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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 Q3 FY '23 Earnings Conference Call. We have with us today the management of the company. [Operator Instructions] Please note, this conference is recorded.
I would now like to hand over the call to the management. Thank you, and over to you.
A very good afternoon, everyone. Myself, Prakarsh Gagdani, CEO and Whole Time Director of 5paisa; along with my colleague, CFO, Mr. Gourav Munjal, welcome you all for our Q3 FY '23 conference call. At the outset, I would like to wish you all a very, very happy new year. I wish that 2023 may be much better than 2022.
Since the quarter 3 2020 -- quarter 3 FY '23 was more of a mixed bag, if you look at the overall market, on one hand, [indiscernible] touched an all-time high of INR 18,847 on 1st of December. But on the other hand, the new demat account growth slowed down. So we saw -- we're seeing some fatigue in last 2 quarters, 2 to 3 quarters.
As an industry, we opened almost 55 lakh demat accounts, which is 10% less than what we opened previous quarter. On one hand, derivatives turnover improved by almost 19% quarter-on-quarter, but our cash market turnover at an industry level was down by around 1.5%.
We also saw some regulatory implementations this quarter, like the running account settlement of clients that started in the first week of every quarter now. We did our first part in the first payoff in -- on 7th of October, and the second happened just now in January.
But as a company, we have fared well in Q3 also on an overall 9 months ended December '22 basis. Our revenues for the 9 months ended December '22 stood at around INR 248 crores, with a growth of 18% year-on-year, with a PAT of INR 29.1 crore, a growth of 212% year-on-year.
Even on a quarterly number for Q3 FY '23, our revenue grew sequentially by 4% to INR 83.8 crores, and PAT grew by 2.6% to INR 11 crores. In our expenses for this quarter, we also had a onetime expense of INR 7.09 crores towards margin penalty reversal, a regulatory requirement, but that is a onetime expense, and we did that in this quarter.
We have also maintained -- despite all this, we have maintained a profit margin of 13%. Our growth in profits is on the back of improvement in our acquisition quality, superior trading experience and a further reduction in CAC of around 9%.
We have not just improved our ADTO by around 36% from INR 1.69 lakh crores to INR 2.05 lakh crores, but we have also improved our market share. Our strategy of focusing on revenue and profitability by acquiring good quality customers has started to pay dividends.
Talking about our product, in my last investor call, I had mentioned that we were launching a dedicated trading terminal for derivative traders. We call it FnO 360. I'm happy to report that our product, which is right now still in a beta phase, is receiving good traction and reviews from our customers. This terminal, along with our other initiatives, have helped us to improve our derivative market share.
Apart from our regular business, our Boards of both 5paisa Capital Ltd and IIFL Securities Limited, approved acquisition of online retail business of IIFL Securities by 5paisa Capital. With this, we will acquire close to 1.5 million customers who were part of our online retail business of IIFL Securities.
This customer base will boost our overall client base by around 40%. We expect a good revenue growth and also profitability with this acquisition. The acquisition will be effective 1st April, 2023. And right now, we are undergoing the procedural and regulatory process, which we hope to complete in 8 to 12 months of time from the time we have filed to the exchanges and the other regulatory authorities.
So for now, I have this as my opening speech. I open -- I request everyone to have -- if you have any questions, you can go ahead and ask. May I request operator to open the question -- Q&A session.
[Operator Instructions] The first question comes from Rishikesh Oza from Robo Capital.
Sir, my first question is the average daily turnover if you see has actually doubled year-on-year, but our revenue is flat year-on-year. So if you could please explain this?
Sure. This is -- so ADTO not necessarily means transfer -- completely transforming into the number of orders. As an organization -- as a discount broker, we charge on per order basis.
Now when you attract good quality customers, they also come with a high ticket size. And also there -- the per order is also more but then we because only charge on a per order basis, you may not see the same amount of revenue increase as the ADTO increase. So broadly that's the reason.
Okay. My second question. No, No, please continue.
So I would say, typically, if you see that why large traders are attracted to a discount broker is because of the cost benefit. So that's why you see a difference between the revenue growth and also the ADTO growth.
Okay. Okay. And sir, my second question is about ARPU. If you could please provide ARPU for the customers, that is total customers also and it will for active customers?
So currently, we have -- so around INR 83.8 crores is our revenue. If you can -- and our customer base is approximately 33 lakhs. So you can do your math and get the ARPU. On the [ NSE ] active, we are approximately 10.75 lakh, 11 lakh active customers. So again, you can look at the ARPU for the quarter and analyze it.
Okay. That is noted, okay, sir. And sir, what is our total employee count?
We are in the range of around 700 to 725 employees as of now.
Okay. And what is our marketing cost for this quarter versus previous quarter?
It is relevant presentation. For the last quarter, it was INR 12.2 crores. And in this quarter, it is coming INR 11.6 crores.
Next question comes from Manish Oswal from Nirmal Bank.
I have a question on our cost of acquisition customers. So that has declined very sharply from quarter 1 to quarter 3. So how much cost -- well, current -- the cost level are sustainable? Or do you see again this will pick up? And the second question related to this of the our operating cost structure, what proportion of cost is variable piece of the total cost?
So talking about the CAC, we were last quarter, approximately INR 574. And this quarter, we are at INR 525. But I have said in my previous presentations that we were optimizing on the acquisition cost and more or less that exercise is over. I see the cost hovering between INR 500 crores to INR 600 crore. On a higher side, it would be approximately INR 600 crore. But we see this range to be maintained in the coming quarters. And I don't see a significant downside or the upside beyond this.
Answer to your second question. So out of INR 100 -- also, if I get INR 100 as a revenue, our cost of acquisition is 10% and the rest 90% -- I mean, 15% is our PBT and the rest 75% is our other expenditure.
Okay. And secondly, you said in your commentary, the customer -- the industry level, demat account acquisitions slowed down in this quarter. And secondly, the case volume is also down quarter-to-quarter. So a, what I read in the media reports that the discount brokerage gain in this space, both in the cash market and day to market. So what is your comment on that piece?
See, if you look at last 2.5 years, there has been a phenomenal rally in terms of the opening of demat accounts. Now as a country, as a whole, we are almost at INR 11 crore demat accounts. So a bit of fatigue was bound to happen, and it is not just in this entire year.
If you see that there is -- rather from Q3 last year, there has been a drop in terms of new demat account. So at one point of time, we had opened around 4 million demat accounts in a month. And now we are in the range of around 1.5 million to 2 million demat accounts in a month as an industry. So I think that fatigue was bound to come, and that is the reason you see a bit of a demat account in the slowdown.
Secondly, as compared to the cash market turnover, see, cash market turnover broadly is an indicative of how the overall markets are performing in terms of returns. Now if you look at the entire year of 2022, the index has gone up just by 4%.
Even in the current quarter, though we have touched an all-time high, but if you look at overall indices, they have gone up by 5%, 5.8%, which was lesser than what it was last quarter. And if you look at overall year, it is more or less 4% kind of a growth.
So when you have market stagnating in terms of return, the retail participation slows down, and that automatically has an effect on the cash market turnover. So that is the reason why it is down.
Yes. And secondly, in terms of customer acquisition run rate, so currently, the run rate is 1 lakh, 62 thousand. So where this trend will stabilize in your assessment?
So for us, because we are anyway not acquiring as many accounts as the industry does, and we are focusing in terms of quality. I see that our acquisition run rate will be in this range of around 1.5 to 2.5 lakh account on a quarterly basis. So we would be in this range. But it is difficult to actually say whether there would be a significant upside or a narrow range of acquisition because it also depends on the market.
Secondly, we are -- we also are -- rather have initiated our branding exercise to cater to quality audience and quality customers in -- across the country. So I'm sure our branding excites our partnerships and also our acquisition channel will help us to acquire more customers.
So though I feel it would be broadening, but I would be -- you'd be happily surprised that we surpassed our original numbers also earlier -- last 2, 3 quarters number also.
Just last bit on this. When you say the quality customer, what are the 2, 3 core metrics you look at to qualify that customer's quality in your opinion?
Yes. Yes. So though there are various parameters. But typically, what we look at is that am I able to -- one is that whether the customers who are coming are actually trading. So what percentage of my trading customer -- acquisition customers are trading?
Second is approximately what is the margin with which they come? And third is the payback. So the acquisition cost that I'm incurring, to what extent we are -- how soon we are able to recover that acquisition cost? So I think these are 2, 3 parameters basis, which we decide in terms of the quality of customer.
Next question comes from Kajal G. from ISec.
Sir, one question was on the decline in the active clients, which is right now the industry trend also. How do we see tackling them because the decline in effect has been quite sharp in last maybe 6 months or so? So how do we tackle that? Or are you okay with whatever you have shared at this point in time? And any reason?
Sure. So Kajal, I feel that the active client was anyways not a great metric to see -- because that's the only industry publicly available data, that's why it's obvious that we draw reference to that, but I think it is not a right number to look at.
What we should look at is the income growth, the turnover growth and the profitability growth. Now if you look at -- and also -- and one of the biggest factors for active client is the market. So because if you look at, there has been a negative overall, at an industry level, the active customer base is degrowing for last 2, 3 quarters.
But is it translating into a degrowth of revenue? Not. Why? Because a significant portion of the revenue even for most of the brokers, including us, comes from derivative segment. In derivative segment, if you look at the turnover, that the exchange level is going up. So even in volatility, even in a bad market or a good market, derivative traders are able to make themselves active. They're able to trade, find opportunity. So that is translating into revenue. So I think a good way to look at if there is a revenue growth and a profitability growth.
So whoever [ NSO ] clients which you had and while trading continue to stay and whichever was not is getting out of the system basically for...
Yes. So what we are seeing is that, obviously, I mean, that's a normal cycle of people who are coming to derivatives and people who end up making loss as they go out. But the good trend is that we are seeing an increment in the number of customers who are trading on derivative, and this number is increasing quarter-on-quarter.
So despite the entire year, the indices were flat and there were peak interest even during the year in terms of the market participation. But if you look at one metric, which is the ADTO and the derivative segment at exchange, that barring maybe 1 month or 2, which was stable, not degrowth, more or less has grown. So we have seen both increment in the ADTO, increment in the number of customers trading in derivative.
Okay. Because yes, for you, incrementally, even if the clients -- active clients have not grown, you have been able to be there on the same brokerage revenue? -- and other income. So what will the interest income component for you in this quarter?
Interest income component? INR 44 crores is coming. So that's called other operating income.
So the entire other operating income is interest income?
No, that you -- are you asking about the treasury income or you're asking about the interest income on MTF margin funding?
Margin funding interest income.
Margin funding income is in our [ QPT ]. It is coming in allied broking income. So our allied time income is -- total is INR 27 crores. Out of this -- that MTF income is on INR 15.3 crores.
INR 15.3 crores. That is the margin finance. What would be that number in the previous quarter?
That was INR 13.3 crores. So it has been going up...
Which is Q2?
Yes, mainly because of client funding book has gone up by from average INR 246 crores to INR 280 crores. And hence, you can see the growth in incoming MTF income.
And do you see the pressure of rising cost of funds for you because I think you may not have changed your lending in MT effects?
So there is a slightly increase has been made by the banker. But up to the extent of INR 300 crores we are well versed with the INR 200 crores or INR 250 crores with our internal network, and so it will not impact to that. But going forward, yes, it will may impact our finance cost. Our book has gone up from this level.
Okay, okay. And you said your cash turnover has been 5% decline quarter-on-quarter, right, or 3%?
Broadly in a sense, around 3% to 4%, yes.
Next question comes from Deepak Sonawane from Eton Securities.
So for the quarter...
I'm sorry.
Deepak, we are not able to hear you. If you can be a bit louder?
Hello. I'm audible?
Yes, Deepak, we are not able to hear you. If you can be a bit louder?
I'm audible now?
Not actually.
Hello?
Yes, much better. Yes. Yes.
So my first question is regarding cost of acquisition. As we reported, I mean, ad spend and ad and marketing spend for the quarter, I mean, it has declined by 5% quarter-on-quarter. But as, again, our cost of acquisition only for marketing, we have seen kind of a very sharp decline, right? So it is around [25%, 26%]. So am I missing something? I mean, in that degrowth for the CAC only for marketing?
Sure. So our customer acquisition cost does not include the branding expenditure. Because -- yes, so that's the reason. So if you look at our overall advertising and marketing costs in our P&L table, that includes marketing -- that includes branding, but our CAC doesn't. That's why [indiscernible].
Yes. And the branding, I mean, within marketing costs that we are reported for the quarter, how much percentage will be branding, I mean, of 11.6%?
So if you just multiply the number of customers into the CAC, the branding cost, that will be the actual advertising, the balance would be branding.
So the actual -- for the last quarter, branding was INR 4.3 crores. And for this quarter, it is coming INR 7.5 crores.
INR 7.5 crores. And that branding is mainly digital, right, and nothing else?
Yes, broadly, yes.
Okay. Okay. And sir, within our allied broking income, that will say that majority is interest income on NPA. And do we include interest income on float in the same allied broking income or is in other operating income?
That's the part of our other operating income.
And what will be the quantum for that?
So other operating income, approximately 90% income in other operating income is pertaining to interest income.
Yes. And we have mentioned that INR 15.8 crores for this quarter.
Yes, yes. Got it. Got it. And sir, reversal, so this is one-off, right, 17.9 million that you reported for the quarter, the reversal of margin payments.
Yes.
So do we see that -- again there could be impact in coming quarters as well? This is the first...
No, I don't know. There is no -- because this was -- these were the penalties, which were required to be refunded from October '21 to September '22. So that's the reason it was a onetime effect. Post that, these numbers will not come back, and that was just a onetime effect. That's it.
Okay. Okay. And sir, regarding our CAC, again, and that CAC means other OpEx, I'm talking about. So that has gone upright INR 220 to INR 269 per new client acquired. But -- and that mainly -- that should mainly includes your onboarding team salary, right, that you have mentioned PPT as well?
Yes. Yes.
But if I see our employee cost, right, so that is kind of where you flattened 146 million to 149 million?
Correct.
So is there any other parameter that is driving this OpEx, cost of acquisition other than marketing?
No, actually not. Because see, what happens is that marketing CAC always comes down first for any -- is followed by the OpEx cost. Because OpEx is more or less people. So you -- sometimes if the acquisition is down, I can't -- we can't remove the people. And if the acquisition is good, we can, again, hire the people. So that is a small difference you'll always find in the OpEx, which is a non-marketing. That's on the one part.
Secondly, on the employee cost, obviously, that includes -- now a significant part of our employee cost is towards the product and technology team, because that's a bigger chunk -- and that's why you might see a small increase here and there because of the hiring in the technology and the product space.
But broadly the reason -- the answer to your question of why it has increased is because, obviously, your people were there in Q2 and Q3. It's just that the number has gone down. So that has an impact on the CAC.
Okay. Okay. Yes. I mean that is highly linked to your new client acquisition, right?
Absolutely.
Yes, yes. So my last question on CAC is, earlier, we reported that our payback period is around 12 to 13 months. So do we holding this payback period metric even in Q3 as well?
No. Actually, our payback period was not 12 to 13 months. It is always in the range of around 8 to 9 months. Now it has improved a bit. Now we are in the range of around 7, 7.5 months.
7, 7.5 months. So that improvement is for the 9 months or for the quarter?
It is for the quarter I'm talking about. Yes.
Okay. Okay. Okay. And you see that with CAC opening hovering around INR 500, INR 600 per new client acquired. And if you see that the market in sideline, that means our broking income could be -- remain flat, right? So do you see that the payback period holding up in next 12 months as well? in 7 to 7.5 months?
We are -- our internal expectation is that the payback period should reduce further.
Okay. Okay.
Our target is that we should be in the range of around 5 to 6 months as a payback period. So we're working towards that. From 8 to 9, we have come to 7, 7.5. It will come down further. But that will be by improving the quality of customer in terms of revenue and not by reducing the acquisition cost further.
Okay. Okay. Okay. Sir, my last question is on a number of...
I would request if you can come back because there would be other people also asking questions.
Next question comes from Alok Kumar from UTI.
Congratulation for results. I just wanted to know your market share in the derivatives market?
So right now, we're in the range of around 3.2%.
Okay. And what was it last quarter?
We were further around 3.1%, 3.12%.
Okay. Okay. And is there a possibility of increasing the broking rates in the coming quarter or probably in the coming financial year?
That's a good question. See, the kind of regulatory changes that we are seeing is pushing cost of operating business higher with every quarter. And now with the changes, I see that the rates for the discount brokers, at some point, will definitely increase. Whether it will happen in the next 2 quarters or maybe by end of next year, that's something that we need to see how the changes go.
But the compliance costs, regulatory costs, operate -- other costs have significantly gone up. And with the acquisition growth getting stagnating and markets also now in not a very high-growth trajectory, I think that we put more pressure on the cost. So there, I see a very high chance of brokerage rates going upward in the near future.
How much is it expected to increase like around 20% to What figure are you expecting?
It's actually difficult. It's really difficult to comment whether it will be a 10% increase or a 20% increase. It all depends that -- what kind of regulation -- regulatory changes will come in and what part of the income will get impacted.
I mean we have seen that when the markets turn bad, a 20% to 30% revenue impact is normal because we are a cyclical business. Plus, if there are other changes, which may tomorrow impact our treasury income. So we'll have to see that what is the impact? And accordingly, it has to be factored in the cost -- in the brokerage rates.
Sure, sir. Sure, sir. And sir, my last question is to what is the growth trajectory like in terms of the customer acquisition for the coming year or like, say, coming quarters? So is it expected to go down or is it expected to increase or like remain constant?
So as I said, that our -- we are expecting our acquisition number to be in that same range. So we are acquiring close to INR 1.5 lakhs, INR 2.25 lakhs. That's a broad number. So all, give-and-take, close to -- from maybe around 7.5 lakh, 8 lakhs customers to 1 million customers. So that is a range of acquisitions that we are looking at.
And I see that we will continue to do that. We'll continue to acquire in this range. And this is something that I am not factoring the 1.5 million customers that we will acquire from the acquisition. That's separate. These I'm talking about our normal acquisition.
Next question comes from Deepak Poddar from Sapphire Capital.
Sir, I just wanted to understand, you mentioned that about INR 7 crores odd was a onetime expense in third quarter, right, because of the [indiscernible] margin penalty?
Yes.
Okay. So if we adjust that, I mean, our EBITDA stands at about 35%. I mean EBITDA margin, if we adjust that INR 7 crores onetime expense in this quarter?
Actually, I need to check. So actually, EBITDA, is it not a right measure to calculate in our business because our interest cost -- I mean, we are using interest costs for the funding book. So our income and expense growth are coming. So our finance cost is not for the -- I mean, other and operating purpose. It is just for the other purpose. So the best way to look at our PAT margins.
That's right. I mean, let's say, PBT. So our PBT, which is about INR 14.7 crores, adjusted PBT is around...
That would be around 26% and not 36%, around 26%.
No, no. So I got confused. 26% is what?
So if you remove the onetime expenditure of INR 7.09 crores towards the margin penalty, if you exclude that, then our PBT margin would be around 26%.
Yes, I understood, which is about INR 21 crores, INR 22 crores. That's right. But that's a very sharp jump from what we have been seeing last 3, 4 quarters. I think our PBT margin went up from 7% to 12%, and been 18% now, 26%. So how do we see that? I mean is that a sustainable PBT margin that one should look at going forward, I mean, given the kind of business? I mean, how do you see that?
See, I mean -- see, digital businesses across always command a high PBT margin in a steady state. And right now, we are not into an early start-up kind of a phase where we would have been to losses or we've just come out of a loss. So in a steady state, my target for a foreseeable future is to be in the range of around 35% to 40% as PBT margin. So that is what our aim is. And if you look at our quarter, we are in the right direction to achieve that number.
Okay. Fair enough. So steady-state, we are looking at 35% to 40%? This quarter was about 26% on an adjusted basis.
Yes.
Hello.
Yes. Yes. Absolutely.
Okay. Okay. Great. And I mean, the steady-state, how many quarters we are looking at to achieve that kind of, I mean, steady-state margins?
See, what we are -- how this 35% to 40% of PBT margin will be achieved is, obviously, we are working on improving the quality of customer that will increase our ARPU. We are working on reducing the CAC, which we have already seen.
Then what happens is that your technology costs and your other fixed costs do not go up in tandem with the revenue growth. So that is how it will take at least 3 to 4 quarters or 5 quarters to reach to that number. And in last year, we had also completed -- and more or less by last quarter, we have completed our -- the investments that we wanted to do in technology.
So as far as cost is concerned, we are more or less there in terms of fixed cost. I don't see a much increment in the cost. And now it is only revenue growth. So the moment the revenue growth happens and the ARPU grows, our PBT margins will grow. So I look at around 4 to 5 quarters to achieve that number.
Okay. Okay. Fair enough. But you spoke about the revenue growth part as well, but I think last 4, 5 quarters our revenue has been quite stagnant in the range of 80 plus/minus, right? I mean somewhere around INR 80 crores is what we have been seeing in the last 5 quarters.
Correct.
Now when we say 4 to 5 quarters to achieve that kind of PBT margin, what is the revenue assumption you are taking there?
If you look at -- I agree that the last 4 quarters, our revenue has been stable, but there was a reason to it. There are a couple of reasons. One is, in 2021, if you look at our acquisition trajectory, that was at a very high number. But we realized that this acquisition, just for the sake of acquisition, is not enough because a lot of customers are not trading. So we changed gears. Now whenever you change your gear from a very high acquisition trajectory to a low acquisition trajectory, it has an impact on your revenue because it's a run rate at which you are growing.
Second, that coupled with the market scenario. So this put together is the impact that you see on the revenue. But now with the kind of acquisition that we are doing, we focus more on the quality of customers and derivatives business as a whole, I see that the number will increase. But right now, for me, to give you an exact number in terms of what will be my revenue 4 quarters down the line, won't be a right way to look at it.
Okay. Fair enough. Understood. And my last question is like our active to gross client ratio. I mean it had been stable at around 60% plus/minus, right? But lately, I think for last couple of quarters, we have seen a sharp decline, I mean, from 60% to maybe, what, 33% right now?
Absolutely.
Is there any efforts we are doing there to kind of improve that particular ratio? I mean -- and do we see that as an important parameter for us to track, right? I mean higher ratio means more business and more orders, right?
Absolutely. Absolutely. So definitely, we do our internal -- internally, we run our analytics and we do a lot of effort in terms of reaching out to customers and activating them. But when you see this -- the degrowth in the active clients, again, that's a factor of acquisition that you do because this is -- this number is basically clients who have traded in 12 months.
So if I have acquired for 2020 and 2021, that -- the acquisition number and suddenly from 2021 last quarter, Q3 calendar to Q4 of 2022, we saw a net reduction in our acquisition. Now that also, on a rolling basis, has an impact on the active clients. So that is why I was telling to one of the also in the call, the analyst that we should right now not look at active client as the right metrics. So obviously, on an overall base, it is important that how many clients are trading.
But market acquisition change has also impacted the active clients. So maybe for a quarter more, that won't be right, but then it will then stabilize and you'll see an increase after 2, 3 months, and that's pure statistics -- statistical exercise that you can do.
[Operator Instructions] Next question comes from Sumit Jankar from Motilal Oswal.
My question...
Sumit, I think we lost you.
Am I audible?
No, we lost you. If you can repeat your question?
Okay. So my question is, what is current cash market share? And what is the proportion of cash and derivatives in terms of revenue?
So our cash market share is approximately in the range of around 2.7% to 2.8% and our derivative is around 3.2%. So that's broadly our revenue share. But in terms of our revenue break up, broadly, 65% to 70% of our revenue comes from derivative and the balance from cash.
Okay. So you mentioned that you are launching FnO 360 app, so it's a very good initiative to add, maximum proportion of revenue is coming from derivatives. So how do you differentiate like the current clients are also trading in derivatives. So how does this FnO 360 app differentiates from current trading experience for clients?
So as far as platform is concerned, the reason why we created this entire terminal is that people were -- we have seen that people who trade in derivatives are broadly trading only in that segment, rarely in a very less number of times they come on a normal terminal. So we wanted to give a different experience.
There are a lot of data points. So as far as customer is concerned, there is no difference between the customer trading on our normal platform and FnO 360, but the experience on that terminal is much better than the normal because there are a lot of data points that we provide. There are a lot of predefined strategies and a lot of types of orders, which typically are used by derivative trader. So it is basically to improve the experience.
[Operator Instructions] Next question comes from Tushar Sarda from Athena Investments.
This is the first time I'm attending the call. So I'm just trying to understand the business. You talked of quality of clients. And when I divide your broking revenue by the total customer, it comes to INR 100 per quarter, per client. So I'm just trying to understand what kind of clients are this? And if a client is paying only INR 100, why do you have to spend so much money to acquire a client?
This is an absolutely right question, and that is exactly the reason why we moved away last year from acquiring broad customers to acquiring quality customers. As I said, we started that journey from Jan, Feb this last 2022, and then it takes some time to change your course.
But it's -- but if you look at that -- if you divide purely the revenue by the number of customers, it has many factors associated with that. One is that you're looking at just one quarter revenue, which also -- or rather last 2, 3 quarters, which has a market impact.
Secondly, it also is a factor of a large customer acquisition that we have done in 2020 and 2021 with -- and most of these customers were millennials and young people in the range of 18, 20, 25.
Now when the markets become choppy or they turn sideways, typically, the kind of money that these people have to invest is very less and they shy away from coming to market. And that's the reason when you divide it by the customer base, you will see a very small number.
But that is made -- that may not be right because if you take the active customers only, then the number will be significantly better. And that's one more reason...
But your presentation doesn't mention active customer, right? I will look at the numbers that you report and you reported total...
Yes, absolutely. Absolutely. But yes, that's the reason I'm giving you the explanation for this.
But then maybe you should include that in your presentation, the parameter that one should look at?
Sure. Sure.
Next question comes from Krishna Saha from QuantumAMC.
So this is the first time for me also. Just trying to understand the merger with IIFL Securities, the rationale behind that? We first, demerged I realize from IIFL Holding and then IIFL Securities? So just could you just explain what are we -- why are we doing this merger? What is it for?
Sure. 5paisa Capital was demerged from IIFL Holdings because then -- in the group, this new entity was created because to cater to the digital side of the discount broking side of the broking business, and that's how 5paisa Capital started its journey in 2015, '16.
But over the years, what we realized that a lot of things changed, and both the companies were ending up targeting the same set of customers digitally. We were 100% predominant digital, but IIFL Securities had one vertical, which was the digital trading customer. And they also had other customers, which are typically a relationship-based.
So that was -- that's the reason we decided that, one, there should be a dedicated focus for one business area or one target segment. And that's how it made sense for us to acquire the online retail trading business of IIFL because that is a customer set which suits our business also, because all of them are -- most of them are millennials and all of them are trading digitally on app. So that is the reason. That is the rationale behind acquiring that set of business.
Anything on the business front, sir, which will enable us to operate our revenue? Can you talk about that, too?
Sure. So as I said, we are acquiring close to 1.5 million customers, which will boost our base by around 40%. In terms of revenue, we are looking at close to around maybe 18% to 20% growth in revenues at the current revenue number.
Sorry, let me rephrase the question. Sorry to interrupt you. Any diversification on the revenue trend, I suppose it's the same. Is it?
No, I'm not -- I'm right now not able to hear your question properly. If you can...
Diversification, so is there a chance that you will be able to sell more products? I mean, from -- we get the broking point of view and the margin funding, but is there anything else we're getting more is the diversification point of view on the revenue stream or is it the same-same? I'm not aware of IIFL securities as much. Is it allowing us to sell more products to a customer or something like that?
So absolutely, we are -- what we are acquiring is customer and the broking revenue, but it also opens up an opportunity to sell multiple products to these customers. So answer to your question is right, there's going to be an opening up of opportunity to serve the customers. But what we are acquiring are customers and the broking business -- the broking revenue.
I see. And the promoter shareholding post the merger will be just -- could you just let me know what will the promoter shareholding percentage be?
So it will not impact that much. It was hardly -- I mean, it was 32.69% pre-holding. And after this, it will be 32.45%, slightly 0.24% decline.
Next question comes from Sarvesh Gupta from Maximal Capital.
Sir, one question I wanted to understand is, from an industry perspective, we are seeing a variety of changes. Number one is, as you mentioned, that the industry itself is acquiring 10% less clients in this quarter. And I think in our case, we are focusing on higher value. So we have probably degrown our acquisition rate at a much lower number -- at a much higher number.
So in terms of the competition, how is it shaping up? Because we have also seen some of the other discount brokers are sort of unable to acquire in the same pace as earlier. So if you can throw some light on -- within the discount brokerage space. How are things shaping up?
And second question is on this regulatory possibility that we hear about wherein the transactions can be carried out from the bank account, which can have an impact on the margin book that you have. So if you can throw some light on that and how it will affect your business if it is implemented?
Third question is on this IIFL acquisition. So you mentioned that it will increase your customer base by 40%, but any sense of the various financial parameters of this acquisition that you can give like how much you are paying and what's the sort of revenue and EBITDA or that increase that it can cost to your consolidated financials after a year?
Sure. So talking about your first question, see, if you look at the competitive landscape, the consolidation in the acquisition has already taken place. Broadly, if you look at -- obviously, because of the fatigue and the prolonged great acquisition numbers, obviously, at some point of time, there was fatigued to be come -- have to come in terms of acquisition, which is right now.
But largely, if you see that more all the acquisition is consolidated and between 4 to 5 discount brokers, a large number, almost 80%, 90% of the acquisition, which is happening in the discount broking space, is happening between the top 4 or 5 players.
But over a period of time, what has happened is, it is important that are you looking at only acquisition as a metric in terms of competition or you're looking at deriving more revenue and value out of this. So our positioning is extremely important, and that's why -- that's how we differentiate ourselves where we position not just as a broker who's acquiring any and every customer, we want to acquire a high intent-driven customer.
So though there is competition, but there is a consolidation. And that consolidation helps us to provide -- and helps us actually grow further in terms of growing our customer base and revenue. As far as regulatory is concerned, definitely, there are a lot of changes which are happening, and there's obviously a white paper and consultation happening in terms of how the client funds can move directly from customer bank account to the clearing operation.
That wouldn't impact our margin funding book or the brokerage, but that will have an impact on our treasury income. But I think as someone also asked that with all these regulatory changes, what exactly will happen? And obviously, the cost -- when cost goes up, it has to be factored in the brokerage rate.
So we will -- we might or we will see an increase in the brokerage rate from the flat INR 20 that most of us are charging. So it has to go upwards if we want to run our business. And with every quarter, our compliance and our operations and other costs are going up. So it will definitely have an impact, but that will also mean that our -- the brokerage rates and the charges that we charge to customers will go up.
Lastly, on your question of the acquisition, we are -- as I said, we are acquiring close to 1.5 million customers. Our expectation is that on -- if you look at our current annualized revenue, that would have a positive impact of close to 18% to 20% in terms of income growth.
As far as cost is concerned, we have already created an infrastructure, which can take care of more than 2 to 2.5x of the customer trade rate and the people logging in and all the other parameters for our tech infrastructure. So we've already created that.
And as I mentioned earlier also that I don't see a cost increment from here, even if we acquire. So with an 18% to 20% income, we see a good translation of that income directly into profitability once this entire scheme comes into play.
And how much are you paying for this acquisition?
So it's an all-equity deal. And we are -- the ratio that we are paying to shareholders is in the range of 50:1. So for every 50 shares of IIFL Securities, the shareholder will get 1 share of 5paisa. And if you just convert that, it's broadly on our total equity base around 60 lakh shares will be issued.
Next question comes from Dev Shah from Haitong Securities.
So my question to you was regarding the total number of orders that you have received during this quarter. And if possible, could you give me the equity segment orders also for this quarter and the previous quarter?
I'm sorry, but we don't share the number of order information for any of our segments.
Okay. Okay. All right. So I had one more question relating to the time. So for example, do you have any metric that shows the time it takes for a newly acquired customer to be an active client? Is there anything like that?
So broadly, what we have seen from our past experiences that it takes not more than 30 to 45 days for a customer to get active. So if you're acquiring customers, most of them, almost 95% of people who want to trade will end up trading between -- within the first 30 to 45 days.
And if people do not trade in first 45 days, it is very, very unlikely that they will trade ever or they'll come back. That is like only 0.5%, 1% people will come after 45 days. But maximum this is the time.
Okay. Okay. Got it. Got it. And last question, out of these 1.5 million new customers that are going to be coming in through the merger -- through the acquisition, sorry, could you give me a sense on how many of them will be active customers -- are currently active customers?
Right now, it will be difficult for me to share the information because as I said that we have just filed it to the exchanges. We are expecting approvals. So once the approvals and the shareholder approval, the exchange and also NCLT, post that, we will be able to share that information. But for now, we won't be.
I think we will take 2 more questions. Operator, the last 2 questions?
Next question comes from Anurag Mantri from Eastbridge Advisers Private Limited.
I have two questions. One, on the FnO side, basically, you mentioned that your market share is about 3.2%. Any sort of indication as to what you're targeting this number to maybe go up to? And what are sort of initiatives that you're taking? I heard about your FnO 360, but is there anything else that you're sort of focusing on to drive this market share? Like is there a cohort of customers sitting in the overall broking industry, which you can sort of target with your pricing and your offering, et cetera, from where you're gaining market share? That's one part.
And the other part is that if you can just help us understand the -- qualitatively, if you can give us the color of the FnO segment in the sense of what percent of your clients may be doing FnO? So within the FnO brokering ADTO or the revenue, what percent comes from these good quality, so to say, that you defined as of now? Or what percent is kind of H&I versus retail? What type of customers -- like how many customers make money? Any correlative assessment will be useful.
So answer to your first question, obviously, there is no number in terms of what kind of growth I'm looking for in derivative market share because we put our effort. And once you are into acquiring high-end derivative traders or the good quality customers, sometimes you immediately get a market share rate. But that's why it would be difficult for me to put a number in terms of market share.
But having said that, we have done a lot of things for attracting good quality customers and derivative traders. FnO 360 terminal is one. We introduced a product called MarginPlus, where in that product we provide 100% collateral benefit for customers who want to trade in derivatives. The 50% component of cash is something which is funded by us on which we charge a meager interest rate of 0.03% per day on overnight and intra-day it is absolutely free.
Then we have introduced a lot of order types, which the traders like. We have tied up with the Fintech, which provide a lot of tools and a lot of data. We have an open API architecture, where the algo traders or the derivative traders can use our API to trade. We also have a subscription product. And there, we charge the lowest brokerage in the industry, where we charge only INR 10 as a part of our add-on packs, which is our ultra trader pack, where you just pay INR 1,100 on a monthly basis or around INR 10,000 on an annualized basis. And you get brokerage rate of INR 10 and you also get 100 orders free.
So from charges to platform to product to experience, we have done a lot of things to attract these kind of customers. And that's how you see a steady growth in terms of market share over the last 3, 4 quarters.
Lastly, I think your question was on the qualitative aspect. See, it's -- again, I won't be able to share in terms of how many people make losses or how many people trade. But broadly, as I was saying earlier also in last 4 quarters, what I've seen is there is a consistent increase of number of customers trading into derivative segment.
And though the percentage of customers who are trading in derivatives as compared to my overall is not much, it is in the range of around 10%, 15%. But those are the ones who are -- that overall absolute number is increasing quarter-on-quarter. So it is not just the turnover which increases, but also the customers traded, which is getting increase -- which is increasing.
We have a follow-up question from Tushar Sarda from Athena Investments.
A couple of times you mentioned that you expect the brokerage rates to go up, but if we look at the big players like Zerodha or Angel, they are minting money. So would they not actually reduce the rates to drive out other players from the market because the competitive intensity is increasing in this space?
No, I don't see that brokerage rates are headed south at all. See, there are profitable players in the business. But we all have to understand one -- a couple of facts. One is broking is a cyclical business. So last 2, 2.5 years have been good for markets. And we have seen in the past, and I'm in broking business for last 2 decades.
I've seen that overnight with any change in the market, you can lose almost 30%, 35% of your revenues. So if you are profitable now, doesn't mean that you will be profitable ever just by reducing the rate. That is one.
Secondly, there are regulatory changes. Now treasury income definitely forms a significant part of rather less of topline, but a significant portion of bottom line. Now if there is any change, which leads to erosion of the treasury income, automatically have an impact on the profitability.
So I think us and overall, the large brokers understand the gravity of the business and the cyclical nature of the business. So I don't see despite so many players coming into it, the rates will go down.
There might be marketing ways through which you bundle the product and you're trying to position as the cheapest by giving a lifetime something or maybe you reduce the rate in the new part, but it's more of a marketing. But all put together, I don't see the rates going down.
But they won't go up also, right? These players are hugely profitable and everybody is fighting for market share. So it's like a telecom battle, which happened between the biggies, and smaller players just won't survive the price war, right? I mean you've been mentioning that the rates would go up, but I seriously doubt if they'll up if Zerodha and Angel make so much money.
See, right now, it's more of a hypothetical situation. But obviously, when we look at a lot of parameters of business, I mean that's my call. I may be wrong, I'll be happy to prove wrong that if we are able to maintain or rather increase our margins and ARPU by keeping the rate same, I'll be more than happy.
But we are into a very dynamic business. So anything can change. And my response was to the answer in terms of what if there are changes. But in a steady state, I don't see a change in the last 2 years and even now.
There are no further questions. Now I hand over the floor to the management for closing comments.
Yes, so thank you very much all for attending our conference call. If there are any questions, you can write to us at ir@5paisa.com. I, again, wish you a very, very happy new year. And may you have a great year ahead. Thank you very much. Have a good day.
Thank you, sir. Ladies and gentlemen, this concludes the conference call 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 pleasant evening.