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Edited Transcript of VAKRANGEE.NSE earnings conference call or presentation 13-Feb-20 11:30am GMT

Q3 2020 Vakrangee Ltd Earnings Call

Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Vakrangee Ltd earnings conference call or presentation Thursday, February 13, 2020 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ammeet Sabarwal

Vakrangee Limited - Chief Corporate Communication Officer & Strategy

* Dinesh Nandwana

Vakrangee Limited - MD, Group CEO & Executive Director

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Conference Call Participants

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* Tanvi Jain

Hem Securities Limited, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and a very warm welcome to the Vakrangee Limited Q3 FY 2020 Earnings Conference Call. (Operator Instructions)

I now hand the conference over to Mr. Dinesh Nandwana, Managing Director and Group CEO. Thank you, and over to you, sir.

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Dinesh Nandwana, Vakrangee Limited - MD, Group CEO & Executive Director [2]

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Good day, dear ladies and gentlemen. It is pleasure to greet you all once again on behalf of our Board of Directors and senior management. We begin by thanking all of you for having spared time in joining us here today to discuss our third quarter earnings for the financial year 2019-'20.

As with respect to our business strategy, we had guided that the worst is behind us, and we shall be showcasing better growth and improved financials every quarter-on-quarter basis as more and more Nextgen outlets become operational and mature going forward.

Our financials are improving and showing healthy and robust growth on quarter-on-quarter as well as year-on-year basis as our Nextgen outlets do better revenues and have enhanced profitability due to focused efforts on Vakrangee services due to exclusive store format. Also, incremental footfalls and revenue stream added because of additions of the new services.

Further, with respect to future visibility of numbers of Nextgen outlets, I would like to share that we have received 80,000-plus formal expression of interest. Out of these, around 13,000-plus have been qualified and approved and currently under onboarding process. This excludes the 10,000-plus outlets which are already operational. These 13,000-plus outlets are under process and would become operational over the next 3 to 6 months. We have a clear visibility and are well on target to achieve the March 2020 plan target of onboarding of these 25,000 Nextgen Vakrangee Kendra outlets. These 25,000 Nextgen outlets are expected to be operational in the current calendar year 2020.

We'll further increase our presence by entering into new states such as Assam, Manipur, Nagaland, Telangana, Meghalaya and Tripura. We have further consolidated our presence in key states such as Maharashtra, Rajasthan, Uttar Pradesh, Madhya Pradesh. Currently, these outlets are spread across 30 states and union territories, 500-plus districts, 6,150-plus postal codes and 70% of the outlets are in Tier 5, Tier 6 cities.

Commenting on the operational performance. Vakrangee Kendra network throughput has crossed $1 billion during the quarter 3 financial year 2020. Currently, we are at an annualized run rate of USD 4 billion throughput, out of total number of transactions closed is 24 million transactions. It is very heartening to see this performance as these outlets are still maturing and growing. With more and more outlets becoming operational and mature, this would significantly increase over a period of time, and we will witness the benefit of strong operating leverage as our cost would remain at the same level until we reach 25,000 fully operational outlets.

Commenting on the financial performance during the quarter. Robust growth is seen in financials across all parameters due to clear focus on store profitability and service activation across the network. Our total income stood at INR 218.67 crores, registering an year-on-year growth of 84.28%. Revenue from operational -- operations stood at INR 119.20 crores (sic) [INR 199.20 crores], registering an year-on-year growth of 105.80%. Revenue from operations increased primarily due to increase in the number of operational outlets and maturity of existing outlets.

We achieved operational breakeven during the current quarter, and benefit of strong operating leverage would continue being forward as number of stores increased as well as maturity profile of the store increases.

EBITDA stood at INR 29.89 crores, registering a year-on-year growth of 305.72%. And [profit] after tax stood at INR 21.44 crores, registering a year-over-year growth of 477.99%.

PAT has increased due to strong operational leverage as well as adjustment in perquisite expenses of ESOP. We expect the financials to keep improving on quarterly basis as more and more Nextgen outlets become operational and as the stores get more and more matured. Also, we have been able to maintain a robust balance sheet with debt-free status, and entire CapEx has been funded through internal accruals.

In terms of service activation, assisted e-commerce services have been activated across all the operational outlets, whereas banking and ATM services are in progress. Franchisee had a 6-month time frame to make the third installment post which the ATM services get activated, and hence, we would get the ATM services activation over the next few months. Already around 4,500 ATMs have been activated. Also, for banking services, it is a 3- to 6-month process as banking BC Code need to be generated as well as the franchisee need to clear the banking IBA certification. Therefore, we expect to witness further strong growth going forward as these services get activated over the next few months.

In terms of new partnerships, we are happy to announce our new tie-up with vHealth by Aetna, which is fully owned subsidiary of Aetna Inc., a CVS Health company, a Fortune 8 enterprise, one of the world's leading health service provider. This tie-up would revolutionize the rural health care space and bring a paradigm shift in the way health care services are provided in rural area.

Our customer would be able to gain access to specially trained doctors through virtual consultation along with privileged and discounted access to a large network of physical clinics and hospitals. Also, we shall be able to arrange home blood tests for our customer, doorstep delivery of medicine through our partner network. This would enhance the availability of rural health care services at a very affordable price in the unserved and underserved locations. I believe these telemedicine solutions have a huge potential to significantly enhance revenue and profitability of our outlet as well as increase the footfall at our outlets.

Further, in pursuance of highest standard of corporate governance, and in line with the SEBI's revised listing obligations and disclosure regulations, our company has implemented the Kotak Committee recommendation and accordingly appointed veteran Mr. Ramesh Joshi, ex-RBI and ex-SEBI Executive Director, as Nonexecutive Chairman. In his distinguished career over 40 years, he has held several leadership positions in the Reserve Bank of India and has been Nominee Director on behalf of RBI on the board of various banks and retired as an Executive Director of SEBI. He will serve as a mentor and continue as a guiding force for the company on issues presented on the Board -- to the Board, especially in the area of corporate governance practices and all type of business risks assessment and mitigation initiatives.

I have taken the active executive role of MD and group CEO, whereas Mr. Anil Khanna continues to be Nonexecutive Director.

Recently, Grant Thornton has done a detailed study and released a report on financial inclusion and rural India banking and ATM sector in India. It gives me immense pleasure to share that as per the report, Vakrangee has emerged as a leading player in India who has been at the forefront of driving financial and social inclusion in the country. Vakrangee has emerged as one of the largest banking BC point player as well as the fastest-growing and third largest white label ATM player in the country. Our company has emerged as the 13th largest ATM operator in India. However, in rural India, we have emerged as the third largest ATM operator.

Going forward, we shall witness growth on 3 parts, which is increase in number of outlets, activation of all services across outlets and then maturity of the solutions over the period of time.

I would like to take this opportunity to thank our shareholders for their support. We can now open the floor for question-and-answer session. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Tanvi Jain from Hem Securities.

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Tanvi Jain, Hem Securities Limited, Research Division - Research Analyst [2]

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Firstly, congratulations on an excellent set of numbers. I have 2 questions. The first one is, sir, as per our first investor presentation that was given in May '19 in respect of the new store format, so you said that every quarter we'll have a jump of 5,000 Vakrangee outlets. So first was 5,000, then 10,000, 15,000, 20,000 and by March '20, we will see 25,000 outlets. Sir, if I look at the actual numbers in June '19, we were able to complete -- or make 8,500 operational; September '19, 21,000; December '19, 23,000. Sir, initially, we were growing at the pace of 5,000, then 13,500. And this quarter, only 2,000 outlets have been set up. Sir, any guidance that why our pace has decreased? Earlier, we were rising at a pace of the 13,500 outlets and now we have increased only 2,000 outlets in this particular quarter.

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Ammeet Sabarwal, Vakrangee Limited - Chief Corporate Communication Officer & Strategy [3]

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So Tanvi, basically, if you see, this was the third quarter, which was primarily the festive quarter where there is a lot of activation as well as the sale events across all our existing stores. So normally, if you see, what happens is during one of the quarters where we go very aggressive in terms of store opening, we would like to take couple of months in order to stabilize those stores as well as get them to a benchmark kind of maturity profile. So what we have experienced is that once we open, say, 5,000 stores in a particular quarter, we would like to see them getting stabilized over the next quarter. As well as, if you see, particularly in the month of October and November, which is basically the Diwali season, there were like 4 major sale events which took place during the month of October as well as there was a lot of activation events from the company side. So the entire field force that we have, we utilized the field force primarily to do this activation and the improvement in terms of revenue and profitability. Therefore, you saw the results also of that, that our revenue as well as profitability has increased substantially. So -- and what has happened is, at the same time, we have already got 13,000 outlets which have onboarded. That is -- that means that the franchisee has already been selected and got onboarded. So they will become operational over the next 3 to 6 months. So our window, overall, for this particular year is to have 25,000. So out of this 25,000, we already have a clear visibility of 23,000. So our target is to have 25,000 onboarded. We will wait then. We'll get all the 25,000 outlets to be fully operational in this calendar year and maybe then, again, reopen the window for the next phase of growth. Because in this itself, there is huge amount of growth if we want to get them stabilized and get them fully operational.

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Operator [4]

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The next question is from the line of [Parag Mehta], an individual investor.

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Unidentified Participant, [5]

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First of all, many congratulations to you for good results. My question is that there is good growth in revenue as well as profitability. So do you expect the trend will continue and will profit grow faster than revenues? Secondly, how much do you expect the GMV from 25,000 outlets, which is your target plan for the current year?

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Ammeet Sabarwal, Vakrangee Limited - Chief Corporate Communication Officer & Strategy [6]

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Thank you. So if you see, as we have been explaining in our earlier con calls also, that there is a huge amount of operating leverage inbuilt in our system because all our costs are majorly fixed. And the capacity that we have, that is with the current field force and with the current team in place, we can easily manage up to 25,000 to 30,000 stores. So yes, you are right that as we go forward, the profitability will increase more as compared to the revenue, primarily because of the strong operating leverage that kicks in because of my fixed cost expenses. And that is what we are witnessing even now. So revenue is increasing by 100%, but profitability is increasing by almost 3x. So that is the pure operating leverage which is coming into the play. In terms of the GMV, if you see, already, we have crossed $1 billion of throughput in the current quarter. At this current run rate, we would be crossing $4 billion. But this is just coming out of these 10,000 stores, out of which also more than 50% stores are in very nascent stage. They are not up to their entire full potential level. So I would not like to give any particular number. But if I take the ballpark number also, we would be easily be crossing $7 billion to $8 billion over the next 12 months. And I think we will be among the top rural consumption networks or rural consumption platforms in the country, and that is what our endeavor is to do. Thank you.

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Operator [7]

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The next question is from the line of [Sachin Trivedi], an individual investor.

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Unidentified Participant, [8]

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You have said that 13,000-plus outlets are under onboarding process. So how much time it will take to activate and operationalize these outlets?

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Ammeet Sabarwal, Vakrangee Limited - Chief Corporate Communication Officer & Strategy [9]

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Thank you. So as I have explained that as we get the franchisees onboarded, it is typically a 6- to 7-month process for the outlet to become operational because once the franchisee is onboarded, once his location is finalized, that is where then he starts doing the interior of the store. So it takes around 45 days to a couple of months to complete the interior of the store. After that, the hardware kit is sent to him accordingly. And once the store is approved and the hardware is setup, after that is where the basic training and the service activation starts taking place. And in that also, he has to clear 2 certifications. Because he is doing banking services, so he has to clear India Banking Association IBA certification as well as he has to undergo a 45-hour training program for insurance services. So overall the service activation and store operational features get started over the 6- to 7-month period. So any store which gets onboarded today, it may take around 4 to 6 months for the store to become fully operational.

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Unidentified Participant, [10]

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Okay. And sir, on the website, not all outlet details are updated. When can we have them on portal?

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Ammeet Sabarwal, Vakrangee Limited - Chief Corporate Communication Officer & Strategy [11]

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Yes. So if you see, basically, what we have done is we have appointed Grant Thornton to do a physical store survey for us. So as and when the -- GT keeps on getting these stores verified and surveyed, we'll keep on putting them on our website. So already more than 3,500 stores are already there on the website, which has been already surveyed now by GT. So as Grant Thornton is doing the further survey and as they keep on releasing their survey report, we will also be putting them onboarded as those are verified and surveyed by Grant Thornton accordingly.

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Operator [12]

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The next question is from the line of [Ravi Sharma], an individual investor.

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Unidentified Participant, [13]

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Very good results. Can you give me details on the tie-up for telemedicine services and how the revenue model works here?

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Ammeet Sabarwal, Vakrangee Limited - Chief Corporate Communication Officer & Strategy [14]

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Yes. So if you see, basically, the tie-up what we have done is with vHealth by Aetna, which is a part of the CVS Pharmacy Group, which is a Fortune 8 enterprise. So if you see what we are doing here is, we are doing something very different, which is going to bring a paradigm shift in terms of how the rural health care services are provided in this unserved and underserved locations. So here, we leverage the entire network and the technology from vHealth. We integrate it into our portal. And it's a complete subscriber -- subscription-based model. So the model starts from as low as INR 699 per annum up to INR 999 per annum, where 2 family members of -- 2 members from a family are getting covered under that, in which they get a complete full 12 months of virtual consultation free of charge. So all the virtual consultation with some of the best doctors, specially trained doctors, Swiss training qualified doctors are being sorted out there. So you get the virtual consultation.

At the same time, you get a list of -- based on the packages, you get a list of the blood tests which can be done. So this blood test can be done either at your home place or it can be done at a nearby center which is approved or the partner network of vHealth. And third thing is also -- we would be doing is also the doorstep delivery of all kind of medicines which are being suggested or which have been subscribed by the -- recommended by the particular doctor. So if you see here, we are giving them a complete rural health care at very affordable prices. So if you see packages starting from INR 699 to INR 999 for 2 members on a full year basis, it is fairly cost-effective way of providing these services. And again, here would be a revenue-sharing model. So we would be getting a revenue share, and we would be sharing that with our franchisees. But what -- the main thing is that we are bringing something unique, something which has not been done before in those locations which are primarily in the unserved and underserved locations. So they will be able to get the benefit of some of the best consultants, best doctors as well as some of the best infrastructure in terms of clinics and facilities, which are available through the partner network and in a very cost-effective manner. So I believe that there is a huge potential for these kind of services in rural India. And we will be able to significantly benefit -- the store economics can significantly benefit because of the kind of footfalls that we expect from these services.

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Operator [15]

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We will take the last question from the line of [Manish Solanki], an individual investor.

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Unidentified Participant, [16]

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Congrats for your good set of numbers. I have a question. Where do you see operating and EBITDA margin stabilizing? And also, which segments are going better?

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Ammeet Sabarwal, Vakrangee Limited - Chief Corporate Communication Officer & Strategy [17]

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Thank you. So if you see, basically, from an operating margin perspective, we have always maintained that we -- our revenue sharing range is anywhere between 65%-35% to 80%-20% from a service to service level. So on a more conservative basis, you can say that the maximum sharing that can happen is basically 80%-20%. So kind of 18% to 20% is typically operating margins on a conservative side. Whereas if you see in terms of EBITDA margin, once we reach a sustainable operating leverage level, I think so the long-term EBITDA margins can be anywhere between 15% to 17% as we gain scale. Currently, if you see, this is the first quarter where we have become operationally breakeven. So we have crossed -- till the last quarter, we were operationally -- at the operational level, we were having a loss. But this quarter, we are operationally profit. At the same time, if you see, the margins will improve significantly as we gain scale in terms of our number of outlets increasing every quarter-on-quarter. So on a long-term basis, over the next few quarters or the -- within the next few months, we'll see our EBITDA margins improving. And on a longer-term basis, we will stabilize at around 15% to 17% of EBITDA margin.

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Operator [18]

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I now hand the conference over to Mr. Ammeet Sabarwal for closing comments.

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Ammeet Sabarwal, Vakrangee Limited - Chief Corporate Communication Officer & Strategy [19]

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Thank you, everyone, for participating and attending our conference call for Q3 FY '20. Feel free to get in touch with us for any further questions or any further queries. Our details are available even on the website. So feel free to contact us. And thank you.

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Operator [20]

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Thank you. Ladies and gentlemen, on behalf for Vakrangee Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.