Vakrangee Ltd (VAKRANGEE) Q1 FY24 Earnings Concall Transcript

Vakrangee Ltd (NSE: VAKRANGEE) Q1 FY24 Earnings Concall dated Jul. 17, 2023

Corporate Participants:

Dinesh Nandwana — Managing Director and Group Chief Executive Officer

Ammeet Sabarwal — Chief Corporate communication Officer and Strategy

Analysts:

Jignesh Kamar — Individual Investor — Analyst

Ankitha Sharma — Individual Investor — Analyst

Jay Tripathi — Individual Investor — Analyst

Rajiv Kulkarni — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and Welcome to the Vakrangee Limited Q1 FY ’24 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Dinesh Nandwana, Managing Director and Group CEO. Thank you and over to you, sir.

Dinesh Nandwana — Managing Director & Group Chief Executive Officer

Thank you. Good day, dear ladies and gentlemen, it is a pleasure to greet you all once again on behalf of our Board of Directors and senior management. We begin by thanking all of you for having spared time in joining us here today to discuss our first quarter earnings for the financial year 2024. Our current listed entity limited now consists of existing business of Vakrangee Kendra Physical outlet as well as the Digital Platform of BharatEasy mobile Super app.

Vakrangee Kendra business is now a pure retail-centric consumer facing and asset-light franchisee led business model. Today we have emerged as the go-to-market platform for the rural India for our various business verticals including the new edge Fintech and Digital platform. We are building one of the India’s largest last mile distribution platform and emerging as the physical plus digital ecosystem with a Pan India presence. Today we have more than 21,003 active transacting and newly onboarded outlets spread across 32 states, union territory 557 districts and 5,383 postal codes. Our 84% outlets are present in deep rural Tier 4 to 6 locations. This kind of presence makes us the partner of choice for any new business partners who wish to make their products, services available in rural India.

We have a clear focus on market expansion and to strengthen our first-mover advantage, w are planning to cover entire 764 districts, which is 100% of district coverage across the country through appointing district level Master Franchisee. We have successfully appointed Master Franchisee in 292 districts across 28 states across the country. These Master Franchisee would provide on ground operational support to our existing franchisees as well as drive new franchisee acquisition. This would lead to help us scale at a faster pace and expand on a Pan India basis. We believe this Master Franchisee initiative is a game changer and strengthen our local field presence and operational control at a ground level. We plan to achieve 100% district coverage by end of this financial year. These new initiatives would help us scale at a much faster pace and thereby achieving our long-term target well ahead of targeted timelines.

With the developments of a digital economy, India is fastly moving towards digital payment mechanism and emerging as a cashless society. With the fast pace of digital payment penetration, cash transactions such as ATM and banking cash transactions are expected to witness slowdown. Therefore, there would be profitability and viability challenge for standalone business model such as the only White Label ATM, only banking AEPS provider, only money transfer provider which are dependent on cash transactions.

Vakrangee is future ready with a clear focus on building long term, sustainable and profitable business model with focus on non-cash based banking offerings such as account openings, loan product, insurance services, fixed deposits and NPA recovery. Further, we have no dependency on single line of products or services and have a wide portfolio of products and services such as online shopping, total healthcare services, bill payments, online travel services, mobile recharge, CIBIL Score services, PAN card services, online opening of Demat and trading account opening services and many more.

Further, we have a strong foothold and brand presence in rural India and our customers trust us with their day-to-day banking needs. During quarter one financial year 2024, we opened 4 lakh new bank account, 2 lakh plus insurance schemes plus plans and policies and did more than 2 crores banking transaction with a gross transaction value of INR11,734 crores fees. There is a huge under-penetrated rural market with a huge retail and MSME customer base. Further, there is a lack of trust within the central — within the current rural customer base, therefore physical presence and assistance is a key differentiator.

Going forward, we are well structured to transition into a Neo Bank as we plan to launch new banking services through our BharatEasy Mobile Super app platform. Through this, we are focused to evolve into a unique O2O, online-to-offline platform, whereby there would be assistance available through Physical Kendra network along with digital Neo Banking services. Further, we have strong existing in retail customer base in rural India and we are focused on affordable pricing and unique online-to-offline consumer experience.

Commenting on the quarterly result, our total income stood at INR55.9 crore in financial — in quarter one FY ’23-’24, increased by 14.7% on year-on-year basis. Our EBITDA is stood at INR6.9 crores, increased by 55.9% on year-over-year basis and our PAT stood at INR0.49 crore in quarter one and ’23-’24, increased by 716.7% on year-on-year basis. Our profitability has started — just improving on a year-on-year basis as well as there has been improvement in operating margin whereby our EBITDA margin have improved to 12.5% for the current quarter. Our growth in margins and profitability shall continue as we scale up our network and operating leverage in quarter one ’23, ’24 our gross transaction crossed INR14,920.7 crores, to of transaction crossed INR3.3 crores.

We have appointed exclusive district level Master Franchisee partners in 292 districts across 28 states across the country. These Master Franchisees shall provide on ground operational support to the existing franchisee outlet as well as drive new franchisee acquisition. We plan to achieve 100% district coverage, Pan India presence by 2024.

Vakrangee Digital Venture Limited is a 100% subsidiary company of Vakrangee Limited. The company has launched a Mobile Super app-based business platform primarily targeting rural India. BharatEasy App, India ka Super App. We have made live and activated some of the key services like online shopping, online agriculture products, total healthcare services, online Demat account opening, CIBIL credit score rating services, as well as online Pan card application services. A unique differentiator and sustainable competitiveness advantage whereby our Digital Super app platform would be able to leverage the Vakrangee on ground ecosystem, a vast, well-diversified Pan India level physical store network of Vakrangee as a point of physical assistance, especially to consumer, to semi urban and rural remote location.

Vakrangee Digital Venture shall leverage the Vakrangee ecosystem, strong brand recall, l Vakrangee Kendra enjoyed good positive NPS among our users. Our NPS score is 68% as per Redseer Research. Access to existing Vakrangee customer base, access to existing networks of 21,000 plus outlet for physical assistance and consumer awareness. This unique proposition of digital along with physical would help the digital channel to scale up fast and would significantly reduce the cost relating to acquiring customers physical assistance, order fulfilling and retail management of online orders. Further leveraging physical presence would result into better customer interaction, system brand recall and better service experience and trust for the customer.

We have recently launched our strategy for Vision 2030. By 2030, we plan to have 100% Pan India coverage through our physical Vakrangee Kendra outlet network along with BharatEasy Digital Mobile app. Our target is to reach 3 lakh plus outlet along with minimum 15,000 plus ATMs. We are currently building a Pan India district level Master Franchisee network which will result in strong on ground operational management as well as higher stability in future. We plan to achieve 100% district level Market Franchisee coverage by March ’24. With this, our plan is to achieve a revenue target of $1 billion by 2030, along with a gross transition value of more than $150 billion.

Our company also has been globally ranked number one in the Sustainalytics ESG Risk rating ranking assessed in the Software and Service industry segment. Overall, Vakrangee has been recognized by Sustainalytics as an ESG global 50 top rated company. Vakrangee Limited has been identified as a top ESG performance out of more than 4,000 comprehensive companies that Sustainalytics cover in a global universe.

Vakrangee has been recognized by S&P Global and has a score of 78 ESG Score (S&P Global Score) in the Corporate Sustainability Assessment survey. Vakrangee has been accepted as a Signatory of United Nations Global Compact and we have mapped our sustainable initiative with the United Nations Sustainable Development Goals. Further, we have appointed Grant Thornton as our Assurance Auditor for our assurance of our integrated annual report.

Global recognition reflects company’s commitment to further enhance its corporate governance and transparency standards. Company has achieved global recognition across various platforms for its superior ESG performance and long-term business sustainability. Now with our Vision 2030, we have a clear roadmap towards growth, expansion and profitability. We are focused on expanding our network to 3 lakh plus outlet, thereby achieving $1 billion of revenue and $150 billion of gross transaction value.

I would now like to take this opportunity to thank our shareholders for their support. We can now open floor for question-and-answer session. Thank you very much.

Questions and Answers:

Operator

Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions] Thank you.

We take the first question from the line of Mr. Jignesh Kamar, individual investor. Please go ahead, sir.

Jignesh Kamar — Individual Investor — Analyst

Yeah. Good evening sir. I have seen that the company has released the Vision 2030. Can you please throw some light on the same? And as per current number, how would you plan to achieve the revenue of $1 billion and a target of 300,000 number of outlets? Can you please explain the growth plan of the company?

Ammeet Sabarwal — Chief Corporate communication Officer and Strategy

Sure. So basically if you see we have released — officially released our Vision 2030 as a detailed document in place, which is also available on our website. But I would like you to — I would like to take through you through this. So if you see basically what we are saying is that our first target is to have a complete presence through our Master Franchisee network. So we intend to cover entire 764 districts in this financial year itself. Before March ’24, we wish to have an exclusive district level Master Franchisee partner in place. So already we have completed 292 districts. So which is almost you can say 40% of the country has been covered through this. But we intend to have a complete 100% district coverage in this financial year.

And then what we are saying is currently we are having a network of outlets which is around 21,000 active transacting outlet. We wish to take this to around 300,000 outlets. Now this 300,000 outlet is again derived scientifically. Basically, where we are saying that every gram panchayat can have one Vakrangee Kendra outlet providing these multiple lines of production services and every urban ward basically. So in urban ward also wherever there is a lot of urbanization done, we have removed those. So wherever which are semi-urban in nature or rural in nature or there is a kind of lot of slum area population in there, accordingly there is 50,000 wards which are eligible where we can have a Vakrangee Kendra outlet. So overall the target is around 300,000 stores where we are planning to have this.

And this will be easily achievable once we have this franchisee network in place, because at 764 exclusive district level Master Franchisee partner then every district level Master Franchisee is given a target and where they are looking at their own particular district and their interests are completely aligned with our interest because they get a percentage of the fee from the franchisee income. So their interests are completely aligned whereby they ensure that operationally all the existing franchisees are given the proper service and support. At the same time, they are — interests are completely aligned in setting up the new franchises because they get a commission fee for each of these activities. So that is where this comes into place.

On the ATM side, we are targeting minimum 15,000 ATM because we feel that not every area would be eligible for an ATM. But on a very conservative side, we are saying out of these 300,000 stores at least 15,000 will be having an ATM in place. And if you see from a broader perspective, if we are able to set up these 300,000 stores and we have also given a mature store outlet economics where we are seeing on a maturity basis if my outlet is able to do with all services in place, is able to do around INR40,000 to INR50,000, which is again from a fairly conservative side, then again we are able to achieve the numbers which we are seeing. So around $1 billion of revenue with a stable margin profile of around 15% to 16% kind of EBITDA margins and around 8% to 10% kind of PAT level margin. So that is where we are targeting through our Vision 2030 document.

And also if you see the overall GTV, Gross Transaction Value, at the current run-rate which we are doing, we will be easily be able to reach around $150 billion of throughput. So that is — that is again something which is very much in place from our existing numbers. So it is not something which is very ambitious. It is something which is achievable as we achieve the year-wise execution target. So again, in this Vision 2030 document what we have done is we’ve also given year wise targets. So our year wise target are available in terms number of Master Franchisees, number of ATMs and number of active transacting outlet.

So if you’re able to track us on these numbers then the financials are the outcome of these operational numbers. So we are very confident right now with the kind of response that we’re getting in terms of from Master Franchisee as well as at the ground level from our franchisee network. We are fairly confident that we are on a strong footing right now. We have done a lot of hard work in the last four to five years where we have transformed the business and exclusive branded format store.

Post-COVID, we have transformed to a Master Franchisee network where the Master Franchisee, the local-level entrepreneur at a district level who is able to do provide local support as well as the local level marketing in addition to our centralized level marketing. So I think so we are now in the right framework where we are able to achieve these numbers. And I would request you all to also go through the Vision 2030 document where we have given a fairly detailed information and the layout of our strategy going forward. Thank you.

Jignesh Kamar — Individual Investor — Analyst

Okay. Thank you.

Operator

Thank you, sir. We take the next question from the line of Ms. Ankitha Sharma, an Individual Investor. Please go ahead.

Ankitha Sharma — Individual Investor — Analyst

Hi. My question is that you have started the concept of Master Franchisee and you have appointed Master Franchisee in more than 290 districts. How do you see that these Master Franchisee are helping in day-to-day business and how it is helping in increasing the revenue as well as profitability? Also, the operating margin are seen improving, but where do you see long-term operating and profit margin still be? Can you please elaborate?

Ammeet Sabarwal — Chief Corporate communication Officer and Strategy

Sure. So I will just give you a little bit brief on the Master Franchisee. Typically, a Master Franchisee is an exclusive business partner to us at the district level location. So for every one district there is one Master Franchisee whom we select. This Master Franchisee is typically with the background or with the profile of where we have been running our business similar to a distribution business. So we might be a distributor of a telecom or a money transfer or a insurance or any of these kind of services. So we’ve already having experience of running a network as well as managing operations.

Second thing, what we do is whenever we select a Master Franchisee, the Master Franchisee has to set up a team in place. So the minimum requirement is for the smaller district it is one plus two. That is apart from Master Franchisee, at least two more employees. And in a bigger district it is minimum one plus five. Then again based on the density of that particular district we increase the size.

And what we do is we provide them a complete induction and training from centralized level as well as at the state level. So we also have the state heads and the state team in place. And also at the centralized level, all our business teams as well as the training teams are in place where we make them undergo a complete training across all our services so that the Master franchise is well equipped in order to resolve the day-to-day operational issues. At the same time, he is well equipped in terms of managing the relationships at the local bank level or at the local partnership level.

Second thing, we also handhold them in terms of the marketing strategies in setting up the new franchisee outlets basically because their targets are twofold. One is basically they have to expand the existing network, so they have to set up new franchisee stores. And the second thing is to support the existing stores or to support the existing operations. So at the operational level what is happening is my existing franchisees are now getting a better service because they are already getting the service from the centralized operations, but at the same time they have a local district level person in place whom they can connect. And if there is any physical visit required, if there is any physical handholding required or any local level knowledge required, then the Master Franchisee person and his team is already in place.

So what we are experiencing is this — through this it’s an asset like model for us because it’s a variable cost model. The Master Franchisee is earning a percentage of commission from the franchisee income so the interests are aligned for everyone. Franchisee is able to get a better service because Master Franchisee — his interest is in that the franchise is running properly and earning better because he is going to get a commission of the — commissions that the franchisee earns. So he is there to support the franchisee. We are also getting benefited because there is no fixed cost model to us, so there is no local field-level use cost to us. Earlier we used to have a field level team and there was a — the monitoring was very difficult phase specifically during COVID. Now because of this Master Franchisee network in place, it’s a variable cost model to us because as the franchisees will earn better, the Master Franchisees will earn a particular income on the incremental business that they generate from the existing stores and even for the new setup of outlet they get a commission.

So in that manner it’s an asset-light model for us which help us better scalability. Second thing, better knowledge base and better operational support is there as there is a local level team in place. So many a times all this for the banking business, many a times you need to physically go and visit the zonal offices, regional offices in order to take a feedback on the BC code. So that is where the Master Franchises is available at a district level location and he can go and do the license for on our behalf.

And third thing is basically since now both these things work in tandem, the operating leverage kicks in because without any additional major expenses I’m able to leverage this Master Franchisee network and expand my franchisee network and also improve the financials of my existing store. So if you see, therefore you are seeing the betterment in terms of my operating margin. So my operating margins which were ranging between 7% to 10% over the last three to four quarters, now we are seeing that improvement and we have reached around 12.5% kind of operating margins in place.

So as we scale more and more, the sustainable margins which we have also shared in our Vision 2030 document is in the range of around 15% to 16% because 15% to 16% is where we feel that our EBITDA margins can remain stable. And in absolute amount, we are going to see a significant growth going forward as we scale the network and as we get all these 100% district covered under the Master Franchisee network. I hope this answers the query?

Ankitha Sharma — Individual Investor — Analyst

Okay. Thank you.

Operator

Thank you. We take the next question from the line of the Mr. Jay Tripathi. Please go ahead, sir.

Jay Tripathi — Individual Investor — Analyst

So, my question is why the number of outlets and ATM are not increasing and it is stable? You are appointing Master Franchises and it is their responsibilities for new acquisition. So can you please explain the same? Also, how you are planning to achieve the year wise target of outlets? How do we see the growth in terms of new outlet expansion plan?

Ammeet Sabarwal — Chief Corporate communication Officer and Strategy

Sure. So if you see basically, as I said, our first focus over the last six months has been on building this Master Franchisee Network because we feel that the next leg of growth has to be led by the Master Franchisee network because once we have the Master Franchisee Network in place, then the scalability can be at multiple facets rather than going in a linear fashion. So we felt to achieve the growth target which we are targeting. We need to have a local level presence in place and that is where the Master Franchisee focus came in. And if you see in the last six months, lot of energy has gone into, a lot of bandwidth has gone into setting up this Master Franchisee Network. And we have already achieved by setting up 292 districts where we have got the Master Franchisee Office in place now. And in this financial year itself we will be finishing the entire country, which is 764 districts where we’ll have a Master Franchisee in place.

Now, secondly if you see in terms of the number of outlets, so again, one more thing what has happened is, we have also — the disclosures that we have done is much more transparent in the sense that we are now sharing the active transacting outlet. So we have changed the definition a little bit. So all the outlets which are completely operational, fully operational and active, we are disclosing that number. So the 21,003 number that you are seeing is basically the active transacting stores which are transacting during the year.

And second thing is, basically if you see, as the market franchisees come into place and they are given the operational target, the number of outlet will increase substantially over the next 18 months to 24 months. Because what is happening is for the current year also if you see even in our Vision 2030 document, our target number of outlet is 27,000. So it is not something which we are going to double our network from 21,000, to say 30,000, 40,000. It is to 27,000, which is where by design or by strategy what we are doing is we are focusing on building the Master Franchisee network first. For this year target is to have 764 Master Franchisees in place. Second is to focus on their induction, their training to make that cycle very smooth. And then they are given the target, because just imagine 764 districts where Master Franchises are there, if they are given a target of even just setting 10 outlets per quarter, then it is more than 7,000 outlets per quarter. So that automatically it reaches 28,000 outlets in a year. So that is how the model becomes scalable.

So our focus is right now to set up the Master Franchisee framework, get all the Master franchises on board, complete their handholding, training, induction properly, and then we start to monetizing it. And that is where the big numbers will start following up in terms of number of outlets and number of ATM. For the current year, we have already rolled out our strategy. Our target is 27,000 stores and around 7,000 plus ATMs, which is on track and which you will see every quarter-on-quarter we will be sharing the update on the same and that is where we stand today. Thank you.

Jay Tripathi — Individual Investor — Analyst

Thank you.

Operator

Thank you. We take the last question from the line of Mr. Rajiv Kulkarni, an individual investor. Please go ahead, sir.

Rajiv Kulkarni — Individual Investor — Analyst

My question is, now the digital payment is increasing day by day and how it is impacting our business, do we see any decrease in the term of number of transactions? Also post demerger, we see any new line of services to be added in the business as e-governance has been transferred to another entity. Is there any new partnership or services in pipeline? Can you please explain?

Ammeet Sabarwal — Chief Corporate communication Officer and Strategy

Sure. So as we also highlighted in our introduction speech also that yes, India is moving towards a cashless society and a lot of digital transactions, market share of the UPI and everything what we are reading today is a reality where the number of digital transactions are increasing and that is where it tallies the standalone business model. So a standalone, it’s a white label ATM operator or a standalone, say DMT money transfer agent or a standalone BC AEPS enabled agent who is just doing cash deposit, withdrawal transaction, then it’s a threat to all those standalone businesses.

But what makes us unique or what makes Vakrangee stand out is that we are having a multiple line of products and services which is a mix of cash and non-cash transactions. So that is where we are actually able to leverage these digital payments also and we are able to monetize it across other services. So we are offering the e-commerce services, which is online shopping, online travel services. At the same time, we are offering services like account opening, FD, RD and insurance services, NPA recovery is also another service specifically for the PSU bank what we are doing. So we are also increasing our focus toward non-cash transactions and asking our franchisees to focus on these new products and new services, because on a longer-term perspective definitely there is going to be a reduction in the number of cash transactions but at the same time the consumption is increasing and that is where the non-cash transaction comes into play and that is where our focus is also.

So even in terms of new products and new services, we are talking to lot of OEMs where we are able to tying up directly with the mobile manufacturing companies brands where we are able to launch their product directly onto our Vakrangee E-Mart portal, which is our own proprietary e-commerce portal. At the same time, what we are also contemplating is how to leverage this ONDC network where we are also planning to have a buyer app as well as a seller app, targeting vice versa of selling of products and services. So that is where again our technology team and strategy team is working on. And I think so over the next couple of quarters you will see some development coming in on the ONDC side also because we feel that as a growth opportunity from a Vakrangee perspective.

So yes, definitely, as I told you, even our focus is moving towards non cash transactions. We are definitely increasing our focus towards non-cash transactions. We are already having a good amount of funnel in terms of new products and services in place as well as we are looking how to leverage this ONDC and have our own buyer and seller app to leverage this opportunity. Thank you.

Rajiv Kulkarni — Individual Investor — Analyst

Thank you very much.

Operator

Thank you. Ladies and gentlemen, that was the last question for the day. I would now like to hand the countries over to Mr. Ammeet Sabarwal from Vakrangee Limited for closing comments. Thank you and over to you, sir.

Ammeet Sabarwal — Chief Corporate communication Officer and Strategy

Thank you, everyone, for taking time out and attending our first quarter FY ’24 con-call. In case of any further queries or any doubts, please feel free to reach out to us. My email ID is ammeets@vakrangee.in. And also our Vision document as well as our corporate presentation is available on the website. So anyone who would like to have to look at it, can please download from our website. Thank you.

Operator

[Operator Closing Remarks]