Ladies and gentlemen, good day, and welcome to Zaggle Prepaid Ocean Services Ltd Q1 FY24 earnings conference call, hosted by Equirus Securities. 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 a touchtone phone. Please note that this conference is being recorded. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Rohan Mandora from Equirus Securities. Thank you, and over to you, Mr. Rohan.
Thanks, Sjiku. Good morning, everyone, and thank you for joining the call. To give a brief update on the 1Q FY 2024 results and address investor questions, we have with us from the management of Zaggle Prepaid Ocean Services Ltd, Mr. Raj Narayanam, Executive Chairman, Mr. Avinash Godkhindi, Managing Director, 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.
Yeah, thank you so much, Rohan, for the introduction. Good morning, everyone. This is Raj. I'm Founder and Executive Chairman of Zaggle. First of all, a warm welcome to all of you, and thanks for joining our first earnings call after the listing. On this call, we are joined by Mr. Avinash Godkhindi, who is the Managing Director of Zaggle, Mr. Aditya Kumar Grandhi, CFO, and SGA, Investor Relations Advisors. The results and the presentations are uploaded on the stock exchanges and the company website. I hope everybody had a chance to look at them. You know, we are very thrilled to witness a very strong response to our IPO. We want to express our deep appreciation to all our shareholders for entrusting their confidence in us.
We extend our congratulations to everyone associated with the company, our employees, customers, business partners, bankers, and shareholders. Since this is our first earnings call, I would like to give some background on our journey and how we got here. Zaggle was launched in 2011 to build state-of-the-art financial solutions workflow and products, which would help automate and empower businesses to increase efficiency, accuracy, transparency, and productivity. Our strong roster of customers, bank partnerships, scalable tech platform, gave Zaggle a strong platform to grow into a highly profitable business. Our faith in the business and track record of being profitable for the last 4 years gave us the confidence to list our 12-year young company on the Indian stock exchanges. I once again thank all of you. The increased digitization trends and automated workflows are expected to be key drivers for this market.
Globally, spend management is growing at a breakneck speed, and we, as torchbearers of this industry in India, are committed to contribute to make India a digital economy. Our uniquely positioned spend management business offers well-diversified fintech products and services. We operate in our segment, where we interact and interface with our corporate customers, that is, businesses and end users who are employees and vendors. We solve everyday business problems for our customers, enabling them to drive growth and unlock value in their business operations. We provide them with solutions for making their business and employee spends more efficient. Our software platform is integrated with co-branded prepaid and credit cards. Our solutions meet corporate needs for vendor payments, channel incentives, employee payments, rewards and recognition, and employee reimbursements.
Our comprehensive solutions empower corporates to effortlessly monitor and manage their employee expenditures and vendor payments through a singular streamlined platform, making us their preferred partners. I'm proud to share that recently, Visa and Zaggle have further strengthened the partnership by jointly issuing Forex co-brand cards. Zaggle will capitalize on its existing corporate clientele to distribute Forex cards to employees of these corporate clients, seamlessly integrating this offering with the Zaggle Expense Management solution. This partnership signifies the trust, and trust that Visa has bestowed upon Zaggle. It is a promising opportunity for both companies, you know, to extend their reach and provide valuable financial solutions to a broader audience. We look forward to taking this product live in the next two to three quarters.
Zaggle has also partnered with BoB, which is Bank of Baroda Financial Solutions Limited, for implementing commercial card onboarding and value-added services platform called ZatiX. These partnerships would help the company to chart out its next phase of growth. Now, let me spend some time in explaining our financial performance for Q1. As earlier told by our, you know, MD, Avinash Godkhindi, that there is a seasonality of the business. In Q1 FY 2024, we had a robust growth of approximately 34% in top line YOY, due to our introduction of Zoyer product, the corporate and co-branded credit cards. As explained in our investor presentation, our business has an element of seasonality, so it is useful to look at the financials on a year-on-year basis.
Typically, our business does anywhere between 35% to 40% of revenue in the H1, which is Q1 and Q2 together of the year, and 60% to 65% of the business in H2. Due to the inherent nature of our business, we expect this trend to continue while registering growth on a Y2Y basis. Our adjusted EBITDA before ESOP expense has also grown by a healthy 27% on YOY basis. India is at the vanguard of the Fintech and digital revolution, with strong tailwinds driving the digital payments industry. Our holistic position in spend management provides us with a considerable competitive advantage and avenues of growth.
We are optimistic for the growth opportunities, thus, you know, we are very, very happy to project our revenue growth, which probably would be around 40% to 50% this fiscal year, with an adjusted EBITDA margin without the ESOP expenditure of 11% to 13%. Now, I will hand over to Avinash, who will explain the company and key developments and strategies. Thank you.
Thank you so much, Raj. Good morning, everyone. Thank you for joining this call. Raj has already given a great overview of our company, and business. I'd like to give some flavor around our, you know, business and products, per se. As many of you are familiar, Zaggle is well-placed at the intersection of SaaS and Fintech ecosystem. To make this entire ecosystem functions, seamlessly, we have collaborations with, you know, bank partners like ICICI Bank, IndusInd, Bank of Baroda, that we recently signed up, Yes Bank, DBS Bank, NSDL Payments Bank. As well as network partners that we have, like Visa, RuPay, and Mastercard.
Our innovative product portfolio, offerings include Propel, which is a corporate platform for channel rewards and incentives, employee rewards and recognition, allowing corporate customers to increase their engagement, with their employees and channel partners through our Propel points platform and prepaid cards. We also have Save, which is an expense management, employee reimbursements and benefits solution, helping employees and companies save money, increase efficiency, reduce manpower and leakage. This is tightly coupled with our prepaid cards as well as our corporate credit cards to enable T&E expenses and their reimbursements. Zoyer is our integrated, data-driven business spend management platform, with embedded automated finance capabilities and is tightly coupled with our corporate credit card products to facilitate vendor payments.
We offer an integrated value proposition through our SaaS platform, providing a combination of payment instruments, as well as an integrated mobile application that digitizes businesses and employee spends. API integrations on the platform provide to our customers, offer them enhanced convenience and an efficient user experience through a simplified dashboard. We monetize through transaction income, which is generated from spends that users make on our payment instruments, as well as software fees, which is levied to our corporate customers. Our USP lies in the following: our ability to provide top-notch service to our existing customers by understanding their requirements and offering an integrated solution. One of the most significant metrics is churn rate, which is currently less than 2% for us today. We are focused on retaining and growing our corporate customer base.
The key to achieving this retention ratio lies in our ability to effectively engage with our clients and enhance our market penetration. Our exceptional retention rates are instrumental in generating valuable referrals for our expanding client base. Our company has successfully served a remarkable 36.7% increase in our customer base year-on-year. Our strong API integrations with bank networks are providing an integrated access to Zaggle products to our customers. Our offerings have features such as configurable platform for each corporate customer, allowing for partner onboarding and automated workflows to track spends and reconciliations, thus ensuring a healthy and consistent customer retention rate.
Our corporate customers deeply value our commitment to providing a secure platform to their users, and we have demonstrated this through various certifications such as GDPR, ISO 27001, PCI DSS, et cetera. With the ease of usage that these products provide, business has healthy year-on-year growth of 22.2% in FY 2023 Q1 in the aggregate users on our platform. You'll be happy to know that we have also won key awards, accreditations, and recognitions, which are a testament to our commitment to excellence and innovation in the Fintech industry. It demonstrates our dedication to excellence and innovation.
In 2023, you would be happy to note that we recently received the Global Banking and Finance Award for excellence in innovation in business spend management software, as well as the Business World Festival of Fintech Conclave Awards, where we were awarded the winner of the Best Payment Solution for the year 2023. Innovation remains at the core of our strategy. We continuously invest in research and development to introduce new products and use cases that meet the ever-changing demand of our customers. Innovation is a driving force behind our competitiveness. To scale and expand our operations, we will focus on increasing our user penetration, our cross-sell, our up-sell within our existing customer base. Strengthening our relationships with our customers is essential for sustainable growth.
In our pursuit for strategic acquisitions and investments, we aim to identify opportunities that align with our strategic objectives. This approach allows us to grow our business intelligently, bringing complementary strengths into our world. Additionally, we recognize the importance of forging strategic partnerships with financial institutions and merchants. These collaborations enable us to leverage our combined strengths, expand our reach, and enhance the value we provide to our customers. Our recent collaboration with Visa is a step in this direction. Our strategic roadmap for sustained growth is a dynamic plan that encompasses customer expansion, innovation, scaling, and strategic partnerships. Our unwavering commitment lies in not only achieving short-term gains, but also long-term prosperity by ensuring that our business remains at the forefront of our industry. Now, I hand it over to our CFO, Mr. Aditya Kumar, to give the financial highlights. Thank you, and over to you, Aditya.
Thank you, Avinash. Good morning, everyone. I'm Aditya, CFO of Zaggle. Let me walk you through our quarterly financial performance. In this quarter, our business has demonstrated a healthy growth of 33.7% in our top line. This is driven by growth in the corporate rate card business, which was started recently and has vast scope going forward. The launch of new product as well, that is Zoyer, and acquisition of new customer base through our cross-selling and up-selling activities. As previously indicated by Raj, it is important to note the seasonal nature of our business. Historically, our business has experienced a significant surge in revenue during the third and fourth quarter, accounting for approximately 60%-65% of our total revenue. The increase in transaction volume during the festive sale period in Q3 of each fiscal year is primarily responsible for this phenomenon.
The period coincides with significant holidays in India, as well as annual sale events, such as end of the season sales, et cetera. Additionally, we have observed a consistent surge in transaction volume during the fourth quarter of every fiscal year as well. This surge can be attributed to our users who engage in transactions to fully utilize any remaining balance on their card prior to the conclusion of the financial year. Next is the gross margin. Drop in gross margins was primarily led to by a change in product revenue mix. We have started grow our business of Propel redemption points, as we see huge growth potential in this business. Due to India's revenue recognition, the accounting policy for the same is on gross basis, thus changing the gross margin arbitrage, while the take rate in Propel redemption point is higher.
Also, the incentive and cashback expense as a percentage of total revenue has been reducing over the quarters and witnessed 7% decline compared to Q1 FY 2023. For this quarter, our employee cost has increased, mainly on account of new recruitment, which is in line with the growth of the company. In the pre-IPO stage, we had granted ESOP to our employees. We have booked INR 58.44 million in Q1 FY 2024, thus we have shown an adjusted EBITDA figure, which is before ESOP expenses. Our adjusted EBITDA has grown by 27.4%. We expect to record total ESOP expenses close to INR 200 million in FY 2024. Following this recent successful IPO, the company has repaid a substantial amount of INR 47 million, 470 million in borrowings.
This prudent action will consequently lead to a reduction in finance costs, starting from the second half of the fiscal year. Our cash PAT, that is, net profit plus depreciation and ESOP expense, has grown by 38.7% Y-O-Y basis, which demonstrates higher growth. In the card business, incentives play a crucial role in attracting and retaining customers, driving card usage and promoting loyalty, et cetera. Previously, we had an incentives and cashback cost, but now, as users are also more prone to using our cards, we are seeing a slight dip in this cost. Attempts are being made to further reduce it as well. However, some incentives and cashback costs will have to be incurred to encourage new users for usage. With this, I conclude the call. If you have any further queries, please contact SGA, our investor relations advisors.
Happy to take any questions. Thank you.
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 use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Yogesh Patia from Mumbai Stock Brokers Private Ltd. Please go ahead.
Hi, sir. Actually, it's a fairly new company, so I actually wanted to understand the program fee, which is basically a portion of the interchange fee on transactions done by the prepaid of the card users. Can you throw some more light on this, that how this will grow and what initiatives we are taking for this to grow? And it is the vendor, basically, who is the merchant who is paying Zaggle, correct?
Thank you for your question. This is Avinash here. Essentially, if you look at the way interchange or program fees grows, we—this is our—program fees consists of all the income that we generate from all transactions that happen through our cards, both prepaid as well as credit cards. This includes what we earn as interchange, any incentives from the networks, any other fees, et cetera, right? That is how we see it. Post the launch of our corporate credit cards, our co-branded corporate credit card with Yes Bank, as well as other banks, we are seeing an opportunity to grow this number healthily in the coming quarters because of the addition of the corporate credit card as a product.
We are seeing already those, you know, benefits to kick in, in terms of numbers. Essentially, we earn the interchange, because we invoice banks and partner networks, and we get paid by these entities. They in turn, you know, get it from the network itself.
Okay. So we are getting it from the banks and, later, not from the merchants. Is that correct?
No, we don't have any, you know, means where here for program fees. We are not invoicing the merchant, or we are not getting paid by the merchant.
Okay, okay. Basically, if a Zaggle employee goes and Zaggle cardholder uses the, at any merchant, he doesn't get anything from the merchant. Here, we are getting it from the banks and the other network, the finance network.
Yes, we are getting from the banks and other networks. There are certain partnerships with merchants, et cetera, but those are-
Mm.
you know, merchant commissions that we earn,
Mm.
Separately on other programs.
Okay, okay. And then my second question was, our finance cost last year was INR 113 crore. So if the CFO can maybe help us with what he thinks will be the number for FY 2024, maybe? Maybe a ballpark number.
Yeah. So, Yokesh Harita here.
Yeah.
So, the finance cost largely increased on account of recent NCD, which we raised in November 2022, and like other costs, which were the working capital limits, right? So, when we have recently the IPO money, what we have raised, we prudently we went upfront, and we closed 50% of our finance or debt already. So, we, in this quarter, like, you know, will be assuming it off of the cost, which we are having in the last two quarters.
Okay, okay. Okay, thank you. I'll get back in the queue if I have any other questions.
Thank you. Before we take the next question, a reminder to all participants that you may press star and one to ask a question. Our next question is from the line of Tushar Sarda from Athena Investments. Please go ahead.
Yeah, thanks. Thanks for the opportunity. Can you explain your business in, you know, a little more detail, by giving actual example? Suppose you sell a car, your services to Persistent, what is the service and how do they use it, and how do you get paid for it?
Thank you for your question. As I mentioned in my speech in the beginning, we have three lines of products. If you look at it, so the corporate customers that we serve, we are on the expense side of their, you know, P&L. And in that expense side of P&L, there are three categories. One is employee expenses, which is outside payroll. Then there are channel incentives that they give to channel partners, and then there are vendor payments, right? In the case of Persistent Systems, we run rewards and recognition programs for their employees. Their employees basically get reward points. These reward points are basis performance. Those matrices are defined on our platform, on which basis employees should earn these reward points.
This is fully automated, and there's a complete API integration with their HRMS system. So it's a single sign-on, and any employee that gets added or deleted in the HRMS automatically gets added or deleted in our platform. These points are then redeemed for vouchers of over 300 brands, brands like Amazon, Shoppers Stop, Tata CLiQ, et cetera. And we get paid by Persistent Systems for the points that gets redeemed.
So just to clarify, this reward is for what? For performance on the job or for spending?
So this, in the case of Persistent Systems, the rewards are for a variety of reasons. This could be a long service award, this could be a pat on the back, where somebody is giving an instant reward. This could be performance-linked, this could be festive occasions like Diwali, New Year. So they use the platform for rewarding their employees for a variety of reasons. When the vouchers are given to the employee, we earn commissions from our merchant partners. So let's say a Shoppers Stop voucher is given to an employee, because he has chosen to redeem for Shoppers Stop vouchers, we have a healthy take rate there, about 10% to 15%.
Okay. And, how does your prepaid card work for expense management?
Yes. So there are other customers who use our Save platform, which is for our expense management, employee reimbursements, et cetera. And basically here, there's a mobile app. In the mobile app, the employee goes ahead and scans her bills for any expenses that they incur. So let's say there's a employee who travels from Hyderabad to Bombay, you know, they incur flight, travel, taxi, food, et cetera. All those bills are scanned on the mobile app at real-time by the employee. These bills are then sent through the platform to the approver. The approver can then go ahead and approve these bills on his or her mobile app.
And post that, entire cycle, finance then goes ahead and credits the reimbursement onto a Zaggle prepaid card. This is when the employee has incurred these expenses on a personal credit card or personal payment instrument, and the reimbursement is being credited there at Zaggle Multi-Wallet prepaid card. The other model, which we have recently started with the launch of our corporate credit card, is where the employee can go ahead and directly spend through a corporate credit card issued by Zaggle and a partner bank. And in such a case, all the bills are scanned on the platform for records, and the company goes ahead and clears the credit card bills.
What is the breakup of revenue from, say, rewards and points, like you explained in the case of Persistent, and revenue from credit cards, prepaid credit cards?
See, if you look at our overall revenues, sir, from Propel, where you have redemption options, where you can redeem for vouchers or grants, as well as you could redeem it for points which could be credited onto a prepaid card. The total income that the Propel platform as of last year was about 65% to 70%, and Save was about 30% to 35%. This year, Zoyer has taken off, so Zoyer is adding to the overall revenues.
Okay. Propel, you also have software fees, so this is like subscription.
So we have software fees, which is subscription fees. We also earn program fees, which is what I explained in the previous question, and then we earn income through Propel points.
Between rewards and credit cards, which business will grow faster and which business has higher potential?
So it's, it's not an either/or. We see it as an integrated, holistic offering, and we see the Propel platform growing healthily in the coming quarters. As well as our, you know, Save platform and Zoyer. We expect all three platforms to grow healthily.
Okay, let me put it in a different way. Over last two years, which business has grown faster, Propel or Save?
Save was newer, so base was smaller, hence, the percentage growth was higher in Save.
Okay. And, your NHP has something called program fees. So what are these program fees?
The program fees is the income that we earn, as I explained in the previous question as well. This is the income that we earn, based on the transactions that happen on our prepaid cards or credit cards. This is a combination of income that we earn through partner banks, through networks, and, you know, any other smaller fees, et cetera, that we levy.
Thank you. Sorry to interrupt, Mr. Tushar Sarda. May we request that you return to the question queue for follow-up questions, as there are several participants waiting for their turn.
Yeah, yeah. Sure, sure.
Thank you.
Thank you.
Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to one or two per participant. Should you have a follow-up question, we would request you to rejoin the queue. Thank you. Our next question is from the line of Pranav Gupta from Aionios Alpha Investment Management. Please go ahead.
Hello?
Yes, sir. Please go ahead with your question.
Yeah. Hi. Hi, good morning, team, and congratulations on the good numbers. I have a few questions. If you can, you know, talk about Zoyer, which is a related product you've launched. And, you know, if you can explain whether, you know, it essentially only works with, you know, cards that we have issued through our banking partners? Is it a software offering where we can integrate with an existing card base of our client as well? That's the first question.
Good morning, sir. Thank you, for your kind words, and your question. Zoyer is, a platform that we've launched. It's a, it's an integrated platform, which enables, customers to go ahead and use, use the, card along with the, software platform that we have. However, there is no limitation for the corporate to go ahead and only use our, co-branded, corporate cards. They can go ahead and use any other payment instrument and just use the software. The full value of the product comes out when you go ahead and use, both our card as well as the software platform.
So, I mean, given that it's a new product and you might be having a lot of customer interactions, do we see any resistance in the case where, you know, a card, a corporate is already using an existing bank's card? Say, they have, and given that they... These clients will be large and have multiple employees with multiple cards. Is there a resistance when we would effectively tell them to sort of move to our platform along with our cards, or, what are the initial discussions that we have for Zoyer specifically?
In our experience so far, sir, because of the type of partner banks that we work with, like Yes Bank, ICICI Bank, Bank of Baroda, et cetera, we haven't seen significant resistance from any corporates to go ahead and take an additional corporate credit card, so far. Of course, there are some companies who still want to understand how they can use their existing cards as well as the cards that we issue, depending on what limits they have from their, you know, bank. But so far, we haven't necessarily seen any significant resistance per se. Corporates are open to using, you know, a card issued by our partner banks.
Understood. Understood. If you could just explain the revenue model here, how does the revenue model here work?
So again, here we earn through software as well as, you know, that, transaction income. In the software, we earn a per user per month fee as well as per invoice fee for the platform, and on the card, we earn the interchange.
Sure, sure. The next question is on the, you know, points redemption and voucher business. Could you just explain how the entire working capital cycle out here works? So is it a case where Zaggle would have to, you know, sort of procure vouchers in advance? Or do these vouchers get purchased when one of our clients' employees sort of redeems their points for particular vouchers? How does that mechanics look?
So we have API integrations with, you know, partners, including merchants, and, you know, other third-party providers, where we get these vouchers in real time, right? So from a voucher inventory perspective, we only for very smaller brands, we may have a small amount of inventory, but for the larger brands, we tend to, you know, be able to pull the vouchers real time. Aditya, you may add.
Yes. So, Pranav, just to add on, on the working capital cycle, right? Yes, there will be certain clients where we, upfront give them the points of redemption purposes. They typically, there will be cycle of around 30 to 35 days.
Okay. Okay, sure. And just, lastly, it would be great if you can give out the, you know, transaction value numbers, say, for probably FY 2023 and for the first quarter of 2024, given that, you know, a large part of the income is going through program fees. So if you can give that out, that will be very helpful.
Noted, Pranav. We'll take it up at the next quarter presentation.
Sure. I have more questions, but I'll join back in the queue. Thank you so much for answering.
Thank you. Our next question is from the line of Saurabh Sadhwani from Sahasrar Capital. Please go ahead.
Hi, good morning again. So I wanted to understand that the benefit of using, your card versus any other card with your software. So what, what benefit does the corporate enjoy when they use your co-branded cards versus the other cards?
Good morning, sir. Thank you for your question. See, if you think of it from a corporate perspective, what they are looking to do is to be able to get the card, which is a you know, a system of transactions, to tightly couple with our system, which is a system of engagement, with their system of records, which is their ERP. Today, we have ERP integrations with most major ERP providers like SAP. And using this integration, a corporate is able to actually say, for example, for a particular corporate, they can go ahead and say that, "For this particular project, I want to limit my overall travel cost to, say, INR 5 crore." Right?
Okay.
Irrespective of whether the individual cards that have been given to employees, the total limit may be INR 30 crore on those cards, across, say, 1,000 cards or, you know, 3,000 cards, but the travel cost should be limited to INR 5 crore. I'm just making this up and giving you an example.
Yeah, yeah.
Take this fix. Now, this, we are able to ensure and enable through our spend analytics platform, because we are able to, you know, on each card spend, link it to the limits and controls that we have set on our platform. A standalone card platform would not be able to understand what the project code is itself, because the standalone card platform doesn't have an API integration with the ERP.
Okay.
Right? Because my system, Zaggle's platform, sits in the middle of the card management system, which is the system of transactions, and the system of records, which is the ERP. We sit as a system of engagement. We are able to then, you know, provide these limits. In addition, we are able to see through pie charts, et cetera, bar graphs, you know, a breakup of where the spends are happening across different, you know, spend categories, like saying: Where is the money being spent for T&E, you know, client entertainment? How does it break up for different geographies? How do employees in Jaipur spend? How do employees in Bombay spend? So there is a lot of analysis and lot of insight that gets provided through the platform.
Again, you know, a card company and a card company system would never know who are the employees sitting out of Jaipur, who are the employees sitting out of Mumbai-
Mm-hmm.
who are the employees sitting out of, Hyderabad, right? So they wouldn't be able to give you that sort of an insight.
So, you can do this with any other card also, or is it required that it should be Zaggle co-branded card?
Basically, this is through API integrations that we have, either with the bank or the network or both. Network as in Visa, RuPay, Mastercard.
Yeah, yeah.
As long as we have those integrations and we have those feeds, you know, we are able to provide this insight, and we need the other integration, which is with the ERP of the corporate, we are able to provide these insights.
... Okay, okay, okay. And the second thing I wanted to understand was, in the presentation quotes that you have, issued 50 million+ cards, and the active users are 2.2 million. So how are these...? Are these numbers related? How should we read them?
Sir, INR 50 million is over the course of the last 12 odd years, right?
Okay.
A lot of these cards initially that were issued were also gift cards, so each beneficiary could have received multiple cards over the years as gift cards. So that is how we would, you know, explain this to you.
Okay, so the 2.2 million users that you're saying, are the employees of these corporates, mostly? Yeah.
Employees and partners. These are actual users who are active on the platform today. 50 million is the total number of cards that have been issued over the course of 12 odd years.
Okay. Okay. Thank you, sir. Thank you so much.
Thank you. Our next question is from the line of Ankush Mahajan from Axis Securities. Please go ahead.
Sir, thanks for the opportunity to ask my question. Sir, I want some more clarity. Just try to understand the nature of the business. In the IPO, we are raising almost INR 300 crore for the retention of clients. So this amount is basically we are using to offer the more points to the customers. And, in other way, can I say this is a kind of a discount that we are offering to the customers in order to increase our sales? So similar way, if the business is generating cash flow and the same cash flow is using for the same purpose. So just try to understand, sir, can you throw some more light on the nature of this business, which is the nature of the business?
Because we are burning our cash for the, for the points to, in order to increase our sales.
Thank you for your question. So this is not to be confused, sir, with Propel points. This is a discretionary incentive that we give to users so that they spend. If you look at the nature of Indian consumer and the nature of how certain, you know, segments of customers behave, users behave, they tend to... There tends to be a certain set of users who expect some sort of an incentive or a deal that is given to them before they actually use the money that is on the card, right? I'm talking about prepaid cards here.
Yes, sir.
Hello?
Yes, sir. Yes, sir.
Yeah. Basically, what happens is that a prepaid card, there's a limit of INR 200,000 that is set by RBI, so the balance cannot exceed INR 200,000. Now, what happens is that whenever reimbursement is processed, and if the previous reimbursement has not been used by the user, on the app, the user is able to see that the reimbursement has been approved, but the money cannot be credited onto his or her card because of the RBI regulations. We see this happen time and again, and the user does not typically understand that this is because of RBI regulations. They tend to blame, you know, that, you know, that the product is not, the experience is not, world-class. To avoid such scenarios, we preempt this, and we try to understand who are the users who are likely...
There's an engine that runs in the back end, there's a high-tech engine that runs in the back end, which tries to predict who are the users who are likely to come to this scenario. We encourage them and nudge them to go ahead and spend the money that is there on the card, so that, you know, these scenarios are avoided. If you look at how the incentives have moved, the incentives have moved from INR 140 crore to INR 118 crore to INR 100 crore in the last three years, and further this quarter, we have seen a reduction in the incentives.
But it's a huge amount. I think it's INR 100 crore, INR 120 crores. And, in case it is impacting our cash flow, this, if I compare it with the, overseas companies, they also have a similar kind of a business, the same nature of the business?
Sir, I won't be able to comment specifically on overseas companies and their businesses, but if you look at the nature of payment industry per se, there is a certain, you know, pattern that emerges, whether it's a credit card business or any other business, that there is a certain amount of expectation that certain users have, that they will receive some sort of an incentive or gratification, to go ahead and spend the money that is there on the card. This is, this is, well, well, understood with credit card businesses as well. So this is a pattern that we see in this industry. However, we are working to optimize this cost and bring it down, as much as is possible.
Sir, what kind of a cash flow we are looking after deducting this cost?
Ankush, Aditya here. So, first of all, this INR 300 crore, right? It is being spent over the next three years, right? It's not gonna spend immediately now. So just to state the fact, in the last three years also, every year we spent, in FY 2021, we spent close to INR 140 crore, FY 2022, we spent INR 117 crore, FY 2023, we spent INR 100 crore and what kind of a numbers, right? Even without this money also, we are able to spend some money to the users and then generate the businesses. So and also it's a work right for you to understand, we have launched the new product as well, right? Like, you know, which is Zoyer, and which we are venturing into the credit card business as well.
For this kind of business and the users to get onto the platform and use it, so, we have to nudge them and make sure that they continue to use the platform together.
...that was rate of next three years we are talking about. And, at this point of time, right, like, you know, like I said, like you only have mentioned, with this, revenue getting generated, one thing we want to there is whatever spend is happening into the form of these incentives, right? Like, you know, definitely the revenue will get generated. So but don't think other than that, like, you know, it's a burn and we don't get any revenue, but revenue will be there. It's all about like, you know, it will be spread across the next three years. And if you are not able to spend next three years, then the money will be spent in, whatever we have given the customer acquisition retention completely in that angle only, and we'll get the suitable revenues for this as well.
Sir, I'm just trying to understand that, after spending this much of money after next three years, either we need to dilute the equity once again, or internal cash flow is sufficient to fund this expenses in near future.
Ankush Raj this side, you know,
Yes, sir.
I quickly explain to you. See, you know, this money is spent out of the money what we generate, okay? So if my revenue is, let's say, you know, 1.8%, okay, of a transaction, let's say there is a, you know, INR 100,000 transaction which happens, I earn INR 1,800. So out of INR 1,800, I might choose, depending on, you know, who the user is, to give him, let's say, INR 700, INR 500, INR 800, like that. So there is never a question of that we're going out of pocket expenditure on this. So this is going to be 100% out of our retained earnings, is what this money will go.
Sorry to interrupt. Mr. Ankush Mahajan, may we request that you return to the question queue for follow-up questions, as there are several participants waiting for their turn. Thank you.
Thank you.
Our next question is from the line of Jaiprakash Toshniwal from LIC Mutual Fund. Please go ahead.
Thank you. So just one question on Propel. When we say channel reward and employee reward, does this have a different margin profile for us?
So thank you. Thank you for your question. The margin profile remains largely same. The only thing, the nature of, you know, redemptions at times on the employee side, there is more on, Propel points, versus, channel incentive, you know, it could be where the redemption could happen on the card. In such a case, the margin profile changes accordingly.
Okay. And, do we... How should we see this revenue of Propel in terms of employee reward versus channel reward? Or and the growth predominantly would be, like, both the channels, or you are focusing more of channel or employee at this point of time?
So the growth would be across both, because our strategy is holistic. When we go to a corporate, we are talking to them about what we can do on the employee expenses side, what we can do on the employee reward side. If they are a company who has, you know, a channel to sell their products, in such a case, we pitch to them, you know, our channel rewards, and, you know, incentives platform. So, of course, today, the contribution of the channel incentives is significantly higher than the employee reward side.
Okay, okay. And the point of INR 200,000, which you mentioned, is predominantly on the prepaid card, not on the credit card. Is that correct?
Absolutely, sir. Absolutely.
Okay. That's it from my side, sir. Thank you.
Thank you. Our next question is from the line of Ritesh Poladia from Girik Capital. Please go ahead, sir.
Yeah. Hi, sir, thanks for the opportunity. Sir, I think you have about 275 employees. Could you bifurcate in the how many are in the technology side and how many would be in business development side? And where do you see this number in next 2-3 years?
Sir, about 125-130 employees are on the tech, and about 110 are in the business side, and the others are management and other support teams. And while I would not want to comment on specifics as to where this would grow, but obviously, as the business is going to grow, we will add more people across both the technology side as well as the sales and business side.
Okay. Just to dwell more into this, would the headcount increase would be in a proportion to the revenue increase or it could be less than that?
So obviously, we are a business where operating leverage kicks in. The headcount growth, while I wouldn't want to go into specifics, but as a fintech, as a tech business, the whole idea is that, you know, the revenues would grow at a faster pace.
Great. And one last thing on this, in your P&L, there is this cost of point redemption and gift cards of INR 56 crore. This is what you explained, that when you take the, say, Shoppers Stop vouchers, say, you procure for INR 90 and you charge a client INR 100. So this INR 90 represents this cost of points redemption and gift cards?
Yes, sir.
Incentive and cashback of INR 25 crore. Sir, could you bifurcate how much this would be for the cost of acquisition of new clients and cost of maintenance of existing clients?
So the cost of acquisition in our business is very different because, it is, largely to be able to, drive usage, and this is discretionary in nature. The reason why we bucket it is because, you know, there are certain first-time users also, who are not familiar with, you know, our platform and our interface. And to encourage them to use, there is a certain amount of, this, that gets used. But this is not going ahead and, you know, an incentive which is given to, as it happens in some B2C businesses, where an incentive is given to the user to come onto the platform. This is not related to that.
Okay. So this would be more to induce the spend of the existing clients rather than the acquisition of new clients. Is that my understanding, right?
Right, sir.
And one last question on the finance cost of INR 4.5 crore of this quarter, or say, about INR 11 crore for FY 2023. So this NCDs, what you issued, was it to procure this inventories like your gift cards and Propel points and all? Or was it to be, I mean, so what is what do you mean by working capital financing?
Ritesh, Aditya here. The first question, raising this NCD is typically for the products or new product launch, et cetera, right? Like, you know, we raised somewhere in the last November. So, this is largely towards the new products building and basic general working capital corporate purposes, right? So, but that is the one thing why we raised this money. Secondly, working capital for us will have, in 2-3 categories, right? From the SaaS, if you see what we charge to corporates, and that will be generally be carried in, like, in... The second line of revenue, whatever you see the program fee, which we largely charge towards the banks, that typically we receive that will have a working capital cycle of 50-60 days.
The last one, the Propel point redemption, where we talked about where large corporates, comes to us when they redeem the points, et cetera, right? Sometimes we have to give them upfront. This will be around 32 to 35 days kind of a cycle.
Mr. Ritesh, we are unable to hear you. Could you please unmute your line?
Sure, sure. I'm sorry, it was muted from my side. So this NCD was not to finance the buying of the gift cards and other points, but to finance the normal working capital cycle, where the receivables are in the range of 30 to 60 days. Yes, yes, it is not to finance this one. So it's largely towards the building of the, like I mentioned, building of the new products, et cetera, and managing the other regular business activities.
Okay.
Sorry to interrupt, Mr. Ritesh. Maybe request you to-
Yeah, yeah, I'm done with business. Thank you.
Okay, thank you. Our next question is from the line of Jagvir Singh from Shade Capital. Please go ahead.
Yeah. So thanks for the opportunity, sir. So my first question is related to the EBITDA margin. So in FY 2022, we did around 16% EBITDA margin. So in the next year, in 2023, there is some ease of cost. We will also... Is that ease of cost, when adjusting the ease of cost, when we will reach again to the 16% kind of margins?
Jagvir, Aditya here. On a steady state basis, right now, we should reach in next 3 to 4 years.
Okay. The next question is related to the increase in cost. So I think I have, I have heard some interview on the CNBC of the MD after the IPO. So he said, there will be no increase in cost for this year, for the FY 2024. So what is this conclusion then?
I think I'm not sure, you know, if you heard it correctly. The MD spoke about it, you know, and, Jagvir, what he said is, that in 2024 it is going to be roughly about INR 19 crore.
Nineteen crores.
19 crore. And the going forward, which is 2025 and 2026, it will be minuscule, about, you know, INR 4 crore or so, is what is our guidance.
Okay. And thanks for the clarification, sir. And sir, next question related to the interest cost. So because we raised money in the IPO, so in the next year, I'm not talking about this year, so in the next year, I mean, in FY 2025, so what kind of interest cost will be there?
I think negligible. We already reduced it by half, you know, already in this quarter. And I think in the coming quarters, it may further go down, and probably next year, there may or may not be any interest cost. Even if it is there, it will be minuscule.
Okay. The next question is related to-
Sorry to interrupt, Mr. Jagvir.
The last question, just last question. Can I ask?
Yeah, go ahead, Jagvir.
So, we have raised INR 300 crore in the IPO. So, because given we are the platform business, right, what kind of size we will not require outside money in the form of debt or equity? After how many years we will be in this position?
So, sir, we have raised about INR 490 crore, you know, from the IPO, and I think it is sufficient for our next three-to-four years of growth. It would, you know, but it... unless and until we go ahead and do a inorganic acquisition, where we might require some, you know, external funding, we do not see any signs of needing money in the next, you know, two-to-three, to maybe let's say three-to-four years.
Thank you.
...Our next question is from the line of Arpit Shah from Stallion Asset. Please go ahead.
Hello.
Hello.
Am I audible?
Yes.
Yeah, I have a couple of questions. I'll just list out all the questions first. I just wanted to understand the opportunity in the Propel gift card. They are doing about INR 360 crore of revenue over there, and it's probably taking 10% to 11% gross margins on that product. When do you see it becoming like a INR 2,000 crore-INR 3,000 crore revenue line item? Is it possible for the next two or three years to go over there? If you can just comment about the cost, what are the kind of fixed costs that we have on the P&L? The third question would be around what is the nature of the receivable that we have on our books, about INR 103 crore in receivables.
The fourth question is around the discount incentives, which we have as other expense. Is it to drive the Propel line of revenue item, or is it to drive the program fees revenue, revenue line item? If you can work on that, if you can comment about that. And the fifth question will be around: Does the Save product have any taxes from the legal-regulatory perspective also? Because they're doing a lot of taxes in there. Do you have any regulatory risks coming from there?
I'll take the first question, and probably I'll ask you to repeat the second or the third question. One is on the Propel points growth. Yes, there is growth, and, you know, you mentioned would we be able to reach INR 2,000 crore. Yeah, there's a lot of opportunity in this space, I think, because if you look at the number of companies who need to incentivize their employees and channel partners, et cetera, and to do it in a digital manner, in a seamless, rapid manner, is fairly obvious. Nobody wants to wait for their reward to get shipped after 10 days, 15 days. They would rather get a voucher from a Tata CLiQ or an Amazon or a Shoppers Stop and then go ahead and make that purchase themselves.
So the opportunity to grow this side of the business is fairly significant. Right? The second question was around fixed costs, but I couldn't hear it completely.
What would be the kind of fixed cost that we have on the P&L currently? Like, what kind of operating leverage you can see ahead in the business?
So, Arpit, Tarun here. So the direct fixed cost towards it, you already see that is the cost of Propel Point. That is one. So, post that, which is like, you know, we'll have, like, 10%-11% kind of a take rate. And post that, there will be like, you know, some maintenance of the Propel platform, et cetera, along with employee costs.
That is a variable cost, right? Variable.
Yeah, most of these costs are variable because they're linked to, you know, generation of revenues. So the business, per se, the fixed costs would be just your, you know, office rentals and, to some extent, employee costs, right? But other than that, a lot of the business costs here are, you know, variable, just by nature.
So what would be that number, let's say, on a fixed basis and growing at an inflation of 10% to 12%? Would that be it?
Sorry, I didn't get that question.
What would be that number, let's say, for on an annual basis? And I'm expecting that number to grow at an inflation of, let's say, 10% to 15%. So what would be that number?
So, I said, like, basically, what happens is, you know, after... as a larger chunk of it is a direct, attributable expenses, right? Like, the fixed cost will remain, and as we grow with the 10% kind of an inflation number, like, you know, we will see an increase of 1 to 2% in the EBITDA margins for the specific Propel product.
Okay. I was just... I have a question on discount, which we had on other expenses. So is that expense linked to drive Propel line of line item, or is it linked to drive the program fees or revenue line item? Like, is it something which is more hybrid?
So if you're talking of the incentives, the incentives are given for users to spend on their network cards. Network cards as in RuPay, Visa, Mastercard cards. So while you can't directly attribute it to even program fees, because this is given to a small set of users, and it's discretionary in nature, but this has nothing to do with Propel points per se.
Program fees, right? Where we all interchange the revenues to have some network revenues. Hello?
Yeah.
Yeah. And does Save have any kind of tax risk from the regulatory environment? Like, because you're doing, you are providing certain incentives to them, they face any risk from the regulatory front?
See, the Save value proposition is very simple and clear. It is going to a corporate and saying, "Your employees incur expenses on behalf of the company, whether it's, you know, travel, entertainment, any other spends that they may incur." All of that can come onto this platform. All the bills are scanned. They are on the app and the cloud. You know, if there are any needs to look at those bills five years down the line, seven years down the line, those pieces of information stay very clear, along with all the reasons why an approval was given, who gave the approval, what was the basis? Was it, you know, basis the rules set that are set up.
Along with that, we also offer employee benefits, which, you know, takes advantage of some of the tax benefits that employees can avail. So, and that part is fairly small compared to the overall value proposition, where we are talking of, you know, employee reimbursements and employee expenses. That's how we view it, and that's how we position it to corporates. Employee benefits also has a tax angle and a non-tax angle. A lot of companies are providing benefits to employees for, you know, their mental health, for their, you know, physical health, and, you know, those benefits also come onto the platform.
Thank you. We move to the next question. Our next question is from the line of Nityan Latia from Fractal Capital Investments. Please go ahead.
Yeah. Good afternoon, sir. When the corporate buys points from us to give that to the employees, how do we bill the corporate for the points?
So basically, there are different ways in which this works, sir. The simplest way is the corporate buys the points, and we bill the points, and the corporate pays us, and then we allow the corporate to go ahead and issue the points. There are also other models and other cases where a large corporate may want to work on a redemption model, where, you know, the points are issued first by Zaggle, and the redemptions happen through the month. At the beginning of the next month, we go ahead and share the MIS, and then there's an invoicing that is done, and then the corporate clears that invoice. But largely, it's the first model for most corporates.
Are points an item which attract GST or no? Points do not attract GST, right?
Yes, yes. Points doesn't attract GST.
Doesn't? Okay. And the second one is similarly on the employee side. So when the corporate is gifting points to or, or giving a reward to their employee, in the form of points, the employee also doesn't pay any perquisite tax or anything of that sort, right?
No. So a lot of the taxation angle is covered from the reward disperser itself. So if there is a tax liability that arises from this, you know, let's say originally the employee was supposed to get INR 100, and the tax liability generated is, say, 10%, the corporate goes ahead and issues only INR 90 worth of points.
Okay. So the corporate has to decide whether they want to deduct perquisite tax or not?
Yeah, because they are aware of what the, you know, income structure, the salary structure of the employee. So the corporate, in any case, just like, does a TDS for any of their payouts, the corporate takes a call for this payout, whether it's for employee or channel. What is it applicable TDS?
Great, sir. Thank you very much.
Okay. Thank you.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question of our question and answer session. I would now like to hand the conference over to the management for closing comments.
You know, we really want to thank all of you, you know, for spending, you know, time to, you know, time with us. So with this, I'll conclude the call. If you have any other further queries, please contact SGA, our investor relations advisor. And once again, thank you very much, you know, for joining us today in this earnings call. This was our first earnings call, and we are very happy, you know, with the kind of questions asked. Hope, you know, that we were able to answer all your queries. Thank you so much.
Thank you.
Thanks.
On behalf of Equirus Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.