Ladies and gentlemen, good day, and welcome to 5paisa Capital Q4 FY 2022 earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your phone. Please note this conference is recorded. I would now like to hand over to the management. Thank you, and over to you.
A very good afternoon, everyone. Myself, Prakarsh Gagdani, CEO and Whole-Time Director of 5paisa. I welcome you all for the Q4 and the annual conference call for the financial year 2022. Joined by my colleague and our CFO, Mr. Gourav Munjal. Before we open for questions, I would like to share how the entire last year and last quarter went by for us as well as for the entire industry. Friends, the last two years have been outstanding for the industry as a whole, and especially financial year 2022. I feel that every disruption in the industry needs an inflection point which takes the business to a whole new level. Pandemic proved the same for broking. With technology at the forefront, fintech players led this disruptive entry of capital market to every town of the country.
In just 2 years, overall Demat accounts in the country have more than doubled. In FY 22 alone, we added 3.5 crore Demat accounts, which is 146% more than the last year. It actually means that almost 2.5% of the population entered capital market in just one year, and most of them for the first time. Debate about the seriousness of the people or the investment side, the age bracket that the investors are coming into, the longevity of the users, and with respect to sticking around. One thing is for sure, trend is absolutely positive, and we are on a track to be a nation with a sizable population investing directly or indirectly in market as compared to the traditional ways of investing.
With per capita income growing and awareness about capital markets spreading in the younger generation, I foresee a stronger capital market in the coming years. Talking about 5paisa journey last 12 months, I am delighted to share that we acquired 1.38 million customers in last 1 year, which was 100% more growth than last year. Our customer base grew by 102% for this year. We continue to be the fifth largest discount with a market share of 4% in the incremental Demat account getting added in the industry. Our growth in acquisition complemented with our average daily turnover of 129%. Despite competition opening more accounts, our ADTO growth, especially in the equity derivative segment, is in line with our industry growth on the.
Which is basically the exchange growth and our growth is almost the same. It clearly is in line with our philosophy of opening quality accounts who have genuine intention of trading. Our active clients as a percentage of total clients stand at a healthy 64%. We are not just able to acquire customers, but we are also able to engage them. Our monthly active users, which is typically MAU on our mobile app, now stands at approximately 1.6 to 1 billion customers. This is 60% higher than March last year. Our overall business numbers indicate a healthy growth.
Sir.
Hello.
Hi. Sir, I'm really sorry to interrupt during the call. I'm getting voice break the line, sir. Is it okay if I may call you back in a minute?
Yeah, sure.
Ladies and gentlemen, please stay connected while we connect the management team back on the call. Ladies and gentlemen, we welcome the management team back. Please go ahead, sir.
Yeah. Sorry for the interruption. I'll repeat what I said. Our monthly active users on our mobile app is almost 1.6-1.5 million customers as of March 2022, which is almost 60% higher as compared to the previous month last year. Our overall business numbers are also indicating healthy growth, which is 42% growth in the number of orders, 107% growth in our margin funding book, which stands at around INR 300 crore plus today, and a 53% growth in our overall top line. As you are aware that we raised around INR 250 crore from marquee investors in May 2021. This resulted with fundraise, we began our investment in technology and also branding.
In technology, when I say it means both, investing in people and also building our infrastructure and product. This resulted in cost profitability. Though this was an investment in our business for future growth, and I've shared that in the previous calls also with all of you, but we still managed to maintain our profitability and yet grew our both customers and revenue. Our investments have started giving fruits with this quarter showing a sequential profit growth of 500%. Last quarter, we had a PBT of about INR 1 crore, and this quarter it's about around INR 6 crores. Now, this is all about the quantitative aspects of business. Now let me talk something about the qualitative aspects of business. Mobile first Fintech company. For us, customer delight on our platform is paramount.
Our focus on improving our onboard experience has led to a growth of 62% in our lead conversion. Not just that, but today 78% of the customers open their account without any assistance, and that too straight through without any rejection or objection. Our mobile app with more than 12 million users is 4.3, which is one of the best in the industry. We have not just improved customer experience during onboarding and opening a Demat account, but also worked on overall customer delight. Our NPS score, which stands as an ultimate test of our customer happiness, stands at 81% today. Talking about technology investment, one of the objectives of our fundraise was investing in technology. It was expanding our team, building product, building infrastructure for the next growth, hiring and investing in talent across digital vertical.
I would like to apprise all that we have taken a leap jump in the same. Our digital team today stands at around 208 people, whereas we were just 73 last year. We are also in the process of creating a brand new data center of a bigger capacity than we already have, and this will be an addition to the infrastructure we already have today. On the product front, we are in the process of revamping our mobile app, which is our predominant platform for trading and for all our users. The objective here is to provide a best-in-class experience to our customers, not just who are coming to market for the first time, but also the seasoned players. Our mobile app will now have not just the powerful and scalable back-end, but a sleek, beautiful and a feature loaded front-end too.
Our app will be providing data information and features which will be unparalleled in the industry as of now. Before concluding my address, I would like to touch base on our quarterly performance. I'm again delighted to share that yet another strong quarter. Our overall revenues went up by 10% sequentially. As I said that our profits are up by almost 500%. For previous few quarters, we were investing in tech, product and branding, which resulted in subdued profits. With this quarter, we are almost through with our investments in tech and product. From now on, our cost increment will be much lesser as compared to our revenue growth. We will continue our focus on our growth, which is customer acquisition and revenue. I'm confident that this will also help us to improve our profitability in coming quarters.
With that, I conclude my address and I open floor for question- and- answer if you have. I'll be more than happy to answer those. Moderator, if you can just take the Q&A.
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and one again. Participants are requested to use handsets while asking a question. Our first question from Mr. Sarvesh Gupta from Maximal Capital. Please go ahead, sir.
Good afternoon, sir. First question is that you have grown 50 odd percent this year. But, you know, compared to your competitors, especially the digital brokers, the growth seems to be on the lower side. Where, you know, we know the numbers of at least two of which have grown by almost 100% in one case and 70% in another case. The other thing is that now the scale at which they are in terms of revenues is almost 7-10 times of or more of where you are. In an industry where, you know, this is getting more and more concentrated amongst fewer players, what makes you confident that you still have the right to sort of stay relevant in the top three, four sort of a player or mindset of the potential customers?
Yeah. Hi, Sarvesh. You know, I agree that, and obviously you have more competition data than I have. See, first of all, we have to look at the growth, you know, what exactly we're talking in terms of growth. If I talk about revenue, if you see our last year, though the base at which we were last year, we wanted to raise capital, and that is the reason, you know, in the Q2 of FY and Q3, we had to slow down our growth because, you know, we needed capital to, you know, for the further growth. Now, that got concluded in the month of May last year.
From that, which is Q1, if you see, we have again started acquiring more customers and the revenue growth has now going up. I think if you look at the kind of comparison that you're doing for competition vis-à-vis us, I mean, which is maybe a listed competition or I don't see we have missed the bus. Secondly, broking is not something where you say that you whether you will be still relevant or no. At the end of the day, what matters is whether your product is being liked by customer. Is your offering actually targeting a set of customers, and are you able to retain them? If your long-term value of a customer is intact.
If that is there, then you will always be relevant. Now, I'll give you another data point. In my address also, I said that, you know, though we have not grown in terms of, you know, customer base. For example, the industry has grown by, you know, you know, Demat accounts has grown by 146%, but we have grown by 102% in customers. If you see the derivative turnover, you know, which is typically the lucrative, you know, part of the revenue. Now the derivative, we have grown almost the same as the exchange has grown. What exactly it means? It means that we are able to attract the right kind of audience, and the customers coming to us are sticking to the platform and trading. I think that is more important.
If you are able to do that consistently, it is a matter of time that your revenues goes up and your profitability also shoots up. I don't, you know, believe that, you know, today's, you know, large player will always continue to be. You know, five years back, most of the full service brokers were 10 times, 20 times, 30 times the size of a discount broker. A lot of people have written off this model at the start. What is happening today? The picture is completely changed. We don't know exactly what is going to happen in future. I, you know, being an entrepreneurial, with an entrepreneurial mindset, I don't see that, you know, today if you are not number one, you
Sure, sir. That is what my question was basically. Obviously, you know, full service brokers got disrupted by the discount brokers. Now within the discount brokers, if you account for the revenue market share, you would have lost it this year, compared to all the top three, four guys. If you do a revenue market share analysis, you have certainly lost the market share. What gives you confidence that you will be able to gain revenue market share among the top three, four players in the next two, three years? That was essentially my question, sir.
Our answer to this is very simple. Our product. Our trading experience and our product. I am absolutely certain that this is going to be, you know, an experience-changing moment for customers, and that is something that will drive our revenues and, you know, will grow our revenues from here. I know that the answer doesn't, you know, may not excite because, you know, that doesn't talk in number. If you use the product, you will understand what I'm trying to say.
Understood, sir. Second, sir, is on the expenses side. This year, while, you know, our revenues have grown by 50%, but the cost would have gone up even more, especially advertisement and all these costs. At what level do we see this operating leverage to play out for us? Because till now, you know, we are at a very thin, wafer-thin sort of a profitability. When do we see operating leverage coming in, which year and at what total revenue scale?
As I said that last two quarters, rather three quarters, we were investing in technology. Our tech expenditure, you know, increased multifold, and same was in advertising, marketing. That's the reason there was a profitability, you know, impact. I see, I think that is more or less, you know, done and it would be more of a linear cost growth. I think in next, you know, one to two quarter, we will see a linear or rather an exponential growth in profitability and the scale. The answer to your question is in next one to two quarters, we should see.
Another 20, 30, 40% growth from here would lead to cost not getting grown in the similar proportion? Are we at that level where we are saying that we have a much higher fixed cost which will enable us to grow from here without any additional cost being incurred?
We are more or less there. I'm not just putting exact number, but yeah, more or less what you're saying is right.
Okay, sir. Thank you and congratulations and all the best.
Thank you, sir. The next question comes from Mr. Rishikesh Oza from RoboCapital. Please go ahead, sir.
Hi, sir. Sir, some original customers are, you know, still paying INR 10 per trade. Do we plan to increase the broking rates sometime in future to INR 20 per trade?
See, we changed our broking plan from 10 to 20 from January 2020. It's been two years. Older customer continue to remain at 10, and we don't have any plans to, you know, make from 10 to 20. Rather, you know, one of subscription plans even today offer a INR 10 brokerage with a, you know, if you pay a fixed charge of INR 500 a month or INR 999 a month, we offer a INR 10 brokerage. As of now, there is no plans of increasing the brokerage from 10 to 20 and even 20 beyond.
Okay. No problem. Regarding your earlier question, which other participant just asked, so are we expecting the cost structure to stabilize at these levels?
Yes. As I said that I'm not putting a number, you know, at what cost, but yeah, you're right that the cost will stabilize at these levels. The increment in terms of revenue will not be, I mean, increment in the cost will not be anywhere close to increment in the revenues. You know, that's what I'm expecting in next few quarters to come.
Okay, great. Sir, can you please provide any breakup on the INR 36 crore of other expenditure, and how do we expect this in FY 2023?
I'll just hand over the question to Gourav. You're talking about INR 36 crore other expenses in quarter four, right?
Yes.
Mainly it is. Yes, mainly it is pertaining to our professional charges, which is pertaining to the cost of acquisition of the customer. INR 10 crore is the professional charges, and the second major cost is the IT cost, which is approximately INR 14 crore in this. The rest, INR 8 or 9 crore is approximate, related to the office admin, exchange, statutory charges, et cetera.
Okay. How do we expect this in FY 2023?
Broadly, the tech cost, as I said, will be more or less remaining same with, you know, 10, 15% kind of an increment over the year. Around 15%-20% increment over a year, but rest of the costs, you know, will be more or less the same.
Okay. Okay, got it. No problem. Thank you.
Thank you.
Thank you, sir. Next question from Mr. Deepak Poddar from Sapphire Capital. Please go ahead, sir.
Hello.
Yeah, hi.
Hello. Yeah, am I audible?
Hello. Yeah, absolutely. Please go ahead.
Yeah. Thank you very much, sir, for the opportunity. Now, sir, I want to dwell more on the cost part that last couple of participants have been asking. Now, sir, somewhere we are currently at about maybe INR 62 crore kind of a quarterly other expense if I kind of exclude the employee cost. This is the level we expected to stabilize over next maybe next couple of 2-4 quarters or maybe a marginal 2-3% quarter on quarter.
Mr. Poddar. Mr. Poddar, one moment. I'll just connect the management team back on the call. Mr. Poddar, if you could please repeat your question.
I just wanted to dwell more on the cost side. Now, currently, I think this quarter we are currently at about maybe INR 62 crore kind of cost levels, if I exclude the employee cost. You did mention that you look to stabilize costs at these 4Q levels with a marginal increase in our tech cost. Quarter-on-quarter a marginal 3%-5% kind of cost growth, will that be a kind of a fair range to look at for us?
See, it is. You know, as I said, it's difficult to put a number in terms of 3%-5% quarter. Your branding cost will be more or less stabilized. Your, you know, acquisition cost, which is directly related to the customers, will have a small increase there, you know, with the number of customers that we acquire. Apart from that, most of the costs, you know, will remain the same. You know, employee cost, this quarter will have one-time impact because of the appraisals that we do in April. That cost will have one-time impact, but then that will stabilize again.
Broadly, it would be in the range of what you are saying with maybe a small, you know, the acquisition cost if with customers if increases. The acquisition run rate increases.
Understood. Fair enough. Was the tech cost we incurred last, maybe last year? Yeah, last year.
For last quarter, as Gaurav said, it was around INR 14 crores. Full year it is somewhere in the range of INR 42-43 crores.
There we see 15%-20% increase, right? YOY.
Yeah, YOY.
INR 40-42 crores you mentioned, right?
42, 43. INR 43 crores, actually.
INR 42 crore, INR 43 crore. Understood. Sir, on the revenue side, I think we have been maintaining that our revenue largely will track our client acquisition growth, right? Now if I have to see last two, three quarters, our client acquisition or our clients have grown at about CAGR of maybe 15%-20%, but our revenue has grown at 10%-15% with some lag. Is that the run rate one is looking at in terms of the lag between the client growth and the revenue growth?
See, our objective is always to have a revenue growth in line with our acquisition growth. Sometimes, you know, when you are out there in the market acquiring customers, sometimes the quality of the customers change creates a bit of lag. You know, our objective is that if it is a 15% growth in our customer base, our revenue should also be in line with around 12%-13%, if not less than 10%. You know, so that we keep on tweaking that, but broadly, you know, with 2%-3% lag, we should be able to, you know, maintain that revenue growth and also customer base growth.
Understood. With a lag of maybe what? 1 quarter you said.
Sorry?
Lag of 3% I said. If at all-
Lag of 3%.
Yeah, 2%-3%. Yeah, yeah.
Yeah. Understood. My final query is on your client acquisition cost. I think, per client, I think currently our client acquisition cost currently stand about INR 720-INR 730 rupees odd. Do you expect it to reduce going forward as the scale kind of pick up for us?
Yeah. See, our last quarter acquisition cost was around INR 767. I see that, you know, maybe a 5%-10% kind of a scope exists, you know, further downside. Now it won't happen immediately. It will take time because, you know, if you see, you know, last quarter and last quarter of last year and this, you know, this quarter, there's anyways a good, you know, decrease in the cost. From here on, I see a 5%-10%, but it will happen very slowly over three to four quarters.
Understood. Fair enough. Yeah. That's about it. Yep. All the very best, sir. Thank you very much.
Thank you. Thank you.
Thank you, sir. The next question from Mr. Sumit Jangra from Motilal Oswal Financial Services. Please go ahead, sir.
Thank you for providing me the opportunity. My question is in line with the previous question only. Sir, what is the payback period for the? You mentioned that client acquisition cost is INR 767. What is payback period for that? My second question is that you mentioned that the derivatives turnover is in line with the market turnover. Can I know what is current market derivatives market share and the cash market share?
Talking about the payback period, we maintain it around 8-9 months. That is stable, right? On the derivatives side, we do almost close to INR 1.2 lakh crore turnover. Our market share in the derivatives market is stable at around 3% of the retail market share.
Okay. Sir, and about cash market share?
Cash market is also in the range of 3%-3.5% of market share.
Okay. Thank you, sir.
Yeah. Thank you.
Thank you, sir. We have the next question from Mr. Deepak Sonawane from Haitong Securities. Please go ahead, sir.
Yeah. Am I audible?
Yeah.
Yeah. Thank you for the opportunity, sir. Sir, I'm just looking at your cost of acquisition over the last three quarters, and we can see that it is slightly stagnant, right? Even in Q4, the gross client acquisition was slightly lower compared to previous quarter. The CAC was still around INR 77 crore. So can you explain a bit about the stagnancy of the CAC?
I think there is some correction. You said INR 76 crore. That is actual number. Our CAC per customer in Q4 is INR 767-
Yeah. Sorry. Yeah.
Which was INR 769 for last quarter. Our CAC reduced, but overall number. If you see the number has reduced, which will have an impact on the overall cost of advertising and marketing. The CAC has remained flat for the last two quarters, from INR 769, INR 767. Yeah.
Yeah. That's my question. Like, why it is being stagnant? I mean, or else I'll rephrase my question. What is the percentage of your tech cost in the CAC per customer?
Tech cost in CAC?
Yeah, yeah. Yeah.
Sorry. Normally I don't see tech cost as a part of CAC because CAC has you know three components that we'd normally look at, which is your marketing cost, which is spending for you know acquiring a lead, which stands around INR 572. The balance INR 195 is people cost and the OpEx related costs related to acquisition. Tech, our tech is not. There is no dedicated tech towards you know acquisition. Our tech is basically our product, which is our mobile app and all the integrations that we have done. With that remains same for even acquired customer and being acquired customer. There's no bifurcation of the tech cost here.
All right. Thank you. My second question is regarding, we have seen some kind of other players, let's say, some other players are coming with plans that are kind of free, with them charging one-time fee or else, quarterly AMC. Do you see such kind of plans will persist or else, will disturb the industry current per trade rate or else, those kind of metric?
Yeah, I think these plans which are coming. I think it's more of packaging rather than, you know, disruption. I think the kind of costs which are now required to run a broking business with all the regulations and compliance changes has gone up. The capital requirement at the exchange level has gone up. The compliance requirements have gone up. I don't see that, you know, there is any room for further disruption in cost, which is brokerage or the rate of brokerage is concerned. Yes, there might be players and there might be competition who might come with some package, you know, with some packages which will look attractive.
At the end of the day, broadly, what they're gonna take is the same amount of revenue that, you know, brokers like us were charging like a INR 20 flat. I think it is more of packaging rather than disruption. I strongly feel that, you know, there is very less room for any reduction of costs from here on.
Okay. Thank you, sir. Thank you so much.
Thank you.
Thank you, sir. The next question from Mr. Pranav Gala from iWealth Management. Please go ahead, sir.
Hello. Thank you for the opportunity. Am I audible?
Absolutely. Please go ahead, Pranav.
Yeah. Sorry, sir, if I'll be repeating the question. I have joined in late. Apologize for that. Sir, I was just seeing on our ad and marketing expense. For the last 3-4 quarters, if I would see, it had been around 30%-35% of our sales, right? Now, for the current quarter, it's come down to just 30% mark. How do we see this cost going forward?
As I said that, you know, earlier, for the two quarters, which is Q2 and Q3, we were investing, you know, in branding expenditures and also increasing our advertising expense.
Mm-hmm.
Now it is, you know, still around that. Yes. This, for example, this quarter we acquired around 3.5 lakh customers. If that number increases in the coming quarter, then that much proportion of cost will increase. Overall, branding expenditure will remain more or less, you know, the same that we had, you know, for last year. I don't see much increment over there.
It might be around 32% mark of the sales approximately.
Yes.
Sir, other question was to that would be because we have our client acquisition cost in the other expenses side of it, right? Is there a difference when it comes to, do we put the marketing cost differently from the client acquisition cost? Because client acquisition would also have the marketing cost as well, right?
No, no, I didn't get your question. If you can repeat your question.
Actually, on the client acquisition cost which you had mentioned earlier.
Yeah.
Doesn't that include the marketing and ad spend as well? Because that is how we will be acquiring clients.
It includes all the expenditures which is marketing. The only expenditure which is not included here is our branding expenses, which are typically ad hoc one-time kind of expenditure. That is not included, but everything else is included here in the CAC.
The INR 26 crore ad and marketing is the branding expense and not the client acquisition expense.
No, this is when in the cost line item it is inclusive of both. But in the CAC which I'm showing, which we are showing in the presentation which is INR 767-
Right.
In that the branding is not included, rest everything is included.
Oh, okay.
Just to add in line, out of INR 26 crore, INR 20 crore is related to the CAC and INR 5 crore is related to the branding. If you multiply our CAC with the number of acquisitions, it's INR 20 crore, which is included in INR 26 crore.
Okay. Got it. Okay, sir. That's it. Thank you.
Thank you.
Thank you, sir. Ladies and gentlemen, if you have any questions, please press star and one on your telephone keypad. Ladies and gentlemen, if you have any questions, please press star and one on your telephone keypad. The question comes from Kajal Gandhi from ICICI Securities. Please go ahead.
Hello. Hi. Yeah, good afternoon, sir. Congratulations on this set of numbers. Sir, I wanted to know any particular reason we have seen activation being higher this time?
Sorry, what being higher?
I'm sorry, sir. Ms. Gandhi's number has dropped off. We're just getting in touch with her. Ladies and gentlemen, if you have any questions, please press star and one on your telephone keypad. Ladies and gentlemen, if you have any questions, please press star and one on your telephone keypad. In the meanwhile, we have Mr. Sumit Jangra from Motilal Oswal Financial Services. We have a follow-up question for him.
Yeah.
Yeah. Yeah. Thank you for providing the approach, Jamnin. I want to know what is the fixed cost to income ratio for this quarter, for the Q4? And what is the cross-sell client penetration for the product per client?
For the cost income ratio, I can give you the breakup. Sixty-eight percent is our gross margin and five percent is our, I mean, that net profit ratio. Overall, our fixed cost ratio is coming for this quarter is 61% approx.
Okay.
Yeah.
Okay.
Yes. For cross-sell, broad, you know, penetration would be around 1.07-1.1, around that per the product per customer.
Okay. Thank you, sir.
Thank you.
Thank you, sir. The question comes from Kajal Gandhi from ICICI Securities. Please go ahead, ma'am.
Yeah. Hi. Line got disconnected. I wanted to ask any reason for activation rate being on the higher side this time? We see active clients growing faster.
Okay. I mean, this quarter, and that is not just this quarter, but every quarter what we do is we run activities on older customer to activate them. You know, we nudge them through you know sending out the portfolio related notifications and communications with regard to our products. These nudges that we run you know activate the customer. That has worked. Some of these activities have worked well in this quarter and that's the reason you see a bit of good growth in the active client as compared to last quarter.
Sir, any focus on P2P right now or that is right now is not in any focus?
For now, you know, right now we are focusing only on our broking and related business. For P2P currently, you know, it's on auto mode. Right now it's not a part of our strategy to go aggressive on P2P.
Okay, sir. Thank you. Thank you very much.
Thank you.
Thank you. Ladies and gentlemen, if you have any questions, please press star and one on your telephone keypad. As there are no further questions, I would like to hand over the floor to the management for closing comments.
Thank you very much for joining this conference. If you have any questions apart from this, you can reach out to us at ir@5paisa.com, and we'll be more than happy to answer your question. Thank you very much and have a great day ahead.
Thank you, sir. On behalf of 5paisa Capital, that concludes this conference. Thank you for your participation and for using Chorus Call Conference Call Service. You may all disconnect your lines now. Thank you and have a good day everyone.