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5Paisa Capital Ltd
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Good afternoon, ladies and gentlemen. I'm Felicia, moderator for the conference call. Welcome to 5paisa Capital Limited Q1 FY '24 Earnings Conference Call. We have with us today Mr. Narayan Gangadhar, CEO, 5paisa Capital Limited; Mr. Prakarsh Gagdani, Whole-Time Director and CBO, 5paisa Capital Limited; and Mr. Gourav Munjal, Whole-Time Director and CFO, 5paisa Capital Limited. [Operator Instructions] Please note this conference is recorded.
I would now like to hand over the floor to the management. Thank you, and over to you.
Hi, everyone, good afternoon, and welcome to our Q1 FY '24 earnings call. On the call, I am joined with Mr. Gourav Munjal, CFO; Mr. Prakarsh Gagdani, CBO; and my management team. The Indian market has been performed -- has been outperforming the global markets, even amidst the global headwinds arising from the U.S. Fed indicating successive rate hikes and the ongoing Ukraine war. While the market growth this quarter was at 5.4% and the total demat accounts opened across the country declined both the benchmark indexes -- indices, BSE Sensex and NIFTY 50 have climbed to their all-time high.
All these positive sentiments are expected to drive growth in Indian capital markets, which now has more than 12 crore demat accounts. We strongly believe that the Indian markets are poised to grow further with advances in technology and the available of trading products across the country. At 5paisa for the past year, we have been focused on acquiring quality customers. We are glad to report strong growth in our retail ADTO segment.
Our overall ADTO for Q1 FY '24 jumped by 17.9% to INR 2.84 trillion versus INR 2.41 trillion in Q4 FY '23. Our retail market share jumped almost 9.6% to [ 3.3% ] from 3.01% in Q4 FY '23. We attribute the growth in ADTO to our continued focus on customer quality and product experience. Our overall revenue stands at INR 84 Cr. for Q1, with a 1% year-on-year improvement, which factors in less trading days in April and the decline in MTF book due to changes in the financial year.
Our PAT stood at INR 14.5 Cr. and margins increased to 17.1% owing to cost-optimization measures, resulting in 97% year-on-year and 0.7% quarter-on-quarter growth in the PAT. We have added 1.08 lakh customers in the previous period achieving best-in-class payback of approximately 4 months.
Over the past years, the regulatory body has worked tirelessly, to make investing accessible and safe to all Indians. In this context, I would like to highlight 2 key circulars recently released by SEBI. One is no bank guarantee shall be created out of client funds by stock brokers. And the second is a mandate to compulsory upstream all client funds received by brokers to the clearing corporations on a daily basis. While these changes have an impact on working capital, we welcome both changes and believe it provides further protection to investors of the country.
5paisa is at the forefront of tech-enabled disruption in the equity's ecosystem. We continue to invest in our engineering systems, improving reliability, speed and performance. We ended this quarter with an all-time high system availability of 99.4%. We are thrilled to report that our latency has improved significantly by over 30%. These enhancements have had positive impact on trading activity and volume throughout our products.
A few quarters ago, we launched an innovative trading platform FNO 360 that caters to needs of all types of traders, but especially focuses on option traders. This quarter, we introduced a range of features, including FNO [ stats ], open interest data, advanced option change, futures and options screeners, IndiaWix and more. Today, there's no longer need to visit multiple platforms for data analysis as we can now perform complete market analysis and place orders directly on our platform. These features have been well received by the community as seen by the rising ADTO numbers.
Over the few previous quarters, we have firmed up our digital playbook for customer acquisition and investments. In the coming quarters, we intend to responsibly scale our acquisition channels while continuing to build efficiency by building new digital tools, frameworks and processes. We will continue to invest in technology and launch innovative products for our 3.6 million strong and ever increasing customer base.
With this, we would like to open the meeting to any questions. Thank you very much.
[Operator Instructions] The first question comes from Deepak Poddar from Sapphire Capital.
Sir, I wanted to understand, first of, we are speaking about the investment for a better technology platform and even for the acquisitions rate. So what sort of investment here we are talking about? And how can it impact your margins as such?
Yes. So the investments are going to be both on people as well as products. And we will strive to run the company at the current profit margin levels, which is currently is at around 17%. But we expect that over the coming quarters, we will continue to scale up those -- our technology and product investments as well. And while that could impact the margin, overall I do expect us to be within the range that we are in right now.
So around 17% is what in spite of -- higher investment that's what we might be looking at, right?
That's our target, yes.
And do we have in terms of, I mean, absolute amount what sort of investments you're looking for?
So we don't disclose that data. Obviously, there are sensitivities involved in disclosing that. But you can look at our -- we have presented a detailed -- in the P&L. You can see a detailed breakdown of the current cost structure and understand where we are actually.
Okay. Understood. And sir, can you provide a data in terms of the client addition? What was the client addition cost in the first quarter?
Yes. So again, this is information, again, that we don't disclose because there is a digital ecosystem in place that we are currently a part of. And also, we have built our internal systems in a way to ensure that we have a payback period of around 4 months. So to that degree, we don't disclose the cost of our acquisitions or anything as such because it's competitive.
But earlier you used to disclose, right, in terms of what was the -- the breakup between the client addition cost and the fixed cost, right?
Correct. And that's the decision we have taken -- that I've have taken now is that going forward, we don't want to disclose that.
Understood. And what is the number of active clients we have as of in this first quarter out of the -- [ adding ] what gross client of 3.6 million?
So we have active client approximately in the range of 30% to 35%.
3-0, 30% to 35%.
Yes, yes.
Understood. And then, I mean, what sort of client addition growth we are looking at, I mean, as we move forward?
See, as of now, as you have seen, right, right now, the industry itself is [ degrowing ]. And as we have seen that there is -- our focus continues to be on acquiring high-quality clients. Now we have built a lot of efficiencies in the system. So obviously as we scale, we will be looking at building the processes to a point where we can grow in double digits from here on out. Now this is all we can say at this point.
But as you can see, we have operated with a very high level of efficiency. And over the past years, a lot of investment has gone in hardening our digital playbook, digital tools, digital frameworks. So we believe we have reached a point where we can now start scaling those investments.
Now we will be doing that responsibly, as I mentioned in the call. But you can assume anywhere in anywhere from 10% to 15% is what we will initially start and then kind of scale up from there.
10% to 15% quarter-on-quarter, right?
10% to 15% over what we are doing today, yes.
Yes, that's quarter on quarter, right?
Yes, yes.
Okay. Understood. Yes, I think that's it from my side. All the very best.
Next question comes from Chetan Sha from Systematics.
I have Just one question. The client acquisition has been coming down month-on-month or quarter-on-quarter. So the cost reduction is that anywhere relevant -- we are incurring lesser costs in like client acquisition? I know you don't give the number now, but is that understanding correct?
Yes, yes, absolutely. And by the way, see, we have been deliberately pursuing the strategy to acquire customers at the rate at which we think we can turn them profitable. So it's not that there is any -- there is nothing preventing us from scaling that playbook because it's always easy to scale that. The question is can we do it while holding our underlying business fundamentals, operating the business at a certain healthy OPM level and also keeping decent levels of payback period? So that's the short answer to your question is, yes. That's how we are looking at our long-term plan.
[Operator Instructions] Next question comes from Karthikeyan from Suyash Advisors.
A couple of clarifications. One is your other expenses are around INR 41 crores. I'm assuming this is a combination of lower customer acquisition cost. So just wanted to understand how to think about this number going ahead.
Yes. -- So, our expenses was approximately in the range of INR 45 crores to INR 46 crores. In the quarter 4, it reached to INR 49 crores because there were some exceptional items came in quarter 4. I think that in this quarter, INR 45 came to the INR 41 crore, which is majorly pertaining to the advertisement and branding costs.
So overall, the reasoning -- I mean, the reasoning of INR 9 crore reduction is the 50% to 60% is advertising and the IT cost and the rest 50% is office and admin expenses.
[Operator Instructions] Next question comes from Karan Bansal from WestBridge.
I just wanted to ask on the [ non-working ] revenue part. So how has the trend been for [ non-working ] revenue in the past year?
So our cross-sell is contributing 7% and other income is contributing approximately 18% to 20%. But all the other income is majorly pertaining to broking because once the broking is down, the ancillary income related to the [ AMC DP ], is also went down. So I can conclude on this, that approximately 20% is other income and 80% is broking and related income.
Understood. And the mutual fund income that will be coming in that will be based in other income, that the mutual fund income that is...
It's coming under cross-sell income.
It's coming under cross-sell income, okay. How much will the [ tax ] comprises of the total gross sales income?
So we don't share this number actually.
Okay. Okay, sure. And also do you have any plans of going for physical presence also, like an omnichannel approach?
Sorry, what -- I didn't understand. What's the question?
Do you have any plans for an omnichannel approach?
So see, as a part of the long-term strategy, yes, that is one of the options that we are considering. But it's not like a part of our full playbook as of this yet, because there are -- as you know, there are many issues scaling that channel in -- especially for digital businesses. So it's something that we are considering, but nothing that we can talk about as of this point.
Next question from Rishikesh Oza from RoboCapital.
Sir, my first question is with respect to the cost structure. So like you -- can we say that the current cost structure will not go up like the current cost sales that we have of around INR 65 crores? Will that remain more or less constant now?
See, I think that's the wrong way to look at it, okay? We are a growth business. There is no point in continuing to hold up cash if you are not going to fuel growth. We are in the business of long-term acquisition, long-term customer growth and building a story to bring customers on our platform. So obviously, our costs will scale.
Now the important thing there is that our revenue will also scale. And some of those will be seen within the first year, some of those will be seen in subsequent years. So our focus is now, now that we have built a good foundation on the business side, we have to continue doing some more investments on the technology side and then scale the business much faster than the rate at least the market is growing. That is really our benchmark because we believe we have the best product today that we can bring to the masses. So that's really how I look at it.
Okay. And sir, with respect to the customer acquisition like did I hear it correct that you said 15% growth quarter-on-quarter?
Yes, I was just giving an indicative number. I'm just giving you an indicative idea is that generally when digital businesses start scaling up, they don't go 2x 3x overnight. So I'm giving you a general framework that generally speaking, if you look at most digital businesses, then every quarter-on-quarter, they plan a certain rate at which they want to grow.
So we have fixed this number, obviously, it could be higher or lower, depending on how our tools and processes scale up. So we will kind of make that call depending on market conditions and our strategy also. But that's the indicative number just to give you a sense of how we are thinking.
Okay. So with respect to the revenue growth, should that match with the customer acquisition growth too?
So, that may not be necessarily true. In general, yes, it will. But see, in this, as we scale the business side. See, we have been -- as I told you, we have been running with a very high level of efficiency. In fact, we are running with the highest level of efficiency of almost any broker at this stage because our turnaround CACs are hardly within 3 to 4 months. So clearly, there is a lot of leg room.
Now some of it may translate to new incentive schemes, new business schemes, which we may introduce, which may not give us immediate quarter-on-quarter revenue, but they will optimize the customer for long-term value. That said, we are looking for a healthy split where there's a good chunk of revenue, which is realized within the first year and subsequent ones which build on to our latent customer base.
We have a follow-up question from Karthikeyan from Suyash Advisors.
A couple of follow-ups. So first, it's very impressive that you've been able to shrink paybacks to just 4 months even significant considering a few months or few quarters ago, you used to talk about 8, 9 months and so on. A, Can you talk about how you are able to curate so well, especially in a complex environment to -- from a broking business point of view, can you share some details on that?
Secondly, could you share some both on the accretion that you are seeing both in terms of customer level activity as also customer base, both of these -- some thoughts on both these will be very interesting.
Absolutely. So we have Prakarsh who is our Chief Business Officer. I'll let him comment on this. Prakarsh, over to you.
Yes. Talking about your first question regarding how we are able to get the CAC rather payback into less than 4 months. Now, you see for the last 2 quarters, we have been saying that we are focusing on acquiring quality of customers. Now when you are actually acquiring customers who are generally interested in trading, then automatically, the revenue per customer that you get from them is higher. And most of our acquisitions today happens either organically or through word of mouth through referrals. So these are high-quality customers because they are coming organically or through a word of mouth, our paybacks have significantly reduced almost by half. We were in the range of 8 to 10 months.
So I think it's a combination of focusing on quality, getting more organic and higher revenue-generating customers, especially on our derivative platforms.
What are they migrating from -- away from, that is to say?
Sorry?
Whom are they moving away from? I mean what I'm trying to understand is why would they migrate towards 5paisa and what is pulling them to, this is the question.
First of all, it is difficult to actually comment on, whether they are migrating because we get even today almost 60%, 65% of the customers that we are acquiring even now are first timers, the balance 35-40% are existing to the market, and they are coming. But it's difficult to actually say that whether we are acquiring or other, we are acquiring from competition of people are migrating from one competitor to another.
Because if you look at our [ orders ] at exchange level, the overall turnovers are going up. So it may happen that the same customers are increasing the volume at multiple brokers...
Sure. I mean, yes, fair. In fact, you've touched upon the point I was thinking about which is controllable from your side. And I was really asking in the same context. How much of this is the market volume driven and how much of this is quality we can...
And also just I should add one more important point which Prakarsh alluded to. You see that if you look at the existing players in the market, right, we have hands down one of the best FnO platforms in the industry. So ever since we have launched the FnO 360 platform, which is like a beacon for most of the Indian digital space because if you see the maturity of the platform, it's absolutely -- it's far more feature richer than even the next best competition.
So obviously, as we have build that and we scale that. We see that customers who may have multiple accounts, nothing stops them from having multiple accounts, they come and try our platform and gradually the stickiness builds up. So it's exactly what Prakarsh said. It's a combination of both strategy on the business side as well as investments on tech, which is where we are at.
Very interesting. And I hope you continue doing well. Best wishes.
Thank you very much.
Thank you.
[Operator Instructions] Next question comes from Nemin Doshi from Motilal Oswal.
My question was regarding the revenue growth. Sorry, I missed your earlier commentary with regards to it. So can you just repeat with respect to -- we have seen a growth in ADTO, but the revenue hasn't translated during the quarter being markets reaching all-time high. And the broking revenue was down Q-o-Q by 7%. So your thoughts on the same.
Yes. So okay, there's a couple of things, right? I mean as we build the business, we are trying to get customers who can stay with us for the long haul. So as customers come on to our platform, we introduce schemes which let them run different types of revenue strategies, and that lets them bundle their offerings in a way that incentivizes them to learn the platform and obviously continue to scale with the platform.
So there is never -- almost never a one-to-one correlation between ADTO and revenue. But what we do see is that as the quarter has progressed, more ADTO participation tells us that there are high quality customers who are coming and trading more on our platform. Now whether it is in -- whether they do one order or 10 orders or how they slice or dice, that is entirely up to the strategies they pick. So that's the result that there's really no direct correlation between one number and another.
So when we look at a long-term story, however, what we do see is that customer participation that is reflected through ADTO continues to rise and obviously that also has direct implications on how we turn the customers active and how many of them end up being revenue generating for us.
Okay. Got it. And secondly, on your margin trade funding book, so that has also declined. So any reason for it?
Yes, Gourav will answer that.
So actually, we have seen in past and as per the industry standard also, most of the investors who -- I mean, get the MTF facility, closed their position in the month of Feb or March because of the end of the financial year. And then they restart the position in the month of May, June, I mean, they build up from July to August. So we are pretty sure that we will regain the market share in that in future. But most -- I mean, the main reason is due to financial year-end.
We have follow-up question from Rishikesh Oza from RoboCapital.
Just one more question. In earlier a few quarters back, you were talking about steady state EBT margins of 35% to 40%. So just wanted to get a broad sense of by when can we see some sort of margin?
Yes. See, what was communicated earlier is basically where we want to be operationally, that's a nice aspirational target to have. We are committed to that eventual playbook. We are committed to that eventual mix. We obviously want to run the business at that. Now -- but as we said, as the quarter-on-quarter -- as we have seen through the progression of this year, there was a period where there was nobody in the market 3 quarters ago. The trading was literally, it was down.
But as people have started coming back to the market, we have to continue investing more. And obviously, that is going to have an impact on how we -- on our overall margin numbers. Now overall what I see is that, that is the north star for us. We want to get to that number. But our true -- the framework we want to keep operating for our company and we want to keep the overall PAT between 15% to 17% number that we are at today because that represents overall healthy business and that results in a PBT number in the mid-30s as well.
So that's how we are looking at scaling the business from now on. And at some point, obviously, as we continue to hit critical months, we will build those efficiencies at scale, which will obviously drive up our margins even further.
[Operator Instructions] We have a follow-up question from Nemin Doshi from Motilal Oswal.
I have one question regarding our market share. Our market share has remained in mid-3s with respect to retail market share when we see. So how do you see this shaping up? And with respect to customer acquisition also, this quarter we have seen the overall demats additions have been pretty good, not that bad as compared to '23. So how do you see this customer acquisition shaping in the coming years -- throughout the year?
Yes. So I mean, over the coming quarters, we are going to be aggressively investing both in scaling both the market participation as well as in scaling our acquisitions. And this is what we have discussed in the call, right? Now obviously, we have to do it very responsibility -- responsibly, right? We want to strive to stay between the 3- to 6 months kind of payback period. And right now, we feel we are rightly positioned to continue scaling. So you should expect that these acquisition numbers and eventually the ADTOs will correspondingly shape up according to that.
Okay. Okay. So is it fair to say that company is still is in investing mode and the future benefits are yet to show up?
Yes, that is 100% correct.
There are no further questions. Now I hand over the floor to the management for closing comments.
Yes. So thank you, everyone, for attending the call. If there are any further questions, please direct them to IR at 5paisa.com, and we look forward to meeting all of you again next quarter. Have a wonderful day.
Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha's conference call service. You may disconnect your lines now. Thank you, and have a good day.