5Paisa Capital Ltd

NSE:5PAISA

Earnings Call Analysis

Earnings Call Transcript 2025-Q2

[Operator]

Good afternoon, ladies and gentlemen. I'm Felicia, moderator for the conference call. Welcome to 5paisa Capital Limited Q2 FY '25 Earnings Conference Call. We have with us today Mr. Gourav Munjal, Whole-time Director and CFO; Mr. Ameya Agnihotri, Whole-time Director and CTO; and Mr. Mehul Jain, Product Head from 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, sir.

[Gourav Munjal, executive]

Welcome to our Q2 FY '25 Earnings Call. On this call, I am joined with Mr. Ameya Agnihotri, Whole-time Director and CTO; and Mr. Mehul Jain, our Product Head. Quarter 2 FY '25 has been an excellent quarter for the investors as well as for the broking industry. During this quarter, both indices Nifty and Sensex touched all-time high and has given the opportunity for good profit booking to the investors. Also, the overall industry saw a significant addition of more than 13 million demat accounts. The total demat accounts of this country stood at INR 17.54 crores as on 30th September.

In Q2 FY '25, we have acquired 1.62 lakh customers, reflecting 20% growth Y-on-Y, and our total customer base has reached to 46.28 lakh. This drop in acquisition is a result of our conscious goal that we took from last quarter to improve the quality of customers, which we are requiring and ultimately, improvement in first year revenue, payback period and LTV, which is called lifetime value of customers.

During the quarter, our ADTO, which stands, average daily turnover, grew to INR 3.78 trillion, a growth of 4% Y-on-Y. Our client funding book stood at INR 245 crores, down by 9% Y-on-Y, and our mutual fund AUM reached to INR 1,333 crores, almost 100% growth Y-on-Y.

Coming to financial performance, in Q2 FY '25, our booking revenue has grown to INR 41 crores, a growth of 3% Y-on-Y. Allied income is INR 27 crores, a bit down by 2%, but majorly because of minor drop in client funding book. And our total revenue stood at INR 100.1 crores, a growth by 4% Y-on-Y.

In this quarter, as you can see, our employee benefit expense are showing increased by 49%. This is because in last quarter, this includes a onetime positive impact of INR 8.6 crores with respect to unvested ESOPs and RSU as per Ind AS 102 and now it is showing our normal growth, which includes increment of employees, RSU growth as well as annual variable performance incentives.

With the focus approach on quality customer acquisition, product improvement and cost optimization, we are happy to report that we have achieved lifetime highest ever PAT of INR 21.9 crores, which is a growth of 15% Y-on-Y along with achieving higher PAT margin of 22%.

Regarding some regulatory updates, SEBI continues to work towards strengthening the corporate governance practice of stock brokers and exchanges and protecting the interest of retail investors. Towards the same step, 2 major changes have been announced. First is with effect from 1st October, brokers can't charge transaction charges from customers more than exchange-defined charges, which are single rate now and not on flat basis systems.

Second, some changes have been announced related to index derivatives effective from 20th November 2024, like increase in contract price, limiting weekly expiry contracts and collecting additional margins on expiry dates. We believe that both these will give more transparency and safety to investors and further increase the confidence in market.

At last, I want to ensure investors that we will continue to work towards product development, better technology infrastructure, customer experience, compliance-first approach and cost optimization. I'm confident that these all efforts will accelerate our revenue and profitability in coming quarters.

Now Mr. Ameya Agnihotri, our CTO, will take you through our technology and product key initiative. And after that, we will be happy to answer your all queries and questions. Ameya, over to you.

[Ameya Agnihotri, executive]

Hi, everyone. I'm Ameya Agnihotri, CTO and Whole-time Director of 5paisa Capital Limited. Digital innovation and technology-first approach has always been our focus area. In our pursuit to provide best-in-class product experience to our users, we have made significant progress. We have launched new web trading platform with user-friendly intuitive and rich user UI, UX. The revamp focuses on reducing latency in ensuring smooth performance and unifying 5paisa's experience all across.

We migrated our open API gateway to Kong reducing our latency by over 50 milliseconds. Flutter app with new user experience is fully rolled out for all our iOS users. Additionally, FnO 360 is now available on iOS for all our users. FnO 360 dashboard offers realtime market insight, advanced trading tools and easy access to derivative data via streamlined interface in the dashboard or in market section.

Advanced order forms on iOS consolidates order tools on a single screen displays charts, orders, positions and market depth. Supports SL, CO, BO search and VTT order types as well. We have added VTT OCO support. This allows placing stock loss and target orders simultaneously valid for up to a year. When once triggered, the other automatically gets canceled out for seamless trade management. The trade on chart platform now includes an option chain, offering realtime options data, Greeks, OI and volume, allowing traders to analyze and trade options seamlessly within the same interface. Additionally, the platform provides corporate action information, detailing events like dividend, stock prices and bonuses, helping traders access their impact on the stock prices.

Flutter on Android platform, including FnO 360 on Android will be rolled out to all our users this month. In Q3, we intend to enhance user experience for key workflows and exciting new features in FnO 360 and mutual fund sections and optimize latencies on our back-end APIs.

With summary of our performance, as explained by Gourav and me, I open the floor for further discussion. Please feel free to ask questions if you have any. Operator, You may proceed.

[Operator]

[Operator Instructions] First question comes from Dhaval Gada from DSP.

[Dhaval Gada, analyst]

Yes. Am I audible?

[Operator]

Yes.

[Dhaval Gada, analyst]

Okay. Just a few questions. First is on the product upgrade. So last quarter, you mentioned that there will be a big upgrade that will happen in the -- at the end of the second quarter. So just wanted to get an update. So are the changes that you mentioned in the initial remarks, are the -- are these all been done in the new product is out? Or is some major parts still pending? So that's the first question.

[Ameya Agnihotri, executive]

So Flutter app with revamped user experience has been completely rolled out to all our iOS users. So that is one big upgrade. Apart from that, FnO 360 was initially available on web. It is now available on iOS completely for all our users.

In terms of Android rollout of app -- revamp app on Flutter platform as well as FnO 360 on Android, it will be rolled out by end of this month. Over and above that, obviously, we have launched revamp new web trading platform, which focuses on rich user UI and UX. So even that has been rolled out to all our users. So overall, we believe that major changes and user experience and usability improvements as well as performance improvements have been rolled out in last quarter as committed.

[Dhaval Gada, analyst]

And you said that the FnO 360 for iOS -- sorry, for Android will happen by end of this month, and so that should complete all the migration and upgrades that you've committed.

[Ameya Agnihotri, executive]

Yes.

[Dhaval Gada, analyst]

Post this, if you could just talk a little bit around the product upgrade pipeline, anything major or these are going to be incremental changes from here on, just if you could give some thoughts on the pipeline for the next 6 to 8 months.

[Ameya Agnihotri, executive]

So with respect to our product or user experience updates, I think the key work that we are going to do is to enhance our user experience workflows. So these are going to be incremental changes in order to make sure that whenever a user interacts with our application, it has least cognitive load and the quickest way to achieve certain task capabilities. So a lot of incremental changes will be obviously done on our web as well as on our mobile interfaces.

Over and above that, in terms of our back-end, we are planning -- we have an extensive plan to ensure that our latencies, performance and availability is significantly improved and the overall objective in the next few months is to make sure that these optimizations in our back-end API contribute towards improvement of performance and overall experience on our app as well as web platform.

[Dhaval Gada, analyst]

Understood. Just the second part, on the acquisitions, customer acquisitions. So if I just take a sort of commentary journey of how we thought about at the start of this calendar year, we were trying to use the resources wisely to improve the incremental customer acquisition, and some kiddy was sort of -- or the aggression was supposed to come after these product launches are through so that the load is taken well care of, et cetera.

Given that now last 2 quarters sequentially, we are seeing the run rate decline. And from here on, how do you see the overall customer acquisition growth to be for, let's say, the next 3 to 6 quarters? If you could give some perspective, that would be useful.

[Gourav Munjal, executive]

Yes. Actually, this step is towards, in respect to acquire quality customers. Although there is a 17 crore demat account in the country, but most of the customers are having a balance of less than INR 10,000 only. In this kind of a market, you should play very cautiously that whatever the expenditure which you are doing in terms of advertising and branding should attract more traders and investors who are relevant to our industry and not just for the sake of numbers.

This number is reduced only in respect of that category, but I can assure you that overall FYR, which is called first year revenue, has been improved. So with this reduction, there will be no impact on revenue.

Going forward, yes, definitely, we will -- from now onwards, we will accelerate our growth in terms of customer acquisition. And we are hopeful and we will try our best to increase our customer acquisition quarter-on-quarter for the next 3 or 4 quarters.

[Dhaval Gada, analyst]

And would it be fair to assume that with these upgrades, the investment that you've made, the run rate right now, we are doing roughly about 1.6 lakh per quarter, and at the peak in the fourth quarter, we did about 2.7 lakh in the fourth quarter of '24, we should exceed that in the next 2, 3, 4 quarters? Or the run rate is going to be somewhere between these 2 numbers. I mean how should one think about your acquisition run rate for the next, let's say, 4 quarters?

[Gourav Munjal, executive]

To be honest, I can't give exact numbers to you, as you mentioned, but I can give the direction to the company that, yes, we wanted to acquire more customers. And these all changes is -- we are expecting that our organic growth will also increase due to all these changes. And we will continue to spend on our marketing and advertising also so that we can acquire more and more customers, but numbers wise, I can't give exact numbers to you.

[Dhaval Gada, analyst]

Okay. Got it. And just final two things, in terms of the regulatory changes that are out there, what's the sort of financial impact, if you could quantify whatever is in your view of basic assessment at this point of time? And specifically on the weekly options expiry related impact, how are you sort of looking at navigating that? If you could just talk a little bit around regulatory impact and how the company is looking to navigate?

[Gourav Munjal, executive]

Yes. So the first change is related to broker can't charge more transaction charges income from customers. So this will impact the industry level 10%, for 5paisa it was 8% of income -- of total income. But we -- internally, we do have a lot of levers, and we already took action towards the same. In the industry, we were charging INR 12.5 DP charges. Now we have increased to INR 20. In industry, we had the product of subscription on which we charge INR 10 per order instead of INR 20. We have abolished that product because INR 10 somehow it's not feasible for us, so that will compensate our TOT income. Second change is coming from 20th November, which is that weekly expiry and increase in contract size.

Actually, we have seen in past that when Exchange started, to collect 100% margin 2, 3 years back, there were many expectations at that time that volume may drop. But actually, that didn't happen. Volume has gone up to 3x in last 2 years. We need to wait and watch after 20th November and see investor behavior whether it is shifting to Nifty and Sensex or whether it will discontinue. We need to review the situation after 20th November. Although the industry perception is that there can be a slightly drop in revenue in this regard.

[Dhaval Gada, analyst]

So we'll look at pricing post the initial assessment of the impact to offset whatever loss in volumes, if any? I mean, how are we thinking about it?

[Gourav Munjal, executive]

We will review the situation after 20th November. Also, we need to check industry participant actions, competitor actions what they are doing. And after that, we can strategize. If everyone is increasing the price and there is a major drop in volume, then we can also go for the increase in price or take any other action also.

[Dhaval Gada, analyst]

Got it. Just last question in terms of the OpEx. So could you just give a direction around -- so this is more like a normalized quarter in some sense. From here on, how should the OpEx sort of move, both in terms of your acquisition thought process as well as other investments that you intend to make in people, et cetera, back-end -- middle and back-end infrastructure. So just how should one think about OpEx growth?

[Ameya Agnihotri, executive]

Yes. So our total cost is INR 71 crores. I must say that most of the cost has been optimized and normalized. I don't see any incremental increase in the same. But yes, I see increase if we're acquiring more customers. So if we see the opportunity and got the 1 lakh customer per month and achieve 3 lakhs, then definitely, there will be an increase in advertisement expenditure. But apart from that, I don't see any material increase in coming quarters.

[Dhaval Gada, analyst]

So this INR 71 crores should grow at what like 15%, 20% and then the rest is dependent on acquisition run rate? Is that the way we should model or...

[Gourav Munjal, executive]

Yes, yes, Yes, absolutely right.

[Operator]

Next question comes from Shreyansh Jain from Electrum Capital.

[Unknown Analyst]

Most of my questions have been answered already. I just want to know what is your strategy regarding your MTF book because that has been declined -- that has declined a lot in the past few quarters. So how are you planning to increase it? And do you have some internal targets? And what is the interest we charge on the MTF book?

[Gourav Munjal, executive]

Okay. So regarding MTF, what is happening in the industry, many new players have come and they are charging very reduced rate and paying from their own pocket. Many players who is giving 7%, 8%, when there is a cost of fund is 11%. They are paying from their pocket. And yes, you are right, it has impacted to us and our book has slightly gone down. But we have done many improvements towards the same. First, we are doing some changes in our app related to the MTF section so that customer can view and check easily.

Second, we have already increased the limit to 4x. Earlier, it was 2x or 1x. We have changed the limit to 4x. Third, we are sending the digital nudges to -- on the basis of cohort. I mean that the customers who can avail and there are more chances to -- he can avail, then we are sending a digital nudges.

And lastly, we have also reduced our rate from 1st November. Earlier, we used to charge based on network, and our average return was 19% to 20%, but now we have standardized to only a single rate, which is a 16.42% per annum. But usually, we charge on a day basis, which comes around 0.045%. With all these efforts, we are confident that our book size will increase in future.

[Unknown Analyst]

Do you have some targets for the next, let's say, 2 to 6 quarters, like FY '25 and in FY '26 end?

[Gourav Munjal, executive]

Target is definitely, yes. We wanted to grow 2x, 3x, and we are doing all the actions towards the same. But again, I can't give the numbers, but yes, targets are there.

[Operator]

[Operator Instructions] Next question comes from Aaliya from Motilal Oswal.

[Aaliya Sarnobat, analyst]

I just wanted to know what is the current cash in F&O market....

[Gourav Munjal, executive]

There's lots of noise. What is your question?

[Aaliya Sarnobat, analyst]

I wanted to know what is the current cash in F&O market...

[Gourav Munjal, executive]

Our market share is in between 2% to 2.5% for both cash segment as well as F&O segment.

[Aaliya Sarnobat, analyst]

Okay. So like our other expense compared to your previous quarter, the market share percentage is the same for any time or any strategy you want to apply so that you can increase the market share?

[Gourav Munjal, executive]

Yes. The main thing is to acquire quality customers who can contribute to our ADTO and acquire more and more customers. This is our strategy, and we are working towards the same to increase our market share.

[Operator]

[Operator Instructions] We have a follow-up question from Dhaval Gada from DSP.

[Dhaval Gada, analyst]

Just a couple of follow-ups. First is on the CAC. What's the run rate right now? I mean, in terms of per user, et cetera, how the numbers are shaping up? And any sort of benefit of the MarTech implementation that was talked about a couple of quarters back? Just if you could talk a little bit around how the CAC has moved in the last 2, 3 quarters.

[Gourav Munjal, executive]

CAC, there is an improvement has been made in CAC. There is a 12% to 13% reduction in CAC. It is in the range of 650 to 750 as of now. And yes, that -- and all these efforts help us to increase our organic acquisition in 1.62 lakh customers, which we have acquired, the mix of organic is more competitive to previous quarters and more organic means, more FYR, which ultimately gives you proper and healthy payback period of 6 to 7 months.

[Dhaval Gada, analyst]

And is there any further scope of improvement or this is very well optimized as you see it based on the target segment that you are trying to acquire?

[Gourav Munjal, executive]

If I go in detail and check proper mix, there is a scope, but not more than 10% to 12% as of now.

[Dhaval Gada, analyst]

Understood. And the other bit is on the CEO search, any sort of update or any thought process and how is the involvement of Narayan if there is any, yes.

[Gourav Munjal, executive]

So Narayan sir is not involved in 5paisa day today operations as already informed, and we will update you, all investors, through our exchange filing and announcement as soon as possible.

[Dhaval Gada, analyst]

Understood. And on the market share target, so that will be firmed up post the new CEO being finalized? Or like is there a plan? Earlier, we used to have that 6% market share target? Any sort of thoughts on that?

[Gourav Munjal, executive]

Actually, every CFO is working towards the same target, which -- given to us and there is no change in our target strategy, rather we are improving everyday. Yes, with the new CEO, there will be new major changes will be done, but as of now, every target is same, and we are trying to achieve the same.

[Operator]

[Operator Instructions] We have a follow-up question from Shreyansh Jain from Electrum Capital.

[Unknown Analyst]

I think a few quarters ago, some time back you mentioned that your first year revenue from customers is around INR 75 or something around that line. I can't remember exactly. But can you provide an update on how that has changed or what [Technical Difficulty] update?

[Ameya Agnihotri, executive]

As per strategy, I can't disclose the exact number, but I can tell you that there is an increase in first year revenue because we are moving towards the quality customer acquisition and it is per industry. It is not less than that, not more than the industry. It is as per industry. And for the industry, I guess the range for the FYR is INR 1,300 crores to INR 1,700 crore and we are into the same range.

[Operator]

[Operator Instructions] There are no further questions. Now I hand over the floor to management for closing comments.

[Gourav Munjal, executive]

Yes. Thank you for joining us on the call today. I hope we have been able to answer all your queries. If you have any further query or need any assistance, please feel free to get in touch and mail us at [e-mail]. Bye and happy Diwali to all of you.

[Operator]

Thank you, sir. 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.