Ladies and gentlemen, good day, and welcome to Zaggle Prepaid Ocean Services Limited Q2 FY24 results conference call, hosted by Equirus Securities. This conference may contain forward-looking statements about the company, which are based on the belief, opinion, and expectation of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.
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. Please note that the conference is being recorded. I now hand the conference over to Mr. Rohan Mandora from Equirus Securities Private Limited. Thank you, and over to you, sir.
Thanks, Akshay. Good afternoon, everyone, and thank you for joining the call. To give a brief update on the Q2 FY24 results and address investor questions, we have with us from the management of Zaggle Prepaid Ocean Services Limited, Mr. Raj P. Narayanam, Founder and Executive Chairman, Mr. Avinash Godkhindi, Managing Director, and Mr. Aditya Kumar, CFO. We would request the management to start with the opening comments, post which we can open the floor for Q&A. Thank you, and over to you, Mr. Narayanam.
Thanks. Thanks, Rohan. Thank you very much. Good afternoon, and happy Diwali in advance to all of you. Thank you for joining us today for Zaggle's earnings call for Q2 FY24. On behalf of the company, I extend a very warm welcome to everyone for joining us today.
On this call, we are joined by Mr. Avinash Godkhindi, Managing Director and CEO, Mr. Aditya Kumar, CFO, and SGA, our Investor Relations Advisors. The results and the presentations are uploaded on the stock exchanges and the company website. I hope everybody has had a chance to look at it. I am pleased to share with you that your company has delivered a strong set of numbers in both Q2 and H1, FY24, with revenues growing at a healt hy 41% and 38% respectively on a YOY basis.
Growth in Adjusted EBITDA is even stronger at 79% in Q1 FY 2024, and 54% in H1 FY 2024. We have witnessed significant growth and transformative changes in our industry. The digitization wave has reshaped the way we do business. The reduction in cash usage and increase in cards and digital spends has been a prominent driver in our industry.
Expense management and vendor payments, along with stronger compliance requirements, have been a big pain point for enterprises. Zaggle, through its suite of products, is addressing this challenge. We are seeing a very healthy demand for these products, and we are very confident that we will be able to service a large part of this demand, resulting in higher growth. This would require investments in product as well as technology to be able to meet the customer expectations.
Just want to highlight the spend management solutions, you know, which we provide to large corporations, brings in a level of transparency and control over expenditure that can mitigate risk, stimulate growth, boost profits, and streamline operations across the organization. The securely centralized data in spend software, such as our SaaS offering, serves as a singular source of truth, enabling companies to conduct real-time spend analysis and gain insights into how the money is allocated company-wide, which generally we have seen is a challenge for large corporations.
When the right system is in place, it simplifies and expedites decision-making for all our stakeholders. This shift in mindset offers a solid growth trajectory for Zaggle. We have worked very closely, and we continue to work very closely with our customers to garner deep user insights.
This engagement helps us to continue to diversify, enrich our offerings by exploring various use cases and aligning our strategy with an evolving marketplace. By strategically broadening our solutions, we can effectively cater to a broader spectrum of customer needs and preferences, thereby fortifying our competitive position and capturing new market segments.
As an organization, we have a strong belief in partnerships and collaborations. With our Zaggle integration platform, which is called ZIG, we intend to have our integrations with relevant, ERPs, HRMSs, accounting, and various other software packages. We endeavor to build symbiotic business relationships and believe in partnering with various industry players. One such example is our recent collaboration, which you would have all seen, you know, in the news as well as on the, stock exchange when we filed it, was with Kotak Mahindra Bank.
That represents a significant milestone for our organization. Through this strategic partnership, we will provide bundled services of corporate, of Kotak Bank corporate salary accounts, plus employee flexi benefits, disbursal on a co-branded prepaid card for employees of corporates. Talking now, I'll talk about some operating metrics.
Currently, the active users on our platform is at about 2.52 million as on thirtieth September 2023. One of our current growth strategy is to drive growth in our recently launched product, Zoyer, which is basically nothing else but accounts payable and vendor, you know, vendor payment product. Corporates face multiple challenges with vendor payments, like manual invoices, you know, they have no visibility at branch-level payments, delay in payments, vendor empowerment, and, you know, the right choice of vendors.
Through our Zoyer product, we provide a single centralized system or a platform to manage all the vendor-related payments, thus driving efficiency and automation. At Zaggle, we see incredible potential in the credit card market.
Our venture into the credit card industry has unequivocally transformed our trajectory. Month after month, our revenue from, you know, our various sources, and most of them, most of them have been growing at a very healthy pace. But one, one particular, piece which I want to highlight is the credit card, which continues to soar, demonstrating the immense appetite for this financial tool in the market. The revenue revenue potential from credit cards is even higher, and we are fully prepared to tap into this vast market.
The momentum that we have built in H1 of this year, which is the first half year, you know, will be carried into H2, and we look forward to continuing this stride. We expect the operating leverage, which is already kicked in, to further strengthen, and with lower finance costs as we have repaid the debt, you know, should show a stellar performance in the coming H2. With this, I would want to thank all of you, and I will ask my, you know, MD to come in and give you a deeper dive into our operations and future prospects. Thank you so much. Over to Avinash Godkhindi.
Thanks, Raj, appreciate it. Happy Diwali to everyone. This has been a very encouraging quarter for us, both in terms of performance of revenue and EBITDA. A notable portion of our growth in the quarter was driven by increase in spends on credit card business, along with the growth in Propel point redemptions. Growth in Adjusted EBITDA is around 78.7%, this is before ESOP expenses. Outpaced the growth in the top line, which is 41.4%. This is the result of strong operating leverage that exists in our business, and that has started to kick in, every quarter. Our H1 FY 2024 top-line growth was 38% and is in line with our full year guidance of about 40%-50% revenue growth.
Since this is our second earnings call, and ours is a very uniquely positioned business, so I'm going to take a step back at this moment and spend some time to share more insights into our products and offerings and the overall business model. Zaggle Solutions cater to the expense side of the corporate customers' PNL statement, encompassing three major categories.
These categories include employee expenses, reimbursements, and employee tax benefits, channel incentives provided to channel partners, and employee rewards and recognition, as well as accounts payable platform, which is Zoyer. All these products are deeply embedded with our credit card and prepaid card payment instruments. With the help of our embedded finance platform, our customers witness improvement in their operations, in their cash flow and their overall financial performance.
Our customers who use our SAVE platform, which is basically our employee expenses, employee reimbursement, employee benefits platform, designed for where we offer convenient mobile app and dashboard. Through this app, employees can instantly scan their bills and submit their expense receipts using our optical character recognition capabilities, which is OCR capabilities.
Effectively, corporates can digitize their employee expenses and expense tax benefits, as well as their reimbursements on a single payment instrument that can replace food coupons, food cards, fuel cards, travel vouchers, gift cards and any other payment instrument that a corporate gives for employees to incur these expenses. Coming to Zoyer. Zoyer is a SaaS-based accounts payable platform, which helps in digitizing all payouts for corporates through deep integrations with ERPs and our credit card offerings.
It helps corporates improve their working capital and payment efficiencies, increase visibility via analytics, and define hierarchies and authorization matrices. The platform is coupled with our credit cards, both corporate credit cards and purchase cards, which provides corporates with a holistic accounts payable solution. Coming to Propel.
Zaggle Propel serves as a comprehensive solution for employee rewards and channel partner incentives. Through our automated rewards and recognition platform, we enhance engagement amongst both channel partners as well as employees of companies, ultimately fueling accelerated business growth. With Zaggle Propel, corporations have the power to revamp their channel partner incentives and establish channel loyalty programs that foster loyalty, drive channel revenues, and bolster their profits. I will now talk about the performance of our various products, along with revenue contributions in the last quarter.
Program fees amounted to about INR 765 million, which is about 32% of our top line. This figure encompasses various revenue streams, including interchange income and incentives from networks like Visa and RuPay. As for fee, the SaaS fee, stood at about INR 147 million, contributing to about 5% of our top, top line. This refers to all the fee income that we receive from our corporate customers, including fixed monthly subscription fees paid by customers on a per-user basis.
The Propel points revenue stood at INR 1,915 million, constituting 63% of our total revenue. This is received from customers for issuing reward points, which we call as Propel points, to their employees and their channel partners, like dealers, distributors, agents, retailers, et cetera.
We anticipate robust growth across all our revenue streams moving forward, and look forward to increasing our share of program fees and SaaS fees in the coming quarters. We will continue to implement our growth strategies, and we remain confident in our ability to effectively leverage our inherent strengths, ensuring growth and margin expansion. I'll now hand it over to our CFO, Aditya, for financial highlights. Thank you so much.
Thank you, Avinash. Good afternoon, all, and Happy Diwali in advance. Let me walk you through our quarterly financial performance. In the past quarter, we registered an impressive 41% YOY growth and 55% sequential growth in our top line.
Our growth margins reduced by 2.7% on quarter-on-quarter basis due to increase in Propel points redemption business, which is being recognized on gross basis. Having said that, our cost structures across product categories are being monitored effectively, so that we are able to maintain overall EBITDA margins. Our Adjusted EBITDA has grown by over 79% on YOY basis and 58% sequentially to INR 218 million. During this quarter, there is increase in our employee costs, raising from INR 81 million in Q1 FY 2024 to INR 112 million in Q2 FY 2024.
This uptick can be attributed to the annual salary hikes and bonuses. H1 FY 2024 is a better reflection of our employee cost profile. Following the recent IPO, the company has successfully repaid INR 470 million in borrowings, which is expected to result in reduced finance costs starting from H2. In the future, we will realize significant interest cost savings, resulting in a meaningful shift towards the profitability.
Our cash back, which includes net profit along with depreciation and ESOP expenses, has surged by 94% on YOY basis. During FY 2024, we expect to record total ESOP expenses close to INR 180 million-INR 200 million. So speaking on H1 FY 2024 numbers, our revenues have grown by 38% on YOY basis to INR 302.7 crores. Our Adjusted EBITDA has experienced a substantial growth of 55% to INR 355 million.
Notably, our cash back has surged by an impressive 69%. Going forward, the prospects in H2 are also looking promising due to inherent visibility of our business, which we have spoken about in the past. Over the years, our revenue has consistently demonstrated a substantial surge during the third and fourth quarters, accounting for a substantial 60%-65% of our total revenue, due to surge in transaction volume during the festive sale and increased spends driven by users seeking to maximize their card balances before end of the financial year. On that note, I will request moderator to open the floor for Q&A. Thank you all.
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 their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Grishma Shah from Envision Capital. Please go ahead.
Yeah, good afternoon, Happy Diwali, and thanks for taking my question. I want to understand the alliance with Visa and Kotak Banks better. How will this $20 million and INR 76 crore accrue to us over a period of time? If you could explain that, that should be answered, that question one.
Avinash, thank you so much for your question. So I'll take the Kotak partnership first.
Yeah.
Basically, when a corporate today signs up with Zaggle, we offer them the same platform, which is our employee expense management, reimbursements and reward, and employee benefits platform. And obviously, they would have a corporate salary account from, you know, a different bank. By bundling the two, what we are basically making is that there's a common interface, a common app, a common dashboard that the corporate and the employee get.
In addition, in this relationship, the way it is structured, is that the bank will bear the cost of the software fees for the expense management and employee benefits. And to the corporate, effectively, if the employees are taking a Kotak Mahindra Bank best-in-class salary account, the software platform would come free of cost. Right? And that's a very powerful proposition, in our view, because it allows-...
For rapid expansion in terms of uptake and to a corporate, they just need to agree to take best-in-class salary account. Coming to the Visa incentive, the Visa incentive is for Forex cards. We are, in the coming quarters, going to launch our Forex prepaid cards. This dovetails beautifully with our expense management platform, because when employees travel abroad, they incur expenses on behalf of the corporate, and they need to submit those bills.
Now, by offering that in conjunction with a Forex card, it's going to be very easy for employees to submit their expenses through our app, which has OCR, as I mentioned, and for the corporates to be able to reconcile and settle the dues, if any, because the Forex card also is tightly coupled with our offering. Hope that answers the question.
Yeah. So but, how will you get this $20 million? Is it equal in five years? Is it going to be milestone-based?
It is-
How do you arrive at this number?
Yes. So this is an estimate linked on spends. The amount of spends that get generated on the Forex card, this is an incentive that's basis the spends.
It's like the Propel points that we have.
This has nothing to do with Propel, ma'am. This is basically that if there are so many million dollars of spends that get generated on the Forex cards, we get $X million of incentive from Visa for driving spends to Visa ahead of other card networks.
Okay. So this will accrue in the program fees then?
Yes, yes.
Okay. And, for Kotak Banks, it would depend on the number of employees, getting onto our platform.
Number of corporates and number of employees who will sign up for this specific program, we will invoice the bank for the SaaS fees, the software fees, and all the card transaction income also would come as usual, which we get for our prepaid cards.
This is, these fees and all the arrangement is no different if we had to approach the corporate by ourselves, or it is different for Kotak Bank?
So this is a bundled offering. So obviously, because it's a bundled offering, so the different specifics there.
Okay.
But of course, for us, the benefit is that, A, we are invoicing to a single, trusted entity-
Right.
Like the Kotak Bank. And secondly, you know, we anticipate that the uptake would be fairly significant, given the value proposition to the corporates, that you get the software free.
Okay.
One more point I just want to add there, ma'am, is that-
Right
in all our relationship with banks, you know, we were, we, as Zaggle, were the sellers of these products, along with our brand partners.
Okay.
In this particular arrangement, the difference is that Kotak will also sell our software to their corporates. Card would be Kotak's, co-branded with Zaggle, but they would be the sellers, software would be ours. So this is a two-way income generating program, by which we should be able to at least see that the base of Kotak is very, very large, and I think, you know, we would significantly benefit from this relationship.
It would be taken to the existing Kotak customers as well?
Yes, yes, yes. That's the key point, ma'am, that it will be taken to the, all the, you know, users and, you know, customer corporate relationships which Kotak has. They will take this offering to them, which is a bundled offering with Zaggle. And, you know, software is Zaggle's, card is a co-branded card, and together it will make a very, very, you know, good combination for any corporate to have.
And again, the INR 76 crore is an estimate. It is not a... It may vary from one year to the other, depending on how many customers are getting on board.
Yes.
Contract is for three years, ma'am.
Yeah.
The 76 crore is a combined estimate across the years. For one single, prepaid card program, which is what we've discussed.
Right.
However, the contract has the flexibility or the openness for us, at a future date, basis mutual agreement with the bank, to launch other Forex, other prepaid programs as well.
Okay.
And also, the other, possibility is that looking at this program, you know, there could other banks who will approach us, you know, to enter into something very similar. So we look, you know, we've, what we see is that at least couple of more banks, you know, in next, you know, couple of quarters, should also sign up for a program like this.
Because it's a win-win. They, you know, they are able to offer something extra, you know, to their customer. For us, it's a beautiful thing. Customer is also able to get all these services at a, you know, from their known corporate banker. And for us, it is that, you know, our software is going into so many corporates, which also gives us an opportunity to sell something extra to those, corporates.
Okay. That's on the alliance. The second question is, I'm assuming that compared to last year, quarter two through this year, the Propel percentage of revenues has increased and therefore, the gross margins have been a little lower. Is that understanding right?
Yeah. Aditya here, ma'am. Yes, ma'am. Because what happens in the Propel platform revenue, right? The gross margins are lower, but the take rates are always higher.
Okay. Okay, and the borrowing cost, will it come down by INR 2 crore-INR 3 crore in the second half compared to last year, or would it be higher?
It will be lower, ma'am, because we closed a couple of borrowings, so, obviously, it will be lower compared to H2 of last year.
So it will come down by INR 2-3 crores, or it would—the quantum will be more? I mean, we had around INR 120 crores of debt as of FY 2023, of which you closed INR 47 crores.
Quantum will be lower by INR 2 crore-INR 3 crore, ma'am, yes.
Okay, fine. Thank you so much.
Thank you.
Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead.
Hello.
Yes, sir, please go ahead. Deepak?
Yeah. Yeah, thank you very much, sir, for the opportunity. So first up, just I wanted to understand in terms of, ESOP expense. I mean, this, this year, we expect about, INR 18 to or around INR 20 crores, right, in terms of ESOP expense. And out of which, I think INR 13-14 crores we have already, incurred in the first half. The second half only, I mean, INR 5-6 crores, is what we are expecting in terms of ESOP cost?
Yes, correct, Deepak, your understanding is right. Around INR 6 crore will have this kind for the next two quarters.
5 crore-INR 6 crore?
Yeah.
Then how do we see that FY 25 in terms of ESOP cost?
FY 25 will be much, much lower because we do ESOP accounting as per India's requirements, et cetera, right? Initial two years, it will be at the highest peak. For the FY 25 and FY26, both two years put together, it will be around INR 10 crore.
10 crore total or each?
Total. Total INR 10 crore, and around INR 7 crore in year one and 2.5 crore year two.
FY 25 is INR 7 crore, and INR 3 crore is FY 26?
Yes.
So, what I'm trying also to understand now, because now your ESOP cost will also reduce, or your adjusted margins in terms of EBITDA will now converge to your reported EBITDA margin, right? Because of this ESOP cost being minimal from, let's say, next FY 25.
Yes.
So, you know, I mean, in terms of margins, so what do we aspire? Because as we scale up, we'll get some leverage advantage as well, given the high growth business we are into. So, what would be a steady state or aspirational margins that we look in our business, I mean, from next two- to three-year perspective?
Yes. So, you know, ideally, see, we should reach, you know, about, 15%, 16% overall. But, you know, for this year, the guidance is 12%-13%, and we'll, you know, maintain that for this year. But of course, you know, there is lot of, operating leverage which is available, you know, to us to expand our margins.
So, 15%-16% margin is what we are looking at in 2-3 years' time?
Three years, yes.
12%-13% is on adjusted basis, right? We are not including the ESOP cost.
Yeah. Yeah, yeah.
Mm-hmm. Understood. And I mean, we currently, I think we have, I think, what, 2,600 kind of a corporate clients. Would that be the right number?
Yeah, roughly about 2,700, yeah.
So how do we see the traction in that? I think some color in terms of the traction in your clients and how we are trying to expand our wings in this corporate sector here.
So Deepak, very good question, you know, and that is one of the things which, you know, the company is continuously focusing on. The cross-sell opportunity, we have multiple products, and today we see that our cross-sell percentage is roughly about, you know, 14.5%-15%. Now, we want to take this 14.5%-15% to about, you know, 25% by next year.
When I say next year, it is like, you know, September of FY 2024 is what I'm saying. That by then, we should be able to take this to, you know, increase it by another 10%. And we are constantly trying to see that how much more can we accrue from the same customer.
Because, you know, already our CAC is given in, and, you know, we have already cracked into the account. Now, what more can we sell to them is the idea. So, you know, the current traction is just absolutely phenomenal right now, and what we expect is in at least for next 2-3 years, you know, whatever visibility and the demand projections we are seeing, it looks very, very healthy.
Okay. So in terms of cross-sell, so can you elaborate more on the cross-sell? So what exactly we are trying to cross-sell? Is it the Forex card we are talking about here or what else?
Could be, could be. Like, for example, I'll just take a hypothetical example of, you know, HCL, okay? So in HCL-
Yeah.
- providing them expense management, until today, we were not giving them any Forex, you know, card solution, or we were not giving them the, you know, accounts payable vendor automation system, which is Zoyer, okay? Now, we would look forward to seeing that, you know, now that they are already buying our expense management, how can we bundle the Forex card as well as our vendor payment, payment or accounts payable platform into, HCL, so that we can streamline their payable payments?
...Understood. So I understood this point. It's that this is one avenue of growth in terms of you're increasing your depth in a particular client, right? But I was also trying to understand how are you trying to increase the, I mean, the number of clients and the width of the client that we have?
If you, if you look at our revenue growth drivers, what are the revenue growth drivers? One is the more number of corporates I add, okay, that is how, you know, my revenue will grow. Second is, if the users within that corporate gets added, that is when my revenue goes up, okay?
Mm-hmm.
Third is, that if there are more number of solutions I can sell to a corporate, is when my revenue goes up. Fourth is the amount of spend which the users do on the cards, is when my revenue goes up.
Okay.
These are four levers for us, and we work on all of these four levers to continuously see that how do we grow our business. Now, now to your question that how would we grow, you know, add more corporates? See, for us, adding a corporate is much, much easier.
Okay? It is not a very difficult task for us to add corporates, but to be able to, you know, generate more income per corporate is what we are looking at, you know, which typically is called, you know, ARPE, which is average revenue per enterprise. How do we go and increase the average revenue from a, enterprise?
So that is what we focus, that is what is the core focus, because we already have 2,700-2,800 clients, and, you know, even if we take it to 3,200-3,500, that is, you know, that is not at all a tough task for us.
Understood. That's a nice explanation. And my one more query I was trying to look in terms of regulatory risk.
Yeah.
I mean, how do you see that? I mean, tomorrow, if some adverse RBI rule comes or something on those lines, so how do we see regulatory risk in our business?
So like, if you, if you see RBI regulation, on what will it come? You know, they see, in my opinion, they cannot ask us to stop selling software. Okay?
Mm-hmm.
The biggest risk and the only risk which is there is that in terms of the interchange risk on the prepaid card. Now, because we have already launched our credit card, the risk is significantly mitigated, and at any given point of time, we can actually, you know, completely move everything in our business from prepaid to credit card, you know, given, like, about three weeks now.
Earlier time was about six to eight weeks, but now we are so ready, you know, ourselves, that any point of time, something like that were to come, we would easily be able to manage it.
Okay. And so what you're trying to say is that, majorly, our risk could be in the prepaid card, right? So that's where the RBI could intervene or some adverse regulation might come in. But since now we have launched credit card, we can shift this entire business of prepaid card to credit card, and our risk is kind of mitigated, right?
Yes.
So is my understanding correct?
Yes, absolutely.
Okay, fair enough. Yeah, fair. I think that's it from my side, sir. I think all the very best to you. Yeah, thank you.
Thank you, and Happy Diwali to you as well.
Yeah, Happy Diwali to you, sir.
Thank you. The next question is from the line of Rahul Bhangadia from Lucky Investment Managers. Please go ahead.
Thank you for taking my question, sir. Congratulations on a very good set of numbers. Just one question, if you could help me with the throughput that you had through your debit card, credit card, prepaid cards, put together?
Hi, Rahul. Congratulations to you, too, as well. Didn't understand the question. Can you please repeat?
The throughput, the value throughput that happened through your debit, credit, and prepaid cards for the quarter. So how much money would have been spent using your cards?
So, that's a fairly significant number, Rahul, but wouldn't want to necessarily go into the specific details. But you see the program fees, and you know the take rates there. The last year take rate was 1.85.
So we work that way backward, right? That the take rate hasn't changed.
Take rate has remained in the same range, Rahul.
Okay, okay. Thank you so much, Avinash. Thank you so much. Bye.
Thank you. The next question is from the line of Karthi from Suyash Advisors. Please go ahead.
Yeah, good afternoon. I hope you would, wouldn't mind if I ask a couple of very basic questions. One, just trying to understand in terms of exclusivity of arrangements with corporates, could there be a competing solution offered to the same corporate? How exactly does the arrangement work with your corporate clients?
Karthi, so thank you for your question. What happens, sir, is our value proposition to a corporate is a unified card, app, and dashboard. See, because we integrate in many cases with their ERP, we get project codes, cost codes, location codes, and we are able to give a very holistic view to the corporate as to, for that particular location, for example, what are the kind of spends that are happening, right?
Mm-hmm.
Or for that particular project or that particular department, what are the kind of spends that are happening across, you know, whether it's employee expenses, whether it's, you know, any vendor payments that they are making or any other, rewards, et cetera, right? So the whole thesis is that it's a unified platform, single sign-on, very easy to use, a mobile app, and hence, you know, we anticipate in the coming,
... years, more and more corporates would take the full suite of our offerings, right?
Yes.
We don't try to enforce any exclusivity per se with our corporate customers, because we do genuinely believe that our platform is best in class, and we compete on merit against our competitors.
Right. Right, right. Interesting. So if you had to give me a ballpark estimate of what would be the current penetration of such solutions in India, broadly?
Very difficult to estimate, right, Karthi. Today, a lot of companies are still on, you know, Excel and email, right?
Sure.
And that's what we are trying to solve for. I'll give you an example. Let's say there was an expense that was approved three years ago. There's a query that comes in from any of the authorities saying: "What's this expense? Why was this approved?" I know of a lot of companies who end up having to restore mailboxes,
Sure.
because the employee could have quit, right?
Sure.
Trying to figure out who approved, why was he approving it the way he was, et cetera, et cetera. All that inefficiency, all that, you know, challenges that companies face, we make it seamless. We make it at a click of a button.
You click at the expense, not only do you get to know who approved, you also get to know the, all the, communication that happened between this person and anyone else who was involved. Let's say, the employee has made the submission, any other, you know, finance team, as to what was the discussion that happened around why this approval was given, right?
Sure.
So everything is at a click of a button, sitting on the cloud for years and years and years, so that it's seamless for the corporate to be able to respond to any of these queries.
Sure. Sure. So, so, one question on, ROE evolution. You know, I, I understand scale plus profitability will drive ROE. So at what stage would you reach, say, mid to late teens, kind of an ROE number, or is that too aspirational?
The second part to it is: Do you make a clear distinction between the variable part of your revenues, which is to say, spend link, versus the fixed fee part of your business? And how do you, how should one think about these two components?
So, Karthi, I'll take the second one first. If you look at our view of our revenues, it's a bundled, holistic platform. And as I gave the example of the Kotak partnership, there we are now bundling effectively the income that you generate by selling a Kotak Mahindra Bank salary account as well, right? So it's a third-party product in some ways.
Sure.
Not only our co-branded prepaid card and the software fees, we are also earning a commission from the bank for selling the salary account, right?
Right.
To these employees. So we take a holistic view on the nature of the revenues, because the corporate also looks at it that way, right?
Sure.
They are saying: "Okay, if this is the kind of volumes that are getting generated, then, you know, we will potentially look at how much fixed fees we need to incur as a cost.
But, but, but doesn't it vary across? One is, of course, say, for example, an employee account is a one-time fee income. The credit card spends, for example, would be a transaction link, right?
Sure.
And of course, you know, the SaaS service is a, is a more recurring kind of a thing. So therefore, I was trying to understand how you, you know, break it down in your mind about from an ROE perspective, sir.
Yes, sir. So the SaaS fee, of course, has a large recurring angle to it. The program fees also is recurring because people keep spending on their cards, and, you know, every time they spend, we earn. Similarly, on the Propel points, every time somebody makes a redemption of that point for vouchers of various brands, we again earn our commissions there. So there is a recurring angle to each one of these, and that's, that's, that's the way we have sort of tried to design the business models.
Sure. Quickly, one, when do you think a high-teens ROE is possible?
At least I would not want to venture into a speculative response, sir. We are working towards it.
Right. And one last quick question: would this cover temp staff also, or does it largely cover only permanent employees on the rolls?
So, our costs, you're talking of our employee costs or?
No, I'm talking about the customer side, customer side.
Customer-
Like a construction company, for example, which employs a lot of...
Anybody who submits an expense to the company, right? It could be bench staff-
Sure.
It could be third-party payroll, it could be delivery boys. We have some of the largest food delivery companies in the country. The biggest ones are, you know, now our customers, we've signed them up recently, right?
And a lot of them are their delivery boys. So this is not just your white-collar, sophisticated employees on the company base, but it could be a blue-collar worker as well, a third-party payroll.
Sure. Sure. Thanks for answering patiently. Very best wish.
Thank you, sir, and Happy Diwali!
Happy Diwali.
Thank you. A reminder to all the participants, you may press star and one to ask a question. The next question is from the line of Lalit Deo from Equirus Securities. Please go ahead.
... Yeah, good afternoon, sir, and Happy Diwali in advance. So just I have a couple of questions. Firstly, so like you mentioned on the Kotak partnership, so just wanted to understand, like, how will the profitability differ, vary in the customer, with the customers which we source through this Kotak Bank partnership, as compared to the customers which we source directly?
So in this case, if the bundled solution is taken by the corporate and we are making the sale, we earn the fees for selling the salary account, we earn the software fees for the save platform, and we earn the interchange, which is part of the program fees, right?
So you have multiple revenue streams. The newer stream that is popping up here is the commission that we get for selling the salary account. In the case when the bank, let us say the bank goes ahead and sells, in that case, of course, we don't get the fees for the salary account sale. But of course, the beauty of that model is, a bank has thousands and thousands of tens of thousands of employees who can sell our solution to their prospects.
So just wanted to understand. So in a way, like, this partnership is much more profitable than the one where we source customers directly. Is it right to say that?
Yes, yes. Earlier, we used to earn in two ways: program fees and software fees. Now, you have a third leg which is kicking in, which is the fees that we get from the bank for sourcing a salary account.
Sure, sir. Sure.
It is a highly, highly profitable deal because no effort from our side when a bank sells, okay? And they are the ones who will sell the software as well as the card. So we get, you know, extra income just because of the relationship and usage of our software. So that's a highly, highly accretive deal for us.
Sure, sir. And so second question is like, so like we have mentioned that, like 60%-65% of our revenue comes in the second half of the year. Now, this year, like, the entire festive season is in the third quarter. So how has been the initial business trends in this quarter, and what kind of transaction are we seeing right now?
I will not go into specifics, sir, but the trend continues, as we have seen in all these past years. The trend continues, and we are getting good traction. Very good traction.
See, we have already given the guidance of, you know, 40%-50% growth on the top line and 11%-13% EBITDA, so I think we will be able to maintain it.
Sure.
Thank you. The next question is from the line of Mitesh Kamdar from Aditya Equity Investments. Please go ahead.
Hello. I had one question. As the cash flow from our operations is negative, when can we expect that we, our dependence on the external capital to generate revenues to go away?
So, this is largely on account of last quarter and requirements, et cetera, what we do on the trade receivable, right? Maybe we are working on it. Possibly in the next one year, we'll be able to maintain that level of positive working capital.
Okay, but, will the further growth require any external, requirement from capital from the outside sources? Because our own cash generation is going to be negative.
As of now, no. We leverage the existing, whatever capital is available, and we'll make sure that operational fixed leverage kick in is already started. So that will help us to make our operational working capital positive.
Okay. Thank you. Thanks.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Agam Shah, an individual investor. Please go ahead.
Hi, sir. So quick question, as you explained the deal of Kotak and Visa card-
Agam Shah, can you please come closer to the speaker?
Yeah. Am I audible now?
Yes. Please go ahead.
Yeah, you explained the Kotak deal. So just wanted to know, so INR 70 crore, INR 76 crore is a number, so this number will keep on increasing, right?
So end of the day, the INR 76 crore is the number that we have estimated, from the income that we'll generate as program fees, for the 3 years. This is the revenue projection for one program. We have not, because the contract that we submitted was only the co-brand contract, we've not, included in that the income that we get from the software fees and the income that we would get from the sale of this Kotak salary accounts. And yeah, as the multiple programs get launched through this contract, those get added.
And as the, you know, the program expands, we hope that, you know, this is while the initial signing duration is three years, you know, we would hope in the co- that that would get extended, and, you know, we would, you know, have more uptake in the coming years.
So, typically, let's say in a given year, you don't acquire more corporate customers, so still we can maintain the growth of 40%, or this will drop to 20%, or how to look at that way?
... See, our cross-sell opportunity is very, very significant. As Raj previously mentioned, we are at about 14 odd percent right now. In the next year, we are looking to get to 25%. Our opportunity to be able to bundle these sort of solutions and then sell, that is also available for us. So, typically, it is, you know, a corporate that we sign up today takes about 3-5 years to mature in terms of the overall, revenue output that can be generated, right?
So, it's not that the growth is a concern for this year, but, you know, you need that, a decent pipeline of corporates getting signed up year-on-year for the coming years, so that, you know, we continue to grow not only this year at about 40%-50%, but in the future also, we have robust growth.
But just a ballpark, if I have to take, if I don't sign any corporate customer, so, the business, current business itself can grow at least 20%-25%, right? With the current corporate clients for-
There is tremendous opportunity, sir. As I said, the cross-sell is only to 15%, right? And if we just focus on that, there is tremendous opportunity for growth. Yes, you're right.
Okay. Okay. That's it from my side. I join the queue.
Thank you. A reminder to all the participants, you may press star and one to ask a question. The next question is from the line of Shriram, an individual investor. Please go ahead.
Yeah, thank you for the opportunity. I have a couple of questions. One is, you know, how much is the interchange fee for the first half? And, also, if you can throw some light on what is the other component of the program fee. I mean, you have mentioned that you receive some kind of fees from the banking partners, so what is the arrangement there?
And if you can help me with the nature of income, that would be helpful. My second question is on the propel side of business. Now, earlier, you used to report on an Ind AS basis, now, which has now changed. So let's say, FY 2021, you had reported INR 30 crore. Now, what is this number for 2022 and 2023?
Sir, on the Propel points, we are reporting on the basis of Ind AS.
Uh, okay.
That is what we are doing right now. And so I don't... didn't understand where the confusion is.
No, no. What is the pre-Ind AS number?
The pre-Ind AS number was insignificant, sir.
Sorry. So, let's take INR 154 and INR 360 is your 2022 and 2023 revenue. So-
Sir, Ind AS.
The number, you know? Yeah. Yeah.
Both is now Ind AS, and the current reporting is also on Ind AS for these numbers, sir.
No, no. I'm saying, can you give the comparable figure?
Maybe I'll take this question, sir. So, all the labs, so we migrated from ICAAP to Ind AS from FY 2020 onwards. Whatever numbers you see in the financials are disclosed under Ind AS, okay? So just to answer straight to your question, so FY 2021, Propel platform revenue is INR 32 crores, as against the cost of Propel point.
You will see the direct expenses line item on the face of the PNL, okay? You just need to reduce that, so that gives you around INR 2 crores. For FY 2022, it is around INR 10 crores. For FY 2023, it is around INR 45 crores. The next,
Thank you, sir. Yeah, yeah. Exactly, exactly. So, so that is where I'm coming from. So this INR 2 crore-INR 40 crore, it's like, how, how should we look at this? I mean, there's a large jump, so... And then for the H1, again, we are at INR 20 crore. So, maybe we are maintaining the similar run rate, so how should we look at this in the future?
So that's by design, sir. We are focusing on increasing the Propel platform revenue, etc. So what we are doing is whenever we get the contract from the corporates, right, rather than going for network cards, we are making sure that they use the platform and redeem the catalog of the vouchers by the users. It's increasing on the user Propel adaptability.
Okay. So, answer on the my first question on the interchange fee, the value for the first half.
So, so generally, the program fee, largely, it consists of interchange fee only, sir. Around 90%-93% will be the interchange fee, and the rest all other line items, like incentives, et cetera, will comprise the other portion.
We also won't be able to go into too much of specifics, sir, because these are very specific, you know, contracts or arrangements that we have with our partner banks, et cetera, and this is a little bit proprietary in nature.
Okay. So actually, the last year, the number was 72%, actually. That, that's what you have reported. I mean, the component of interchange fee to program fee, if I do that math, 72%. So, so again, now it is, reverted back to old levels, you're saying 90%.
Yes.
Right?
Yes.
Okay, and what is the other fee that you get, sir? What is the nature of that income? Can you explain that?
Sir, as I-
That-
I think as Aditya mentioned, the fees include a combination of incentives that we get from networks, any support that we get from our partner banks to drive spends, and any other, you know, fees that you would have, like, on the card, you may have certain fees, like, you know, fuel surcharge, et cetera, or ATM fee, et cetera. So those are the kind of fees that are included there.
Oh, okay. Okay. And so on the interchange part again, the, the... Let's say, I don't want any numbers. So let's take INR 100 is the interchange fee, okay? So how, how much is basically shared with the banks? I just want to know the pie, like, how much do the banks take, and how much does Zaggle take? An overall number would do.
Here is everything that we take, right? So what we are including here is only our part. We don't gross it up with the total interchange. We don't do that. So what we are reporting is the net interchange that comes or net payout that comes to us, right?
Already we are factoring it in. Different banks, different arrangements, sir. That's how that whole thing goes. For example, the arrangement that we have with Kotak Mahindra Bank, there where the Visa fees and the RuPay fees are taken by the bank, that the switch costs are taken by the bank, there it's 80/20 sharing, right?
So 80% fees, 20% banks, right?
Yes, sir.
Okay. This is helpful, sir. Thank you.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments.
With this, I conclude the call. You know, if you have any further queries, please contact our investor relations advisor. Thank you, everyone, for joining us today on this earnings call. Happy Diwali, and season's greetings to all of you. Thank you so much.
Thank you.
Thank you. On behalf of Equirus Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.