Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY 2023 Earnings Conference Call of Affle (India) Limited, hosted by Anand Rathi Share and Stock Brokers. 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 then zero on your touchtone phone. I now hand the conference over to Mr. Shobit Singhal from Anand Rathi Share and Stock Brokers. Thank you, and over to you.
Thank you, Rutuja. Good morning, everyone. On behalf of Anand Rathi, we welcome you all to the Q2 and First Half FY 2023 conference call of Affle (India) Limited. I take this opportunity to welcome the management of Affle (India) Limited, represented by Mr. Anuj Khanna Sohum, who is the Managing Director and Chief Executive Officer of the company, and Mr. Kapil Bhutani, who is Chief Financial and Operations Officer of the company. Before we begin with the discussion, I would like to remind you that some of the statements made in today's conference call may be forward-looking in nature and may involve some risks and uncertainties. Kindly refer to slide 26 of the company's Q2 earnings presentation for a detailed disclaimer. I will now hand over the call to Mr. Anuj Khanna Sohum for his opening remarks. Thank you, and over to you, sir.
Thank you. Good morning, everyone, and thank you for joining the call today. I trust that all of you are keeping in good health. We achieved robust organic growth in the first half of this financial year, despite the ongoing global headwinds that have impacted businesses globally. We closed this quarter with our highest quarterly revenue run rate, highest conversions, and highest EBITDA, anchored on our Affle 2.0 growth strategy, tech innovations, and sustainable long-term value creation. Affle delivered year-on-year organic growth revenue with revenue growth of 29.1% and PAT growth of 39.6% in Q2, and revenue CAGR of 61.2% in Q2 over the last three-year period, much ahead of the industry growth trends.
Our CPCU business noted a strong momentum, delivering 64.7 million user conversions during the quarter, an increase of 32.7% year-on-year at an INR 51 CPCU rate. In terms of H1 FY 2023, we achieved year-on-year revenue growth of 64.4% and PAT growth of 61.4%, and this was well supported with balanced organic growth over the first two quarters. Our sequential growth was approximately 10% higher on revenue in India and similar trends in other emerging markets, and 2% higher on revenue overall in Q2, and a clear pattern, a clear trend of bottom-line margin expansion on both quarter-on-quarter and year-on-year basis. Our resilient performance in these testing times is a testament to our ROI-linked CPCU business model, the broad-based balanced growth, and strong on-ground teamwork across global emerging markets.
However, we did see negative impact of the global headwinds in developed markets, US and Europe. If not for the negative impact in developed markets, we would have potentially earned around $3 million-$4 million of revenue more in the first two quarters of this financial year. To mitigate this short-term impact, we have also realigned our execution strategies and operating resources to focus on improving our platform-level pricing and profitability, as well as maximizing our strategic partnerships and overall productivity with even greater emphasis on bottom-line margin expansion and cash flow growth. Now, as per our understanding of the trends in the industry forum discussions, the near-term industry growth outlook across global markets expect that approximately 10% sequential growth in H2 versus H1 as more advertiser budgets are getting unlocked and balanced over the festive quarter and Q4 of this financial year.
Affle's strong organic growth momentum in H1 should enable us to beat any short-term industry trends in H2, and we can realistically aim to end FY 2023 with year-on-year organic growth percentage aligned with the long-term industry growth of 25% CAGR over the next few years. Given our asset-light platform-based business model, it is reasonable to expect margin expansion, and thus our overall growth percentage on EBITDA and PAT in H2 will be significantly higher than our growth on revenue. In view of our long-term optimistic growth outlook of 25% CAGR, we are continuing to invest in our organic growth operations, and we are also actively evaluating inorganic growth opportunities in line with our Affle 2.0 growth strategy and execution track record.
We are placing even greater emphasis on value-driven strategic investments based on bottom-line financial fundamentals and cash flow returns, and we remain optimistic about our bottom-line growth for this financial year. Our focused execution on Affle 2.0 strategy anchored on the 2 V's and the 2 O's level partnerships have enabled us to drive deeper verticalization for our advertisers. This has further strengthened our moat, and our direct customer contribution has continued to be stable at 74% of our revenue in H1 FY 2023.
We further established our industry thought leadership position by winning the prestigious "Enabling Technology Company of the Year" award for the fourth consecutive year at the MMA Smarties India 2022, and several other campaign awards at industry events. To reflect upon our platform strengths, we have also included three case studies in our earnings presentation focused on omni-channel solutions for our customers in retail, entertainment, food tech sectors in emerging markets. With that, I now hand over the discussion to our CFO, Kapil Bhutani, to discuss the financials. Thank you, and over to you, Kapil.
Thank you, Anuj. Wishing everyone a good day. In Q2, financial year 2023, the company reported revenue from operations of INR 3,545 million, a growth of 29.1% year-on-year. Sequentially, we have, while our overall revenue has increased by 2%, we have a significant revenue growth of 10% in India and similar growth rates in other emerging markets on a quarter-on-quarter basis. Except for the developed markets, which anyway has much lower contribution for us on a consolidated basis, our business across emerging markets remains resilient and strong bottom line growth momentum and margin expansion. Our EBITDA for the quarter stood at INR 723 million, an increase of 38.8% Y-o-Y, and 5.3% growth on quarter-on-quarter basis.
EBITDA margin stood at 20.3% in this quarter versus 19% in quarter two and 19.8% in quarter one sequentially. We are focused on higher profitability margin expansion. This quarter EBITDA margin crossed 20%+ after a 4-quarter period, with the profit after tax also slightly notched up. In terms of OpEx, inventory and data costs stood at 62% of our revenue from operations, witnessing improvement over our last few quarters then. Our employee benefit expense for the quarter increased sequentially due to investment in human resource focused on business development expertise and some currency adjustments. Further, we also rolled out our platform in other regions, including LatAm region. Our normalized PAT for the quarter was INR 587 million, an increase of 39.6% Y-o-Y.
Normalized PAT margin increased to 16% versus 14.9% in Q2 last year, and 15.6% in previous quarter sequentially. We remain focused on working capital management. Our cash flow from operations and collection efforts have been robust. We are not seeing any increase in credit loss provision. In regards to our balance sheet, you would have noticed a significant increase in the line item, other financial assets. This increase is on account of fixed deposits having a longer tenure of more than 12 months and thus classified as non-current. As an update on our investment in Talent Unlimited Online Services Private Limited, i.e. Bobble, this investment continues to be classified as Held for Sale by the Board of the company, while we continue to maintain 26.24% stake in Bobble.
Looking ahead, we remain confident of long-term growth prospects, and we'll continue to invest in our organic growth, as well as evaluate inorganic opportunities with well-calibrated focus on higher bottom line growth for the FY 2023 and beyond. With this, I end my presentation. Let us please open the floor for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to only use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Shobit Singhal from Anand Rathi Share and Stock Brokers. Please go ahead.
Yeah, thank you. Good morning to all. I have a few questions. Given the macroeconomic risk globally and especially in U.S. and Europe, have you seen any ad budget cut from our clients, and what are the sentiments and how do you see the second half of this fiscal? Second question is how much your Jampp contributed this quarter as compared to last quarter? Thank you.
Thanks for the questions. I think in my commentary, I'd already provided actually quite a lot of detail on what the impact of developed markets per se. Now, the way we should look at it is that Affle's business is in a very privileged position because of our deep focus on India as well as other global emerging markets. Because of that, we are continuing to see a very clear growth pattern in India as well as in other emerging markets. It's you know, on a sequential basis. When we compare Q1 to Q2, we see a very clear sequential growth pattern in India, and that pattern is also similar in other emerging markets. Now, in developed markets, you know.
Because of that, a lot of the investors are saying, "Oh, how come Affle is so immune to what's happening to the world? We keep on growing." I think we have a differentiated business model emphasis in emerging markets, and that keeps us reasonably insulated and privileged from what's happening. But there is definitely negative impact in the global developed markets, primarily in U.S. and Europe. We have also in this commentary quantified that. We said that, look, if not for the macroeconomic global headwinds, we believe we would have earned $3-$4 million additional revenue in the first two quarters in H1 this year. You know, even without that, I think our performance is very resilient.
In case the budget cuts or the impact of the global headwinds was to be not there, we would have actually earned $3 million-$4 million more in H1, and that would have been even more phenomenal in terms of results. Now, then that comes to your second part of the question, like, what's happening in H2, right? What should we expect in H2? We have also given a very clear direction there that overall in H2 we expect to see that the industry growth outlook based on our assessment of the discussions in the industry forums, and we have plugged into so many industry forums.
We're listening to our competitors, we're listening to what's happening across all markets, and we understand that the industry growth outlook is pegged at around 10% sequential growth in H2 versus H1. Even with the macroeconomic risk factors, we will still continue to be growth oriented. As far as Affle is concerned, I mean, obviously, our growth momentum in H1 year-on-year basis was quite substantial. On a sequential basis also we have seen that, Q1 to Q2 we have been able to keep a good growth momentum overall, at least on the global emerging markets.
With the fact of the festive season, the festive quarter as well as the ballooning budgets that the advertisers are looking to increase over the festive quarter as well as Q4, it is reasonable to look at 10% sequential growth. Even with that, we are already emphasizing that our focus on bottom-line margin expansion profitability would absolutely ensure that our EBITDA and PAT is, you know, growth is better than the revenue growth because of the bottom-line sensibility and focus and the asset-light business. Every incremental growth is obviously leading to better margins and profitability. With that, I think I would like to answer the question at that.
Now with respect to Jampp, I think, we are already looking at the situation where last year Q2 we also had Jampp, this year Q2 we also have Jampp. The balance is, you know, very clear that there's a 100% organic to organic comparison. There is no need to split and slice and dice into Jampp versus non-Jampp. Qualitatively speaking, Jampp is more calibrated on developed markets than rest of Affle's business. There is impact, and we have quantified that. Overall as a group now, as an integrated proposition, we are seeing clear advantages because we're also launching our other products and use cases in Latin American markets and so on and so forth.
There is a lot of positive synergy in the year two of Jampp in terms of business expansion and bottom-line performance. We are quite satisfied with that. Can we take the next question, please?
Thank you. The next question is from the line of Abhishek Bhandari from Nomura. Please go ahead.
Hi, Anuj. I have two questions. First is on your investment in-
I'm sorry to interrupt you, Mr. Bhandari. May we request you to speak a bit louder? We cannot hear you.
Is it audible now?
Yes, please go ahead, sir.
Okay. Sorry for that. Anuj, my first question is on your investment in CashKaro. You know, if you would explain the rationale for that investment and how do you think, you know, that investment adds to your, you know, business moat, maybe from a medium to long-term perspective. That's one. Secondly, you know, on the Bobble, I think you mentioned in the opening comment it has been classified as a financial investment. I think there was a press release, which suggests that, you know, the deal with Krafton possibly has not yet concluded. Maybe you could, you know, update on what's happening on that particular one. Thank you.
All right. I think both of these questions will be, you know, answered slightly differently. The first one is actually not an investment of Affle (India) Limited. It's not part of the listed core. It is an investment. It's a financial minority investment made by the holding company from Singapore. Since the holding company has no other operating business other than its investments in the Affle (India) Limited as a promoter, as well as any other investments that it's doing which are financial in nature. That is to the extent I can speak with respect to Pouring Pounds, which is the entity, which is a UK-based entity that owns the business of CashKaro India.
With respect to any strategic advantages or so on with respect to CashKaro's business in India, that our teams are actively exploring. Everything else being equal, I think there will be natural inclination for CashKaro and Affle India to work together since they have a common shareholder in the holding company. I think that's to that extent. I think the second one is a more relevant question because it is linked to Affle India's investment in Bobble or rather Talent Unlimited, which owns and operates under the brand of Bobble in India. Yes, it is an investment that's held for sale for certain reasons.
I mean at the same time, the Krafton deal hasn't happened because Krafton is a Korean company, and as a Korean company, they have their own shareholders. They're a publicly listed company in Korea, and there are certain complications with respect to you know the transaction, therefore, the closing didn't happen as per the time. In fact, we extended the closing once, and the closing still did not happen. Therefore, at the moment we are not pursuing any further discussions with respect to Krafton as a potential buyer of that equity. We are going to explore further possibilities as the time unfolds. We are happy to maintain the 26.24% ownership until we find an honorable buyer who would actually close the transaction. That's pretty much it.
I think from a strategic point of view, Bobble continues to be an important partner and a vernacular keyboard focused on, you know, innovative youth-related use cases. Then we are actively working with them to see how to grow that business.
Thanks, Anuj, and all the best.
No more questions?
Yes, Anuj. Thank you. Thank you and all the best.
Thank you. The next question is from the line of Rahul Jain from Dolat Capital. Please go ahead.
Hi. Hope my line is audible. I have one question on the growth side. You were mentioning, Anuj, something about the realigned strategy. If you could elaborate a little bit more on that. To your comment of H2 growth of 10% over H1 would imply 15%-19% growth on a YOY basis for H2. I understand that delivering goods will itself be a challenge given the kind of macro we are having. In that light, is it fair to assume that FY 2024 growth should be slightly lower organically while the CAGR acceleration of 10 percentage points you are maintaining over a 45-year period?
All right. I think on your first question on realigned strategy, I think the core strategy is the same. When we talk about realigning the operating resources, I think we are essentially talking about deeper focus on pricing and profitability. I did comment on that, right? I said, like, what does that mean, right? How do you decode that, right? Whenever there is recessionary, you know, conversation or backdrops, there is intuitively pressure on pricing. I think one of the things that we're doing is very strongly defending pricing. If you look at in Q2, I think we delivered our highest volume of conversions, but we held our pricing at INR 51 a CPC, which is actually quite a commendable effort by our team. Similarly, focus more on profitability, right?
Not just, you know, picking any business, but pick business that is going to deliver profitability, pick business that is going to deliver cash flow, and credit risk managed business, right? I think we are looking at the quality of business being made even more resilient in these times, and therefore delivering a better impact on the bottom line. Same thing applies to. This is a great time actually to look at any better optimization where we can maximize the profitability of the company. Same applies to, you know, all the assets that we are integrating, whether it is Jampp or any specific organic or inorganic activity that the company is doing. The emphasis is disproportionately higher on bottom line focus. We've always been a bottom line centric company, unlike many other fast growing tech companies.
I think that's one thing that differentiates Affle, and that is what our investors, you know, also value and take pride in. That is what we are emphasizing here in terms of even deeper realignment on bottom line focus while the time is. Second part of your question is about growth. Now, what I said is about 10% is the industry growth outlook that we have understood based on the industry forum discussions. We would love to beat it. We have always loved to beat industry average growth and, you know, whatever the times be. From a bottom line perspective, we think that we will do even much better than that, significantly better than that.
Overall, we will end this year hopefully at a very honorable level, you know, meeting or exceeding expectations from a bottom line perspective, by any standard. Now, like H1 we have already grown quite nicely, right? Next year H1, I believe that, you know, we should follow a similar trend, and we will continue to be optimistic because of the emerging markets focus. I think there is reason to be optimistic. In H2, if as per what you said, the growth is going to be what it is, I think on a lower base it's actually easier to grow much faster.
I think I would still maintain that FY 2024 or 2025, the outlook for the company. I mean as long as I'm leading the company, we will continue to want to beat industry average growth comprehensively on the top line as and even more so on the bottom line. Without giving any more detailed guidance on it, I think that you can understand the mindset with which we are leading the company. It's growth oriented, it's profitability oriented, and we will want to beat industry average growth trends even this year. If you combine H1 and H2, our goal would be to, you know, not miss on the 25% organic growth, you know, long term trend that we have. Yes, markets are turbulent, but can we be stronger? Can we be more resilient?
Can we find those pockets of growth? The answer is yes, and we're pushing our teams for that. Until the last day of the year is over we'll be fighting for every single dollar of revenue and every single incremental dollar of profit. You know, let's see how Q2 and H2 unfolds. For next financial year, we have two more conversations to go. At the moment, I would not you know look at it with any you know any further clouds of pessimism or anything like that. I think the industry growth outlook with consumers going more and more digital, emerging markets trends where even when there is recessionary pressure, let that pressure be on traditional media, no. I mean, if advertising budget has to shrink, let it shrink on traditional media. The digital should stay.
Even if digital has pressure, at least CPCU should thrive. I think, you know, we should be more and more insulated, and we should find those pockets of growth, is my thesis, and that's how we're executing.
So small clarif-
Yeah.
Yeah. Just a small clarification on the margin comment that you made. Is it led by better growth in H2 and in general better margin in H2, or is also there some potential accretion from Bobble, sorry, Jampp?
I think we are seeing Jampp. Year one was about integrating together. I think we have done that. We've done that phenomenally well. When I speak Affle now, I speak with the full embrace of Jampp. You know, and when we are talking about expanding the margin of the company, I think it's. One is linked to volume. As our business is growing, as we're an asset-light business, our expenses will grow slower than our revenue growth, right? Therefore, there will be natural margin expansion trend. As a strategic emphasis, we're also focusing on pricing and profitability, which means that we are picking only the volume of business that can support the profitability metrics and not give any volume-based discount, because that is where the pressure comes.
When people are looking for, "Hey, give me something cheaper because, hey, there's a recession." There is a need for our product. There is a need for driving conversions with consumers for all our customers. What they are sometimes looking for is can they get it cheaper in this time, which means, you know, it impacts pricing, it impacts profitability. How do we aim for growth but also play a very strong defense play, right? I think being offensive and growth-oriented is one, but making sure that we are, you know, even more strong on our defense than our offense in these times is the strategy. I hope that is understood well, and that applies to Jampp, it applies to every single part of Affle's business.
Okay. That was my question.
Thank you. The next question is from the line of Anmol Garg from DAM Capital. Please go ahead.
Yeah, hi. Thanks for giving me the opportunity. Actually, I just had a couple of questions. Firstly, just wanted to ask Anuj Khanna Sohum that we are implying a 25%, we are talking about a 25% growth for FY 2023. Now we have already in the first half, we have done around 35% organic growth. So, would it mean that seasonality of 3Q will not play out in this year? That is first. Secondly, wanted to ask a bookkeeping question from Kapil . That in this particular quarter, we have seen Forex gain in our cash flow statement to the tune of around INR 37 crore.
If you can highlight what does it regards to, and how does it comes out in the P&L statement? Thank you.
All right. Thanks, Anmol, for your question, and very, very insightful. Let me first of all clarify that when I talk about growth or any growth percentage of the industry, I'm only talking organic growth. Now, H1 versus last year's H1, this year's H1 with last year H1 had one difference. In last year, Q1, we did not have Jampp. In this year, Q1, we had Jampp. Q2 to Q2 comparison is, you know, absolutely clear because in both the Q2s we had Jampp. So when we talk about growth, right? As an industry, we say that industry will grow at an average CAGR 25%, we're talking about, you know, organic growth, right? Incremental organic growth. In our case, we've given you two commentaries.
One, for the full financial year, our goal is to attain organic growth of 25%, which is the industry average CAGR growth trend that we are looking at, and we are always long-term trying to keep pace with that or beat that, right? That excludes the Q1 with respect to Jampp. Then I've also given you some industry outlook with respect to Q3, Q4 seasonality. Whenever there is seasonality, there is obviously incremental budgets. But the customers are also hedging and they are careful. While the budget is incremental, they may not spend all of that in the same Q3 festive season, but they will spread it over Q3 and Q4. Therefore, what we are looking at is H1 versus H2, not.
Seasonality's incremental budget will have a spillover effect in both Q3 and Q4, and we expect that the industry would on an average deliver 10% higher sequential growth from H1 to H2, and we hope to meet that or beat that, right? That's on the revenue side. Then on the profitability side, we hope to, you know, beat that more comprehensively. That's exactly what I said. The outlook on that, I hope the math is more clear. It is not that, "Hey, we have already grown, you know, quite well in H1 overall, over 35%," and then, you know, will we see a muted seasonality. I think we've given very clear commentary anchored on industry outlook as per our understanding.
In terms of your second question, which is Forex statement, Kapil, I think you can take this up because it was directed to you.
Yeah. Thanks for asking this question. This pertains largely to assets getting revalued, the bottom assets, it has been offset, mostly from the reserves, opening reserves. It does not have an impact on the P&L per se. Right. It is an adjustment of each line item, whether current non-current assets or current or non-current liabilities, getting flowed into the balance sheet and getting offset in the reserves and surplus and OCI, right? It is not routed to P&L.
Sure. Just a follow-up on that. If Anuj, you can also highlight that, what are the margin levers that we can think about in for second half of this year?
Sorry, can you hear me?
Yeah, yeah.
Okay. The margin levers are, you know, anchored on a few things. One, ensure that our pricing is resilient. Second, ensure that enough volume and growth to meet or exceed the industry trends. In combination of that, keeping a tighter, you know, balance with respect to that every incremental revenue that has come at healthy pricing should not, you know, the OpEx increase has to have productivity and efficiency. Which means that even though we are consistently investing in our own growth and you can see, you know, even in Q1 to Q2, you would see that our OpEx is increasing.
A lot of people say, "Hey, hold on a second. Isn't there a recession time? Why are you increasing your OpEx?" Look, we believe in the long-term industry growth trend, so we'll keep investing to ensure that we can capitalize on that growth trend and be well-resourced for that. Therefore, when we look at it with this balanced pricing first. Second is then enough growth and volume with respect to incremental budgets for H2 versus H1. Third, the asset-light business and scale on bottom line expansion will also come in because our OpEx is not going to increase and keep pace with the growth in revenue. This is exactly what we saw in Q2 this year, whether you see it sequentially or you see it on year-on-year basis. The same trends I think will continue in H2 as well and beyond.
All the investors who had earlier got confused, Affle is growing fast. It's an asset-light company. How come we don't see margin expansion? There was always organic margin expansion, but because we were also acquisitive and we were acquiring companies that were less profitable, in the previous year periods it was averaging itself downwards because the organic growth and the inorganic growth was blended together. Now, when you see Q2 to Q2, there is no inorganic in Q2. Q2 compared with Q2 last year or versus Q1, and you can clearly see the pattern of EBITDA and PAT margin expansion. So those are the levers, and it's a very natural expectation. Whatever I'm just saying is something that should be a common understanding with all our shareholders.
Sure, Anuj. Thank you. I'll get back in touch with you.
Thank you. The next question is from the line of Bharat Shah from ASK Investment Managers. Please go ahead.
Yeah. Two questions. One, to an earlier question by a participant. You made a remark that in 2024 and 2025 you are looking at that organic growth of 10%-15% plus change. You need to meet the industry so long as you are in leadership of the firm. Was that just an off-the-cuff remark or is there anything change in leadership is in contemplation?
There's no change in leadership contemplated. As long as I'm healthy, fit and fine, I expect to hope to lead the organization for decades to come. I think the nature of that comment is to be interpreted that I'm giving you a peek into my mindset. How do I set targets for this company? How do I tell my leadership team? How do I convince them that, hey, you... Many times we have a very strong leadership team. You know, this is not just a one-man thing that Anuj says something and everybody has to follow. I think we have a very vocal leadership team, including Kapil. Many times we have challenged and debate ourselves, and this is my mindset. I say we're growth-oriented. We have to beat the industry average growth rate to our team.
I said line of questioning is simple. Are we better than the rest of the players in the industry? Are we competitively stronger? The answer is yes. Is our business model unique, differentiated? The answer is yes. Emerging markets, is there growth? The answer is yes. So why won't we beat the industry average growth rate? That's how I set the targets for the team. Therefore the emphasis that, because a lot of times, this conviction has to be delivered top-down and we have to live by that example and therefore that comment. I don't see any leadership change that would be dramatic. Our company has been led consistently for last 17 years, and I'm still a very young man. I'm only 44, so there's a long way to go, sir.
Sure. I just wanted to be clear about what that remark was supposed to mean. Thank you for that. The second while it's understood that Affle has a far greater focus on emerging markets, India and other emerging markets included, and that the market is a smaller percentage and yet that smaller percentage is rather quickly faced some setbacks. The question that begs is the developed market, the space, the speed and the way that market seems to be getting muddled. What are the structural reasons why you believe and remain confident that the emerging markets and the developing markets would continue to provide not only resilience, but a strong long-term superior growth?
Well, look, I'm very confident about two things. One, the consumer adoption curve on digital. These are fundamentals of our industry. These are the fundamental drivers of our industry. I believe that all of us on the call today can reasonably, safely say that none of us is leaving the mobile device or our connectivity on the mobile device anytime soon for the next three years or four years. The next generations in our home, the younger generation in our home is, you know, spending even more disproportionately connected time online. Therefore, the adoption curve of connectivity in India, in Africa, in Indonesia, in Vietnam, in Thailand, Malaysia, Philippines, Middle Eastern geos, LATAM, all of these places we will see massive consumer adoption over the next three years or four years. It will continue to happen.
The propensity for transacting higher value, higher volumes of transactions on mobile or connected devices will actually go up. That is one of the main anchors that I see for emerging markets to have resilience and growth for many years to come. The second trend that makes me very sure about this is that the advertisers in emerging markets are still under-calibrated on digital versus developed markets. In developed markets, digital is decisively more than 50% of the total ad spend, whereas in emerging markets it's, you know, depending upon which market we look at, it's either in the 20-odd % or the early 30-odd %, but it is nowhere close to being above 50%. The advertisers will need to also face the reality and shift budgets to the more efficient digital connected mediums and where the consumer is.
If the consumer is spending disproportionate time on digital and transactions are happening there, why should the money continue to not follow? The advertisers will shift the budgets, and both of these anchoring mega trends, which I think none of us can debate against, provide me the clarity that, look, these markets will continue to grow. What's the difference between developed markets? Developed digital adoption has already reached a certain level of maturity, and digital advertising as a percentage of total ads is already more than 50%. You know, one could see a clear difference between developed markets adoption curve on both the consumer and the advertiser side, as well as emerging markets. There's a big difference. Therefore, I'm very confident at the industry outlook.
Within that, I'm, you know, wanting to assure myself that our team, our platforms, our business model is competitive versus other players and therefore may we grow faster than the industry average growth. This is my only thesis is grounded in reality.
Would you not express a surprise at the speed with which the developed market seems to be kind of getting muddled? It's one thing about maturity of the markets in the developed markets and relatively high penetration of digital. The speed at which the whole space seems to become chaotic is that a source of surprise, or do you think it is quite in the nature of things?
Well, I think. Look, first of all, I don't know the adjectives muddled and chaotic. I mean, to me, I can see sense in what is happening in developed markets. I think the customers are feeling wary of inflation, of you know, employment, the cost and efficiency. There's so many factors moving there, right? From currencies to I mean, in Europe, we already know there's all kinds of geopolitical factors and so on. So I think there is conservatism, but that does not mean that digital advertising will not deliver growth. Now, if you're looking at some examples, let's say, I don't know, the Big Tech. The Big Tech, if you see, if your question is coming from how quickly Meta or Facebook.
Yes.
Has, you know, gone from where they were to where they are, if your question is born out of that.
Yes.
I think you have to just look at, start from looking at our own homes. Which teenagers are spending time on Facebook? I mean, you know, I don't see that happening as much. It is still the older people who were once on Facebook and as a habit and inertia continue on Facebook. I think the consumer pool of that has gone, and that's why there was a need for Facebook to shift from Facebook to Meta to something else, and that something else hasn't materialized as per the expectations that they set, and therefore they are seeing a massive hit in terms of, confidence levels and otherwise. Of course, Apple has done certain changes which is impacting them.
Looking at them as an isolated case is not shaking my thesis and belief of digital advertising as a clear trend even in developed markets. First of all, advertising is resilient. Digital advertising will be resilient. If there is a recessionary uncertainty, of course some budgets will shrink. I think that is something to be expected. Now, we are fortunate that we are focused on emerging markets where such recessionary backdrops are weaker and they're not, you know, we are not seeing as much impact in emerging markets, and therefore, Affle is in a good place. Is it making me nervous looking at U.S. and Europe that what is happening there? No, not at all, sir.
I can understand what is happening there, and I can understand what is happening at Meta, and I'm still bullish. In fact, I think that if this kind of fear of recession continues, it should strengthen Affle's ability to find value-driven strategic M&A consolidation opportunities in developed markets also, and we will keep an eye out for that. I will be very careful and realistic about what we execute on, but I see an opportunity for us that when markets are down, we should go ahead and look at strategic acquisitions and look at value-driven deals because we'll find them cheaper in this time. We need to look at our execution strategy, say, where there's turbulence, how do we navigate? In emerging markets, we need to grow.
In developed markets, we need to navigate into that turbulence carefully and find opportunities to become stronger. That's how I see it. I wouldn't necessarily agree that the spend and the space is all muddled and has become, you know. It's not so dire, the situation at all. Meta is just one example, and we can decode that and we can understand that.
No, thank you very much. That's clear.
Thank you. The next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead.
Hi. Thanks for the opportunity. Anuj, in terms of employee cost this quarter you saw an increase, so what were the areas of investment there? Does this increase continue near-term or most of it will start to give us leverage as we go forward? The second question was to Kapil in terms of the levels of intangible capitalization in this quarter and any outlook on the D&A going forward. We saw some increase this quarter.
Right. I think the employee cost wise, we are basically following our growth plan and organic growth plan and investing into the areas whether it is, you know, sales and on-ground presence in emerging markets and other emerging markets, as well as going for deeper verticalization and therefore focusing on teams which are verticalizing our platform even further to unlock a more strategic value so we can be giving more ROI to the advertisers and drive more profitability from those verticals. I think this is in line with our approach and the strengthening of our own moat and backing it up.
I think what I want my investors and the analysts to look at is that when the company is capable of backing its strategy and delivering resilient results, it's a sign of confidence. If you had seen that Apple is delivering better bottom line margin expansion at the back of OpEx reduction, I would not be celebrating that. The only reason to celebrate this Q2 result is to say 20%+ EBITDA while OpEx was being increased in investing in areas of growth. Clearly the company is bullish, it is doing the right things, and it is seeing financial fundamentals in its unit economics, that when it grows, it delivers margin expansion. I think that is what I want to emphasize upon.
I think the employee cost is a broad base backing our strategy of verticalization, emerging markets and having on-ground presence. For the second part of your question, I'll pass it over to Kapil.
Hi, Ashwin. Our capitalization on intangibles for the newer product lines or the newer models is almost similar to Q1 in around $2.2-$2.3 million.
Okay. Just to follow up.
There's no major shift from Q1 to Q2.
Does the increase in terms of amortization largely happen because of translation perhaps or anything?
If you see the amortization comparison from last year to this year, you would have seen a significant change as we go forward because it catches up, right? There is, in the PBT, you will see about say INR 4-5 crore differential on the amortization from the previous volume on volume basis.
Okay.
You can see that catching up effect in this quarter itself.
Okay.
On a year-over-year basis.
Anuj Khanna Sohum, if I could just squeeze one more in. So we saw your data and inventory costs come off, this quarter. So is it largely because of the Jampp efficiency starting to play out? Any perspectives on where we are in the journey of Jampp profitability approaching our own profitability?
I think you know our emphasis is on profitability and productivity and the strengthening of partnerships. I think we are looking at multiple legs of it. We're looking at you know profitability per employee per team member or you know people call it productivity. In fact we look at it from the lens of profitability profitability of each region profitability of each vertical and so on and so forth. With respect to Jampp I think the emphasis even was always there because year two and year three is about maximizing profitability. In in
Some of the rationalization of revenue, which, you know, we talked about the $3-$4 million in H1 that we would have made incrementally more had it not been for the headwinds, right? I think that is bringing a deeper urgency across the organization to ensure that, "Hey, if there is anything left to be done, can I please do it?" Right? I mean, can I make sure that pricing is better, my margin is better? What else can I integrate within the core tech stack of the company to leverage that? What's happening in, let's say Southeast Asia or in India that can be implemented even better in Latin America or in Africa. There is a lot of internal hurdle towards that, and I think that is a positive thing.
Will I want to quantify Jampp's profitability percentage for you at this call? Perhaps not, because we are still finding that balance because in developed markets some of the revenues are not there and so on. Let us look at it on a more broad basis by the end of this year. Yeah.
Sure. Thanks, Anuj. All the best.
With Jampp, qualitatively speaking, I think one of the investors had asked me, it was a hypothetical question, if you had to pay more for Jampp now with the hindsight of having owned it for a year, one year ago, would you do that? The answer is yes. I think it's a strong asset and it's worked well for us.
Thanks. Good to hear, Anuj . All the best. Yeah.
Thank you. The next question is from the line of Arun Prasath from Spark Capital. Please go ahead.
Thanks for this question.
Mr. Arun, sorry to interrupt. We cannot hear you, sir.
Hopefully now it is better.
Yes. Please go ahead.
Yeah. Okay. Thanks. Thanks for the opportunity. My first question to Anuj. I take your point that emerging market is strong and developed markets we are facing some macro headwinds. If you see our own numbers, if you see the India segment, top line, sequentially it has grown at 10%, year-on-year it is more like a 20%. We are used to see this number at much higher, say 30, 33%. Are we really seeing any growth slowdown on India as well at the category level? Is it more like some high base issue in the base quarter issue?
I think the way to look at India right now is certainly on sequential basis. The reason why I emphasize that is because the headwinds and related issues are primarily sort of common across H1 and Q1 and Q2. When we look at emerging markets doing better versus developed markets, that thesis can only be analyzed on a sequential basis, not only year-on-year basis. Now, in terms of year-on-year basis, when you start looking at it and you say, "Oh, how come India is only growing in the 20-odd% and not 30 or 40-odd%?" I think there are also India or emerging market specific issues, which I think we are quite resilient against any which way, and I've talked about this before as well.
If one of the verticals, let's say EdTech or crypto or FinTech is down, I think Affle is able to still get enough conversions sold and delivered to other industry verticals in our ecosystem. Because we have broad-based growth, we are able to capture that. In one particular quarter, if one vertical is impacted, one area, you know, there is suddenly a negative trend. Like during COVID times it was travel and transport, hospitality was down, retail was down. Now that is coming back up, like with a vengeance. On the other hand, we have, you know, education tech and FinTech, the crypto side of FinTech and so on. These issues will happen.
In a fast-growing company, in some quarter you'll see 30% in one area and then suddenly you cannot expect every quarter will be 30%. It could be 26% in another and so on and so forth. I think we have to see longer term trends and averages. I wouldn't read into that as, oh, India is growing slower and there's a problem. I would read into that as whatever India was at six months ago and where India is at today, look at the sequential trend quarter-on-quarter. This is moving nicely. Okay. That's how we should see it. We should also keep in mind that this is at the back of a lot of startups not getting funding.
There's all kinds of issues, and yet Affle is able to be resilient because our base of advertisers is wide and there's always this emphasis within Affle to have broad-based growth across advertisers, across verticals. Whenever there is any customer concentration that's building up, that's a risk that I want to cure as soon as possible, right? I think that's another peek into our mindset and therefore please analyze India in that light. If you're looking at forward-looking modeling, My guidance has always been clear pre-IPO, post-IPO, every other call that I expect 25% CAGR growth for the industry and therefore I want to peg against that.
That's helpful, Anuj. My second question is related to the forex, the kind of fluctuations or volatility or depreciation we have seen in this quarter. Generally speaking, keeping aside the accounting for a moment, I mean, where we are looking in which line item, generally for a business, is rupee depreciation good for you or bad for you? And as a follow-up to that, I would also like to understand what would be the constant currency growth that you had for Q2 in, say, foreign revenue as well as at the bottom line level. If you can share that'd also be very helpful.
Anuj , I'll take this.
Yeah, please go ahead. Yeah.
Arun, we said you have to understand the business of Affle is very diverse in the emerging markets where the billing happens in the local currency, r ight. To give you a statement that the currency movement is advantages or disadvantages, it depends on which currency movement is happening, right? We have disadvantage on currency movement because of the dollar getting stronger and there is some advantage on the dollar side. Largely it's at the moment if I take on an average basis, we would be mostly neutral to it. The costs are generally in dollars, so we there is a pressure on the cost on the dollars. It gets neutralized on the other side.
If you see at bottom line, the effect will be more muted on the currency, its currency movements as we are quite hedged with lot of currency hedges we have with India, with the markets as well as in India. Right. On the question of constant currency, we have not historically presented a constant currency for comparison basis. We are not maintaining that and commenting on that. Because if I comment on-
No, I think it is important to.
I will have to comment on last three quarters also.
No, no. I think the way to look at our business, I think I've always maintained that we have been. I mean, and I'm not taking any credit for it, by the way. We are naturally hedged on the currency risk. When we see INR versus USD or across the board, the currencies that we are in some markets we see a negative impact. In some markets we see a positive impact. That balance is thankfully quite healthy. I mean, in the sense that neither do we see a positive fluctuation, nor do we see a negative fluctuation with respect to currency. We have seen INR move from, you know, 70 all the way to 82 and so on, and many times up and down.
I think in this entire journey, both as a public company and even when we are privately held, not because we are doing some massive currency management thing. Naturally based on where all we are doing business, what percentage of business is where, what cost and so on, we have been naturally blessed and hedged on that. Internally, yes, it's something to be also seen that what else should we do beyond the natural balance that we seem to be enjoying. There isn't a huge currency management function that we do within our finance or operations teams at the moment. The reason for that is because we see that balance. We have seen it consistently that we are naturally hedged and it doesn't impact us dramatically.
Just as a follow-up to this, if you see our-
Sorry to interrupt you, Mr. Arun. May I request you to please rejoin the queue? We have participants waiting for the turn.
Just a follow-up question on the currency. Go ahead.
May we request you to please rejoin for the queue, sir?
Sure.
Thank you. The next question is from the line of Mayank Babla from ENAM Asset Management. Please go ahead.
Hi, am I audible?
Yes, you are. Please go ahead.
Yes, you are. Thank you for taking my question. Congratulations on a good set of numbers. Just wanted a clarification on what was the reason for the inventory and data costs to come off significantly? Can we expect this to be the new normal or the trajectory going ahead? Thank you.
I think, to me, the data and inventory costs didn't really come down. It just stayed flat. In fact, it mostly moved up a little bit as a percentage of revenue, while the revenue was also overall only, you know, 2% increase, while emerging markets was better. I think there's no dramatic trend to take out of it. I do think that there are levers within our hands to make sure that the inventory and data costs can be optimized. That means we can buy cheaper, right? Because inventory data costs is that we are going out there, we're buying the, you know, programmatic inventory or we're paying, you know, for the impressions and clicks and so on.
I think as we get more volume, the commodity pricing, you know, I think we can pressure that down. If we play it smartly, like, you know, we can commit more volumes to certain sources and so on. I think those kind of levers are there and we're working on those efficiencies with our team. We started to do that in the last six months a lot more because we've always maintained, you know, very neutral stance that we will let our algorithm decide where we buy from, right? Because we're looking for conversions and the probabilities of conversions and so on and so forth.
However, there is some optimization there to see that, "Hey, if we're spending some amount with some particular platform or supply source or publisher, can we go and do some negotiation there and see what we can optimize?" So there are certain levers that are being used, but I wouldn't really call out any trend there at the moment. Yeah. So, you know, I think let's to call it a trend, we may need to assess it for a bit longer. But, I think it should be in that range bound, you know, in some cases a percentage here or there, but I think it should be range bound in an expected zone. Yeah.
Sure. Thank you so much and best of luck for the rest of the year.
Thank you.
Thank you. Ladies and gentlemen, right now we will request you to please limit your questions to one per participant. The next question is from the line of Vinayak Mohta from Stallion Asset. Please go ahead.
Yeah. Hi. Good morning, sir. Am I audible?
Yes, you are.
Hello.
Yeah. So I just had one question regarding the CPCUs. So we've seen that the CPCUs have been on an upward trajectory for a while now, and like, given the business model you have, it augurs well for you as well. Overall, you know, in the developed markets with Meta, with Snapchat, we've been seeing that they've been losing on the price per ad for a while now, be it the developed markets or the rest of the world markets as well for them. How do you see this trend going ahead for you? Do you see that there's some risk to the upside from here? Or do
Like, what are the risks that you see, and how do you see that CPCUs moving going forward, considering that, you know, the larger players are losing out on the price per ad for a few quarters now?
See, I think the fundamental aspect about our company, and, you know, you can check the history of our company, we always have identified ourselves as a consumer platform company. Even though we are a B2B company, we are not direct to consumer.
Uh-huh.
We still call our tech stack the Consumer Platform Stack. We call ourselves a consumer platform company. In essence, what I'm trying to tell you is that our revenue is coming from the actions that the consumers are taking and delivering almost an assured ROI linkage with respect to performance to our advertisers. When you say price per ad is coming down, that should mean that I should see efficiency in my inventory and data costs, because inventory for me is the price of ad that we pay, because we are a buyer of ads. We are, you know, we are buying the ads, and we are delivering conversions to the advertisers, right?
When we deliver conversions to the advertiser, the question then becomes that as long as the end consumer is increasing their average wallet, percentage spend, online, and if the consumers are doing more conversions with higher value products online, over time, we should be able to see a higher CPCU rate, because CPCU stands for cost per conversion, right? It's a cost per converted conversion per user, right? I think that cost per conversion that is going up, or is being maintained, there is actually opportunity to push that up.
When we say that we will be resilient on our pricing, we are saying, "Let's go for volume without discounting the price." At some point in time, we can also say, "Let's go for volume while increasing the price." I am not in the business of selling commodity where on volume we give a discount. You know, while most of the buyers may still ask for it, but we try to defend it and explain to them it's an ROI-linked business model justification of CPCU. Your observation is right. Price per ad, which in other words of saying is price-price per impression, price per click is coming down. ROI-linked CPCU cost per conversion is we can do it more profitably.
One of the ways the advertisers can ask for a CPCU adjustment is saying, "Hey, you are buying the impression and click much cheaper, and therefore your cost and your ability to earn that conversion at a lower cost has gone up. Share some benefit with me." We should always focus on margin expansion. If it means that if at 50 INR I can get a higher volume with my margin expansion at a lower data and inventory cost, I will take that business, right? I think our focus on margin expansion profitability is linked to pricing. It's linked to, you know, right at the top is pricing, right at the bottom is profitability. We're looking at optimizing for that in a very strong manner across, you know, all our business units. I hope that answers the question.
The main fundamental difference is please don't put just a blanket label of ad tech on Affle. Therefore, on CPCU, don't please see it as a cost per impression, cost per click, and therefore simply cost per conversion. The conversion is ROI-linked-based event, whereas impression and click are the raw material, you know, commodity within the digital advertising. Yeah. I hope that makes sense. If not, I think I've given it a long enough answer, and I believe we still have a few to go. Thank you for the question, though.
Thank you. The next question is from the line of Rajmohan Venkatraman, an individual investor. Please go ahead.
Yeah, thank you for the opportunity, and congratulations on the margin improvement. My question was in the light of you indicating to hypothetically being positively disposed to inorganic opportunities in developed markets under current recessionary environment. Would Affle even be looking at organizations like, say, a Digital Turbine, whose market caps have crashed 80%-90% to nearly half of Affle's, though their revenues may be 4-5 times Affle's. Generally looking at it from a client acquisition perspective, have discussions at the board level happened at acquiring bigger companies than Affle?
See, I can tell you two things about our psyche there. Yes, discussions happen because we are intellectually sharp and alert and, you know, just as you are seeing possibilities in the math of, you know, we see all possibilities as well. We are also very mindful of two things. One, we are executing on a very solid track. When I say that, I mean that, you know, to an external eye, it might seem risky that, you know, we have operations in so many countries in the world across so many currencies. I can tell you that from where I see it is, you know, it's a very predictable path of execution that we are on. Now, any acquisition that we do adds a certain element of risk to it.
Risk of integration, risk of, you know, things going well or not. That is why all our investors are deeply watching it for at least 4-5 quarters and saying, "How is it without this, with this, and how is it going?" Because everybody has nervousness in their this unknown factor of, you know, what has come. If you look at our M&A strategy, and one of the things that has worked really well for us, is that we have been very conservative on the value that we are paying, and the size of that M&A. Let's see the last three. Okay? mediasmart, less than INR 10 million. Appnext, INR 25 million. Jampp, INR 40 million.
Now, compared to our own market cap, compared to our own revenues, bottom line, cash in bank balance, whichever indicator I look at, I always see worst-case scenario. If this were to go bad, can we still be a very strong, resilient company and deliver value to our shareholders? When my answer is yes, I say, okay, we have covered all the risk. We think it is the right decision. Let's take it. If ever we are wrong, may that not consume us. When your question is on, let's go and, you know, get married to, or merged with, or blend with, or acquire, you also acquire a lot of baggage of those. There is a reason why those companies are losing value. There is a reason why those companies are not doing well.
As industry insiders, we know those reasons many a times, and we know where to go and where not to go. There are certain acquisitions that Digital Turbine has done that Apple had deep insights into. We had the first right to do them or the opportunity to do them in terms of, you know, timing when we start looking at. I won't name them, but we certainly were not feeling a loss that, "Hey, Digital Turbine acquired those companies." All the best. You know, we wouldn't have done that acquisition. I think we, Raj, are looking at all opportunities and respecting all possibilities, but we know a lot more in terms of what's inside going on.
Therefore, we are extremely carefully calibrated, and our execution strategy on inorganic has been flawless so far, and I hope to keep that track record. No unforced errors. Affle is doing a good job of its execution. If we keep doing what we're doing with M&A, M&A should be seen as for strategic reasons, opportunistic, value, in terms of pricing at which we transact in terms of timing. You know, it'll be. Let's say last year, if we'd done a particular M&A, it would have been more expensive versus this year. I think those kind of optimizations we would do, but we would never just go and do it for size. You know, I think there is no reason for us to just go and, you know, because something is cheap and is looking big, let's do it.
I don't want to get tempted into that. We'll be very careful.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.
Well, thank you very much everyone for very insightful questions and a good dialogue. I certainly enjoyed it. I hope it was valuable for you, and you have a deeper insight into Affle's mindset. Clearly for a majority, a significant majority part of our business, we are insulated from the headwinds of the macroeconomic factors. The good news is we still have tailwinds in those emerging markets. As far as the economic factors are concerned, I think there is actually impact is limited and is quantified so that you can all, you know, assess it. There is also opportunity in there for us because a lot of the competitors were fundamentally not as strong on their balance sheet, were fundamentally not as profitable.
If they lose INR 3-4 million of revenue, they're deeply hurt, whereas for us, we can still deliver a resilient outcome. In that sense, we are in a very strong and privileged position to navigate through, hedge through. As we go along, we'll continue to give you transparent commentary on our expectations so that you know what to expect. Then we'll talk about next financial year and beyond after that. Thank you again, stay well. Bye-bye.
Thank you.
Thank you.
On behalf of Anand Rathi Share and Stock Brokers, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.