Good afternoon, ladies and gentlemen. I'm Patricia, moderator for the conference call. Welcome to 5paisa Capital Limited Q4 FY 2023 earnings conference call. We have with us today Mr. Prakarsh Gagdani, Whole Time Director and CEO, 5paisa Capital Limited, and Mr. Gourav Munjal, CFO, 5paisa Capital Limited. As a reminder, all participants will be in listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need any assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone telephone. Please note this conference is recorded. I would now like to hand over the floor to the management. Thank you. Over to you.
Good afternoon, everyone. My name is Prakarsh Gagdani, Director and CEO of 5paisa Capital. Me along with my colleague, Gourav Munjal, who's our CFO, welcome you all to the fourth quarterly annual conference call, FY 2023. FY 2023 has been a year of consolidation for capital markets. Stock market remained range-bound throughout the year, with Nifty practically giving no returns. We have seen the results of the same, but very clearly demonstrated in the retail participation. ADTO on the cash segment, which is the main indicator of the retail participation, reduced by almost 26% if you compare March 22 versus March 23. Even the new DEMAT account growth in the industry slowed down. Previous year, which was in FY 2022, the industry grew by 81% and added almost 45 million DEMAT accounts in a year.
Last year, which is FY 2023, the industry just grew by 22% and added approximately 21 million DEMAT accounts, which is less than half of what we acquired the previous year. Despite these tough conditions, we've managed to successfully transform our organization with a vision of providing one of the best trading platforms to our customers. We changed our strategy in Q3 of FY 2021, FY 2022 of not just acquiring inter-customers in terms of numbers and dealing rightly, but to acquire a high-intent trading customers. In last 1 year, this has helped us to reduce not just our CAC, but also our payback time from 8-10 months to 6-7 months now. We kept technology and product on the forefront, invested in building our digital team.
We increased our manpower as a digital team from almost 208 people- 265 people. This very team helped us revamp our Android application. Today, our Android app has more than 15 million downloads, 4.81 lakh reviews with an improved rating of 4.39+. We launched our dedicated terminal, we call it FnO 360 for traders. Today, that has become a go-to platform for high-frequency derivative traders who are looking for tools, data, and strategy on derivatives trading. Our efforts on product strengthening helped us to improve our ADTO by 146% if you compare last year March to this year March. Not just that, we have also improved our market share a bit from 3%- 3.1% despite 45% less customer acquisition. Talking about our financial performance.
Despite the challenges we faced in the year with respect to subdued market participation, practically no returns in equity investment etc., we have managed to increase our revenue. Despite all the problems, we managed to increase our revenues by 14% from INR 298 crores to INR 339 crores. Despite our investment in infrastructure scale-up, manpower increase in digital team, our costs have more or less remained the same with just 1% increase. It has helped us to improve our profitability by 216%. I'm delighted to report our highest ever PAT of INR 23.6 crores for 5paisa Capital. Not just increase our profits, but also expanded our PAT margin from 5%- 13%. It is also important to note that we have started to get the operating leverage because of scale of our business.
We've explained in our presentation that we are broadly able to recover the cost, which is both the marketing cost and servicing cost in the first year with some marginal profit. A substantial increase in the profit margin comes from second year onwards in the same customer cohort. It is also clear that we are enjoying 50%+ EBITDA margin from customers who complete three years, you know, in our system. After talking about our online retail trading acquisition of IIFL Securities, which we announced in Q3 of FY 2023. The appointment date of acquisition is 1st April 2023. We are currently in the process of seeking regulatory approval, and I'm hopeful to complete this acquisition subject to the approvals in this financial year. With that, I end my opening remarks, and I open the floor for question and answer. If anyone has...
of you have any questions, please go ahead and ask. Operator, over to you.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star and one on your telephone keypad and wait for your turn to ask the question.
Thank you.
If you would like to withdraw your request, you may do so by pressing star and one again. The first question comes from Prayesh Jain from Motilal Oswal. Please go ahead.
Hi, from Okay. In the allied broking, major part is our MTF income. In our MTF income, 10,000 is INR 60 crore and INR 10 crore-INR 11 crore is the AMP and INR 10 crore-INR 11 crore is the BPMC and the rest is the transaction charges. This is a pie segment of INR 110 crore.
Okay. Okay. Okay. That's complete. Okay. How would you rate the impact of, you know, in case there is a complete transition to ASBA, and also the upstreaming of funds. How do you see the impact of both these measures to your business?
The first is ASBA is yet to get implemented. Yes, the ticket size there is, I think because the UPI-based ASBA platform, it will be around INR 5 lakh. It will impact, you know, the pains of the smaller ticket size customers. Even today, that ASBA will not impact much because even if people use the ASBA, it is for making pains. Even today, normally pains are done when customers are taking positions or you know, buying delivery. In most of the case, the money anyways goes to exchange as a part of our pains. The flow that brokers enjoy is basically when the customers sell their stock or clear their positions and keep a credit balance. We have not seen people transferring funds and keeping it idle.
Okay.
ASBA will not have much impact. On the contrary, it will become very easy for customers to, you know, transact because the success ratio is now on the UPI platform is very high. Talking about upstreaming, yes. Right now, with the regulatory changes, it will increase, you know, our working capital requirement because, with their very recent circular, the bank guarantees on the customer funds is not allowed. That will increase our requirement of working capital by approximately INR 100 crore-INR 125 crore. Right now, for our current requirement, we are internally well-capitalized to, you know, handle that requirement. For now, that will not have much impact.
Okay. When you are, when you're telling, when you mentioned about ASBA, that the money will generally lying when the.
Yeah. The upstreaming to clearing corporations are also allowed in the form of fixed deposits.
Mm-hmm.
Brokers will still continue to enjoy the interest on the fixed deposits. Anyways, more significant portion of the customer funds that are there are anyways parked with exchange, almost to the tune of 85%-90%. Is anyways parked with exchange in the form of deposits and bank deposits. That will continue. That 90% will practically become 100%.
Okay.
it's not that, the income is going away because exchange has even now allowed brokers to upstream the money in form of cash collateral, also in the form of fixed deposits.
Anything working capital requirement will go possibly the cost cut down approximate?
Right now, as I said that there will be a very marginal cost increase. Yeah. Gourav will take this.
Are we, you know, there is a INR 125 crore or INR 130 crore will be the requirement, so there can be an increase in costing, but that will not be much on that. It can be INR 4 crore-INR 5 crore. Okay. Working capital increase will be INR 125 crore-INR 130 crore.
Yeah.
Okay. Okay. Okay. Got that. With regards to this, IIFL customer transition, obviously you would have looked at the kind of ticket sizes and you know, what is the kind of nature of the customers in detail. Are they kind of relatively better than what customers or what experience you have with the customers, existing customers today, or would they be similar? How would you look at them more qualitatively than quantitatively?
See, broadly, with this transaction, we are getting approximately 15 lakh plus customers as a part of the acquisition. These are not like selectively chosen customers. They are a part of an online retail trading vertical of IIFL Securities. The nature of the customers, the behavior of the customer, the customer cohorts in terms of geography, age bracket, genders, more or less, are same, you know, what our customers are. The classification at their end is upon, is someone who has 10 lakhs and less, you know, margin. That's the reason because there was a cap and, in this particular vertical, the behavior in terms of ARPU of the customers may not be same as of Axis, it will be a bit less.
overall the behavior pattern in terms of, all the other parameters is more or less the same.
Got that. From a, from a outlook perspective, you know, this is the last question from my side. There has been so much talk about, you know, F&O activity of retail participants being on the higher side. First can you quantify the breakup of revenue in the brokerage side of commodities and futures and options, because between futures options and cash if you can. That is one. Secondly, what are the measures that the regulator can really implement if they want to kind of constrain this increase in activity?
Sure. Broadly, if you look at our breakup in terms of brokerage and derivatives, close to 75%-80% is the revenue that in today's market condition that we are getting from derivatives. It's broadly skewed towards derivative as of now. One of the reason is obviously higher participation of retail in derivatives, but it's also a very, very low participation in the cash segment. Yeah, currently it is in that range. Secondly, see there have been talks in terms of the higher retail participation. You see, if you look at numbers, and this is my, you know, my analysis of this entire thing.
Mm-hmm.
If you look at the real turnover, which is typically the premium into quantity, on the retail side of it is not more than, you know, the overall derivative turnover is not more than INR 50,000 crores, which is typically the same turnover the cash market segment is generating. The actual turnover in the retail, which is option trading turnover, equal to the cash market turnover. Having said that, yes, there has been an increase in the customers who are trading in derivative segment. That has.
Mm-hmm.
Because of the changes in the regulatory environment in last two, three years.
Mm-hmm.
A lot of people used to trade in the cash segment before 2021. That entire customer base, which was trading in cash segment, also shifted to derivative because cash segment leverage went away. In cash segment earlier, broker used to provide at least 10x , 12x leverage. Now that has gone.
Mm-hmm.
Where do you get 10x ? It's typically Nifty, because Nifty margin is in the range of around 8%-9%. That's where you get leverage. That customer-
Mm-hmm.
Shifted to derivative. Secondly, overall DEMAT account numbers actually from 3.5 crore we are at 11 crore DEMAT accounts.
Mm-hmm.
When you have more retail participation coming in overall capital market, the numbers will go up.
Mm-hmm.
Yes, there has been advisory, there has been, you know, reports and SEBI has also submitted, published a report in terms of how many people are making losses. I think it's a general, you know, behavior. Today the leverage is gone out of system. Brokers can't do leverage. Customers have to come with complete cash. There is absolutely transparency. I think a lot of measures are already done. What more will be done is something that we'll now all have to, you know, see. You know, I don't see that this as a such a, you know, a dangerous trend that is being perceived otherwise.
Mm-hmm. Thank you so much. All the best. I'll come back.
Okay. Thank you very much, Sunil.
Thank you. Next question comes from Deepak Sonawane from Haitong Securities. Please go ahead.
Hi, sir. Am I audible?
Yeah. Hi. Yes, absolutely.
Yeah. Yeah. Congrats for the set of numbers. My first question is.
Thank you very much.
On cost of acquisition. We have seen quarter on quarter, and again for industry as well, quarterly average client acquisition run rate is slowing down. For us, we can see that cost of acquisition has gone up quarter on quarter as well. That is mainly because of using other OpEx. What major item that's classified as other OpEx, we've reported around INR 293 per client other OpEx for Q4 FY 2023.
The OpEx, see typically what happens is that, you know, because other OpEx also means the call centers, our sales team, which is, you know, a part of our call center team who assists customers in opening accounts. Now, that is a fixed cost of people, and that cannot change immediately with the quarter. If there is some drop in the acquisition for a quarter, obviously the fixed cost of employees, if you divide by the number of customers, that increases. I think that's the impact on the, you know, acquisition, which I, you know, feel is just a temporary thing. Broadly, in my previous calls also, I have said that, we've been working on reducing our CAC and more or less that activity, you know, is over.
I somewhere see that our CAC will range between INR 500-INR 600, depending on, you know, sometimes the market scenario in terms of acquisition, sometimes, the composition of acquisition that we are doing in terms of paid performance and also, the organic growth and the reference. Broadly, this will be the range. A small here and there is only because of the fixed cost of employees and the other office expenses that we have.
Okay. From marketing side as well, we have seen some kind of uptick, right, on quarter-on-quarter basis, from INR 246 to INR 257.
Yes. Yes. Yes. There'll be a small, you know, INR 50-INR 70 movement that will keep happening, you know, here.
Okay.
Broadly, the trend will be in the same range. You know, if you look at the last six quarters' performance from we were in the range of around INR 750-INR 800, and from that end we will be in the range of around INR 500-INR 600. You should consider that as a broad range.
Okay. My second question is on, I mean, a cash position on balance sheet has reduced drastically, right, year-on-year. I mean, from INR 89 crore to almost around INR 21 crore. As against our borrowings, even, I mean, the same pace they have gone down, right? Any particular reason, major reasons for this drop?
Okay. The cash and cash equivalent, we should always see with the bank balance too because one is 50%, one is liquid cash. If you combine together it has gone up.
Okay.
Cash and cash equivalent is just, you know, balance sheet dates or figure that how much cash you are keeping to the exchanges.
Okay. Second question is related to the borrowings. Actually, the borrowings is majorly related to the MPL book. You can see our, you know, loans book, which is coming down from INR 250 crore- INR 172 crore. A major impact we have seen in the month of March, hence the borrowing has been reduced. Thank you.
Thank you.
Thank you. Next question comes from Kajal Gandhi from ICICI. Please go ahead.
Hello. My congratulations on good quarter results, sir. Thank you very much. One was on this. Can you please explain more on this large number trades, you know, you have shared with us the second quarter here. Second was on this, the increase in turnover which we have seen sequentially, so is it led by increasing number of orders or ticket size per order or both in the color and what? I think were the two questions.
Kajal, I'm sorry, but I could not get your question very clearly. If you can repeat both your questions, I think we can answer one by one. What was your first question?
First was, about I want to ask, this live trades. I wanted to understand more on this live trades, what we are explaining out here. Second was whether, the increase in turnover essentially what we have seen is led by rising orders or rising ticket sizes.
I think the first question was related to the customer cohorts that we have shown and the high LTV, right? That's the question.
Right. Right.
Yeah.
Yeah.
What we're trying to show here is that whenever we acquire customers, there's an acquisition cost and then there's a servicing cost. This is that, what is the profitability that we achieve in every year. If you look at calendar year 2018, then that customer set has completed six years with us. sorry, five years with us, and this is the FY 2023, which is six years. In five years, what is the margin that we are getting, and subsequent years, and how much are we earning from that customer on an overall basis in five years.
If you look at, you know, the idea of sharing this was that broadly in the first year, barring last two years because we were investing heavily in technology and infrastructure, you see a first year, you know, negative, you know, return in terms of losses. Broadly, we are seeing that in the first year we recover the cost both in terms of acquisition and also servicing. Post that there is a high profit margin gain. We are clear that if at all customers are there with us for three years, the margins will increase.
This also means that going ahead, because of the steady state of business, our, you know, overall margins of the business, which our PAT margin stands at around 13% today, will continue to increase over a period of time. The whole idea of getting the operating leverage in a model where at some point your cost gets fixed and then it's only incremental revenues which increases your profitability, the idea of this was to show that. Second point about the ADTO. The rise in ADTO is a combination of three things. One, it is increasing number of customers which also translates to increasing number of orders and also the ticket size.
It's a combination of both that we are seeing an increase in the overall ADTO sequentially.
Okay. Thank you. Thank you very much.
Thank you. Bye-bye.
Thank you. Next question comes from Rishikesh Oza from RoboCapital. Please go ahead.
Hello, am I audible?
Yes. Yes, Rishikesh.
Hi, sir. Thank you for the opportunity. My first question is regarding the broking rates. How do you see the broking rates to evolve going ahead, you know, given that the compliance costs should be increasing and the floating income would be reducing?
See, I have said this in the past also that the kind of regulatory changes, which are coming, it is increasingly getting difficult, to maintain margins in business. As of now, till date, the changes which have been proposed is not having a significant impact on the cost. That's why, brokers are able to provide at INR 20 per order.
Incrementally, if there will be an impact on, you know, the incomes that we generate, for example, the treasury income that we generate on a deposit, if there is, if there is an impact on that or if there is any other impact which leads to a reduction in the derivative turnover or, you know, any other change brought in by regulator, obviously the cost of running business is as it is fixed. You know, we will not be left with any choice but to increase broking rates. I think that may not be next, you know, couple of quarters, but post that, there may be a probability, there's a higher probability that the rates may go up.
Okay. Okay. Also, sir, what is your customer acquisition for 2024?
We acquired close to 7.5 lakh customers in the financial year.
And for-
Are you asking for projection for this year?
Yes, yes.
I won't be able to give you know, an exact number, but we will be in the range of, say 7.5- 1 million kind of customers.
Okay. Also One more question, sir. What is the other operating income of INR 18 crores?
This is, again, that closed income.
Treasure income.
Treasure income. Yes.
Okay. Okay. Also if you could provide any metrics on daily active users and monthly active users?
Sir, we don't share that data.
Okay. No problem. Thank you very much, sir.
Yeah. Thank you. Thank you.
Thank you. Ladies and gentlemen, if you have any questions, please press star and one on your telephone keypad. I repeat, ladies and gentlemen, if you have any questions, please press star and one on your telephone keypad. We have a follow-up question from Deepak Sonawane from ICICI Securities. Please go ahead.
Hi, sir. Thank you for the follow-up. I mean, I have only one question, especially on our LTV, I mean, the calculation that we have shown in line number 12.
Yeah.
instead of if you look at, I mean, let's say, if you can give us any color on, let's say for a CY 18 on first year risk...
Yeah.
Generated almost around INR 100 revenue. For subsequent years, what would be that revenue? I mean, because 14% EBITDA margin would be mainly impacted by CAC, right? If we just look at our revenue, gross revenue, gross broking revenue, what would be that trend?
See, it is, it will be difficult to give the exact number for each year because, you know, our acquisition numbers and the quality of acquisition for each year was different. The, the purpose of showing this was that if at all a customer is generating, you know, INR 100 in overall tenure of his, of his life cycle. If, if I look at the cohort of CY 18 customers, then we are talking about that all put together we have only spent INR 34 in, you know, servicing, acquiring plus servicing and, you know, we have got INR 66 as the income. It also means that because we are, you know, with every incremental year, the life cycle of customer is also increasing.
The overall impact of that on our overall business will be high going forward. One is that the inference from this data should be one. That post 3 years, the margins of a customer is 60% plus. Second, with every incremental year, because customers are retained and they train, they trade, the overall impact on the revenues and profitability will be higher, and the margins will improve.
Okay. Okay. Just one question. Let's take an example of CY 22. For CY 22, first year comp, I mean, particular, I mean, customer generated around INR 100. For CY 22, the second year would be, I mean, the revenue generated by the senior customer would be approximately 80%. Will that be a fair assumption?
Yeah. In the span of 18, say the span of, you know, 6 years, yes, you are right. It is coming down. For calendar year 2022, we are getting a 69% margin in the second year. In the second year.
Yeah.
It's, we only have the servicing cost because acquisition cost is already gone in the first year.
Right. Okay. Okay. I see.
Thank you. We have a follow-up question from Prayesh Jain from Motilal Oswal. Please go ahead.
Yeah. Hi, Prakarsh Gagdani. We were checking on the cross-sell income that has been grown by just 5% in the current year, you know, fiscal 23. How do you kind of see this going ahead, what was the reason for the slow growth?
Right now, because our focus has been more into our broking business because I said that, you know, our product revamp, our investment in technology all was targeting the broking revenue. As an organization, the focus was on broking and that's the reason, you know, cross-sell is more of a, you know, a small enabler of the product, but it's not a major focus area for us now. Having said that, yes, we are planning to, you know, introduce lending products and bond and other some fixed income products on our platform. Those, the other cross-sell income products do not contribute substantially to the overall income.
Broadly, the reason why there is just a 5% growth is because the focus was more on, you know, building our products on the broking side of it.
Mm-hmm. How do you see a margin funding book growing?
See, margin funding book growing, you know, typically is in, is a directly correlational to the cash market turnover. As of now, you know, it'll be close to around INR 270 crores, for last quarter. Because it is the market scenario is very subdued, the growth is not there. I think it will increase as and when the market increases.
Okay. Just coming back on this chart on the 12th page, okay. If I, for example, if I look at the earlier margin, you can see that, it is a light blue box. Okay. Also, for that matter, and even the yellow box is secondary margin, right? That margin has been trending except for the second-year number, which kind of, you know, sometimes,
If I look at the blue box or if I look at the pink box, they have been declining each of the years. While there is no customer acquisition cost out there is timely servicing cost there. You know, why is the margin kind of sloping downwards at all the, all these periods? See one factor why where the margin has been, is a bit reduced as compared to the customers that we acquired in calendar 2018, 2019 to 2020. The reason is scale. You know, in the first two years we acquired, we were only at around 3.5 lakh as a customer base.
In just last two and a half years, from INR three and a half lakh, our customer base has increased to from INR 3 point to INR 35 lakhs. That's a massive increase in our customer base. What happens is that when you acquire a large number of customers, the quality of the customer, you know, is not the same as you were acquiring earlier. That's why it will have an impact on the margin because typically the cost of servicing is the same. The revenue that customer brings in may vary. That's why you see a drop in that.
Okay. In a way, from next year onwards, with your focus approach on acquiring more quality customers now, these margins should improve, right?
Absolutely.
Well done. Thank you so much.
Thank you. Thank you.
Thank you. Ladies and gentlemen, if you have any questions, please press star and 1 on your telephone keypad. Ladies and gentlemen.
Operator, can end this?
Sure, sir.
Thank you.
There are no further questions. I hand over the floor to the management for closing comments.
Thank you very much everyone for joining our conference call. If you have any questions, you can write to us at ir@5paisa.com. We'll be more than happy to answer your queries. Thank you very much and have a wonderful holiday ahead.
Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. Thank you for your participation and for using Do Sabha's conference call service. You may disconnect your lines now. Thank you. Have a good day.