at the past data, our base before FY ’21 was pretty small. We have acquired a large base of customers, more than 1 crore since then and that’s what is representing when you look at this chart. So when you look at beyond two to three years, it will show a very significant growth in that particular year is what is visible from this chart. So you can’t compare it from that point of view.

But if you want to look at from this point of view, like I’ll give you an example. The quarter four ’22 client, which is INR1,534 million as a revenue number, that number as we have shown before, if those clients have moved to second year, which is basically quarter four ’23, that has become INR1,329 million. So you can actually see the correlation with slide seven where we have spoken about how the year one revenue and year two revenue of a client looks like.

So this is the movement of clients over one to two years, two to three years. So when you look at from a quarter four point of view, the same clients gave us INR1,534 million in the first year and the same clients gave us INR1,329 million in the second year when they moved to the second year cohort time. So that’s the way you read it and first two years, basically the number of clients have increased drastically, that’s why it’s difficult to read in this chart at this point of time.

Saptarshee Chatterjee — Centrum PMS — Analyst

Understood, sir. Just one related question is that your slide number seven beautifully gives the lifetime like how the revenue is acquired for the client, but I’m saying, for slide number 22, if we — my question is that for less than one year’s client, the revenue numbers actually is not growing much. Is it that concerns that a new — the quality of the new incoming client is deteriorating or like how do you read this?

Devender Kumar — Head of Online Revenue

So again, I think Dinesh also mentioned. Whenever you look at revenue, looking at six months and 12 months period is the right way to look at it. Here we have presented a quarterly revenue breakup, the revenue that we got in the quarter four, which was kind of a subdued quarter as well. So when you want to look at from that point of view, this number is not too readable.

We’ll have to look at from a yearly point of view to cover various kinds of market scenarios and a normalized revenue, which is comparable in nature, so we cannot read the revenue in that front because there you have their market conditions of that particular quarter affecting it. But moreover, if you ask me from an overall point of view, we have seen stability in terms of the first year revenue that we are getting from the clients in the prior year in this financial year is what our models and what data base showing at this point of time.

Saptarshee Chatterjee — Centrum PMS — Analyst

Okay. Thank you so much.

Operator

Thank you. We’ll take our last question from the line of Anand Bhavnani from White Oak. Please go ahead.

Anand Bhavnani — White Oak — Analyst

Thank you for the opportunity. Two questions. One is on insurance. So insurance is typically seen as a extremely high-push product and a lot of large players in this space, insurance distribution. They have call centers and they are setting up physical offices. How do you think of your insurance plan and your right to win in this segment?

Dinesh D. Thakkar — Chairman & Managing Director

Second question?

Anand Bhavnani — White Oak — Analyst

Yeah. Second question is on how do you see the impact of extension of, as for equity trading on your volumes. Do you have an expectation of how this should lead to change in equity volumes? And also can it affect your commodity volumes given that several of your customers might be doing both equities and commodities?

Dinesh D. Thakkar — Chairman & Managing Director

First question, insurance, Saurabh will answer that, but let me address your second one. The extension of time depends on how much they’re going to expand. They extend only till five, it will not be big impact on our volumes. Neither our cost will change because we are a digital player. [Technical Issues] Hello. Can you hear me?

Anand Bhavnani — White Oak — Analyst

Yeah, I can hear.

Dinesh D. Thakkar — Chairman & Managing Director

Yeah. You can hear, okay. So if they extended like a commodity market till midnight, then we will see a good increase in volume. There’s people who would like to take advantage of global market trends and all that. So we will see less of a gap up and gap down that will create more confidence in retail that there would not be any overnight concern like risk in equity market. So we are very hopeful if at all this time is extended till midnight, we will see a good improvement in market volumes and a good participation from retail.

On your first question on insurance, Saurabh, if you can answer that?

Saurabh Agarwal — Chief Experience Officer, Head of New Business

So we already have a very large sub-broker base and very strong agent presence on the ground, that will obviously help us in building our insurance portfolio. Having said that, our core belief is insurance industry will also undergo strong change in terms of making things more digitized over-time and which is where our core B2C app and the focus on consumer value prop will come into play. So we’ll not be pushing insurance hard like agents have done over the past. I think that is not the core agenda. Does that answer your question?

Anand Bhavnani — White Oak — Analyst

Sure. Thanks, and all the best.

Dinesh D. Thakkar — Chairman & Managing Director

Thank you.

Operator

I would now like to hand the conference over to Mr. Dinesh Thakkar for closing comments. Over to you, sir.

Dinesh D. Thakkar — Chairman & Managing Director

Thank you for joining us on today’s call. I hope we had been able to answer all your queries. Should you require any assistance, please feel free to get in touch with Hitul Gutka, Head HR or SGA, our Investor Relationship Advisor. Good day.

Operator

[Operator Closing Remarks]