Affle (India) Ltd
NSE:AFFLE
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Affle (India) Ltd
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Ladies and gentlemen, good day, and welcome to the Affle (India) Limited Q1 FY 2024 Earnings Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Anmol Garg from DAM Capital Advisors Limited. Thank you, and over to you, sir.
Yes. Thank you, Zico. Good morning, everyone. On behalf of DAM Capital, we welcome you all to Q1 FY '24 conference call of Affle (India) Limited. I'll take this opportunity to welcome the management of Affle (India) Limited, represented by Mr. Anuj Khanna Sohum, who is the MD and CEO of the company; and Mr. Kapil Bhutani, who is the CFO of the company.Before we begin the discussion, I'd like to remind you that some of the statements made in today's conference call maybe forward-looking in nature and involve some risks and uncertainties. Kindly refer to the Slide 24 of the company's Q1 earnings presentation for a detailed disclaimer.I'll now hand over the call to Mr. Anuj Khanna Sohum for his opening remarks. Thank you, and over to you, Anuj.
Thank you. A very good morning, everyone and thank you for joining the call today. I trust all of you are keeping in good health. On Affle's fourth IPO anniversary milestone, we would like to thank all our over 364,000 shareholders for their continued trust and consistent support that inspires our commitment to deliver sustainable cash flow, positive long-term growth with high standards of transparency and corporate governance.In Q1, FY 2024, we attained our highest quarterly revenue run rate, our highest consumer conversion and our highest CPCU rate. This performance is a result of the differentiated Affle 2.0 strategy and the disciplined execution by our teams to enhance our consumer-centric platform offering, further verticalize our capabilities towards high-growth emerging market vertical and to leverage acquisitive synergies for margin expansion progressively. I'm pleased that despite the challenging macro environment and our ongoing turnaround efforts in developed markets, we delivered revenue growth of 17% year-on-year and PAT growth of 21.4% year-on-year.On a CAGR basis, over the last 3-year period, our growth is much ahead of the overall industry growth trends. Our CPCU business delivered 68.7 million conversion during this quarter at a CPCU rate of INR 55 that helped us achieve CPCU revenues of INR 3,778 million, an increase of 17.1% year-on-year. Our CPCU business continued to be resilient and underlines the long-term sustainable business momentum. We fortified our Affle 2.0 consumer platform stack, advanced our value proposition in reimagining customers' business impact points and expanded our tech use cases to deliver growth across our top industry verticals in E, F, G, H categories. This has strengthened our moat, enhance mutual trust with our customers and partners and our direct customer contribution stood at 78% of our revenue in Q1 FY '24.We've always been strongly anchored in India on global emerging market verticals organically and we continue to witness broad-based growth in advertiser spend driven by our unique ROI-linked CPCU business model. Our organic growth in India and global emerging market verticals combined was over 20% year-on-year. The overall market tailwind continued to be intact anchored on the accelerated consumer adoption of digital and the enhanced organizational shift toward digitally-enabled processes. The recent approved cabinet budget towards inclusive penetration of Internet across 640,000 villages would further fuel consumer adoption of connected devices in India.Speaking of developed markets where macro headwinds had impacted our business over the last few quarters, we experienced expected de-growth in the month of April and May. We bottomed out in June based on the ongoing implementation of our decisive turnaround action plans as discussed in detail during the last earnings call. We successfully executed a series of tough steps mid-Q1 onwards that resulted in improved run rate in the month of June itself. I'm happy to confirm that we have rebuilt our foundation for developed markets with the integrated consumer platform approach with focus on key verticals, highest number of active customers till date and the highest number of full-time team members anchored in the U.S. This instills confidence in our team to go out, compete and win convincingly in U.S. from here onwards.Together with YouAppi now, we are stronger than ever before in developed markets with strong inroads with existing customers in the gaming vertical where we will upsell and cross-sell our integrated platform. With this robust foundation rebuilt we are confident of capitalizing on the improved macro market outlook through the competitive edge of our own CPCU business model, deeply verticalized platform offering and the revived inspiration of our own teams. We also continue to fortify the premium use cases on our Affle 2.0 consumer platform stack with unique ad placements across O&O, OEM app stores.During the quarter, we launched our full funnel proposition on iOS App Store, Apple search ads, enabling advertisers to drive premium conversion of iOS users effectively and that makes us early [indiscernible] on advanced use cases on the Apple ecosystem, including scan. With a key focus on upselling and cross-selling all our platform offering, we have now rolled out our CPCU model on connected TV with our household ID SIM capabilities in India, global emerging markets and in U.S. as of last quarter. This will empower the advertisers to reach users across screens effectively and derive greater ROI with cross-device targeting capabilities of our platform.To reiterate our strength of delivering unique consumer experiences, we have shared 24 case studies in our earnings presentations over the last 8 quarters that covered many of our key industry verticals. Continuing to share our success stories this time, we have also included 3 case studies, which focused on -- which are focused on tech-enabled recruitment platform, FMCG and high-end gaming. Affle continues to be recognized as an industry thought leader. Our Mediasmart platform was recently awarded Momentum Leader and High Performer as demand-side platform in the G2 Spring 2023 report. We won gold for various campaigns in the CTV category at the coveted DATAMATIXX Awards 2023 and we won 5 awards across various categories at the DIGIXX 2023 as well.We are excited about growth opportunities that wait ahead of us. As an AI algorithms-powered consumer platform, we are further leveraging our core R&D capabilities and existing patent portfolio to build new IP, new patents and innovative use cases for responsible integration of generative AI, large language models as well. Our goal is to apply our new IP to generate better outcomes for consumer privacy protection, new data simulations based on past learnings, enhanced decisions for vernacular creatives and campaigns, self-learning algorithms to detect digital identities and advanced fraud prevention in digital advertising. With a clear vision, committed leadership and ongoing investments in tech, we are geared up to unlock new opportunities for long-term growth and success.With that, I now hand over the discussion to our CFO, Kapil Butani, to discuss financials with you. Thank you, and over to you, Kapil.
Thank you, Anuj, and thank you, everybody, for joining the call. Wishing everyone a good day and hope all of you are keeping safe and well.We commenced FY '2024 on a positive to close Q1 revenue at INR 4,066 million, a growth of 17% year-on-year. It was a broad-based growth across industry verticals and across India and international markets. During the quarter, India contributed 30.7%, while International contributed about 69.3% of our revenue. Sequentially, quarter 1 revenue increased by 14.3% quarter-on-quarter contributed by organic growth and on account of two months consolidation of the acquired business. Our EBITDA for the quarter stood at INR 781 million, an increase of 13.7% year-on-year. And EBITDA margin stood at 19.2%, despite aggregated consolidation.In terms of OpEx, our inventory and data costs stood at 61.1% of our revenue from operations this quarter. This was almost in line with previous quarter, but a significant margin improvement from quarter 1 last year. Our employee cost increased by 13.9% on a quarter-on-quarter basis due to annual appraisals as well as consolidation of business of YouAppi, our strategic efforts to expand our teams across platforms and market. However, this increase of employee cost was partially offset by cost optimization in the national markets on account of reorganization of team structures in developed markets.Our profit after tax for the quarter was INR 662 million, an increase of 21.4% year-on-year. Our effective tax rate was lower this quarter, primarily on account of lower contribution of profitability from select entities in developed markets and due to utilization of pre-acquisition losses of YouAppi. We remain focused on working capital management and have been very extremely prudent on customer profile, and there has been no material changes in our risk of for connection. We aim to play a big -- a much bigger role in continuous involvement of [ market ] ecosystem with short-term macro challenges, fully embraced and remain confident of this long-term business process to invest further in our business and tech IP.With this, I end my presentation. Let's please open the floor for questions.
We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Mr. Anmol Garg from DAM Capital.
Anju and Kapil, wanted to understand how much would be the contribution from YouAppi this quarter on an absolute basis? And from that standpoint, how much would be the organic growth in the company? And also, if you can share a bit on the margin profile of YouAppi.
So just to elaborate on that question, [indiscernible] contribution from YouAppi should be looked as consolidation of our developed market businesses and it -- about a little more than INR 450 million on the top line and it has contributed to an EBITDA on a PAT margin because of the losses by about 11% margin rate of YouAppi. So this is an excise to consolidate our overall developed market businesses along with the Jampp businesses.
I would just like to add to that. The way to look at our results, not only for this quarter but also going forward is that the organic growth is deeply consistently anchored on India and emerging market verticals globally, where we are going consistently, as I said in my comment to you over 20% even in this quarter year-on-year. In terms of developed markets, because of the turnaround efforts that we were already discussing in the last earning calls and so on and decisive steps being taken, we were rebuilding and have now rebuilt a stronger foundation for developed markets than ever before. So together with YouAppi as well as the turnaround efforts that we have taken, I would say, today, our revenue in developed markets, especially U.S., which is 80% or more of the developed market [indiscernible] from that market alone.Our number of customers, our current revenue in developed markets as well as the number of full-time team members on the ground and the inspiration of the team members being revived over the last several months of my direct leadership together with Anuj Kumar to lift it up, has reached a level where we can safely say that our new cemented foundation for developed markets is larger than it was ever before. And that provides a solid base on which we can now build upon confidently, convincingly versus where we were before for the last several quarters where both macroeconomic factors as well as the internal issues were pulling us down and shaking the foundations there. I think we have cemented that. Also another positive there is that the macro factors in developed markets seem to be easing out. So I mean, on both fronts, internal issues as well as macro factors, we seem to be now in the most cemented position to build upon.
Congratulations on good steps taken on the international market recovery. But just from that standpoint, any kind of guidance that you want to give of a medium term for the geography?
I'll tell you the way I see this year is that most of the acquired businesses, whether it's Mediasmart, Appnext or even Jampp, we're completing 3 years within Affle. And this is the year where we are absolutely consolidating and fetching the acquisitive synergies. With YouAppi included within this year, we will make everything much more deeply synergized for margin expansion because one of the things that all our investors were consistently telling us that when you acquire, they average our margin down. So organically, we are seeing margin expansion, but because of the acquired entities being lower margin relatively, it was pulling us down.So this quarter also, you can see the very strong focus is on the margin expansion. So even with the consolidation of YouAppi delivering over 19% EBITDA and seeing the synergies of even on PAT level to deliver over 21% growth on PAT year-on-year, I think it is a very strong indicator of how Apple is operating and we are saying we're going to quality customers, we're going for premium propositions in the market and consolidating our group this year so that there's no sort of margin pull-down baggage of the acquisitions.On the other hand, in fact, what we're seeing is now acquisitive synergies, upselling, cross-selling, integrating the teams and especially for developed markets, especially so in the U.S. market, I think we are seeing very clear execution impact of this strategy. So I mean, guidance, generally, we are very conservative in giving forward guidance, and I would like -- I've been advised to be also conservative, but let me give you the guidance from a PAT perspective or a bottom line perspective. I think it would be safe to see 20%-plus growth year-on-year basis as a sustainable, defensible growth pattern for us, given that this year, our focus is going to be on margin expansion to all the acquired entities, making sure we lift it up.
And one last thing from my end. Is that -- can we expect that even with YouAppi integration -- full integration that will come in the next quarter. Can we expect that the margins will expand on our consolidated business from here on?
I think the way I'm looking at it is definitely progressively, I wouldn't say this quarter, next quarter, specifically. But I think the goal this year is to make sure that the entire group is synergized for premium propositions, higher CPCU rates, better overall bottom line margin expansion and giving sensible growth over the previous year, at least from a bottom line perspective, making sure it's above 20%. Now that's the kind of execution plan that the management team is focused on. Can I say a specific number for you for this current quarter or the immediate next quarter? I wouldn't get into that. But let's wait for the results. You know our execution focus is strong. And typically, we deliver or exceed the expectations barring few quarters like we saw in the last several quarters because of the issues we felt and couldn't address promptly enough in developed markets before, but now we have arrested the situation, rebuilt the foundation. So there is a positive outlook and a positive spirit with which we are now going ahead and I'm really glad with the way we have executed in the last quarter given all the challenges that were on hand.
Our next question is from the line of Raghav Behani from Citi.
Am I audible?
Yes, sir, please go ahead.
Yes. So my question is on the CPCU rates. I see a bump up on a quarter-on-quarter basis. Now is it because of the contribution from developed markets going up in the revenue? But as per your opening remarks, the DMs had actually seen some kind of a de-growth in April and May. So, any comments on the CPCUs going up? And what is your sense on if these levels should sustain in the coming quarters?
I think there are 2, 3 factors contributing to improvement in CPCU. One of the factors is, of course, developed market contribution and the CPCU is always higher there. But also because we are taking more premium services into the market. As I mentioned in the last earnings call as well, what we are doing in terms of our strategy, looking at iOS users in India and global emerging market verticals, in developed markets as well, looking at premium positions and placements where the advertisers are seeing that Affle is bringing to them premium use cases to drive premium conversion. And that necessarily means that the CPCU rates should move up. Now it is -- I think INR 55 CPCU is sustainable. We should see somewhere between INR 55 to INR 58 CPCU range for the rest of this financial year. Our goal would be to move it upward towards INR 58.
Just one more question from my side is on the appraisal cycle. So this time, it was 1Q. So usually, is that 1Q every year?
Some appraisal happen. We typically balance it out between some business units appraise April effective 1st April, some are appraised 1st October. So we try to keep it balanced across these 2 cycles.
Our next question is from the line of Sanjay Ladha from Bastion Research.
So my question would be, sir, it's really great to see that our CPCU model is accepted by all the company across segments. And meaning that previously, when we used to see the case study, they are more from start-up community. Now, it is a mix of start-up plus some well-stabilized 20-plus year company adopting this channel of advertisement. So, what has been changed in the last 3, 4 years in terms of our approach and companies focusing on this model? And another question would be most of the time, what we see is it's a one-time revenue we occur. Is it possible that we get recurring revenue from the players? And do you share what percentage of revenue is recurring in nature? And how is the trend going forward?
Well, thank you so much for that question. When you look at our business definition and how we identify our company, we clearly take great emphasis on the fact that we are a consumer-centric consumer platform. And yes, we make money from advertising, but we make money from advertising, whereas 93% of the business is on CPCU business model, which means that the consumers are accepting, engaging, reacting to those recommendations ads and doing deeper funnel premium conversions with the advertisers.So the -- what I'm trying to bring your emphasis to is to see that Affle delivered 68.7 million conversion in Q1 FY '24. And to do those conversions, we had like, let's say, 1,000 advertiser apps, which were being actively promoted as campaigns to the reach of all [Technical Difficulty]
Hello?
I think Anuj got dropped. Can we check? Can we check with the operator that can you connect Anuj? I think so he's got dropped. Hello? Are we connecting Anuj again? Ladies and gentlemen, please stay connected while we reconnect the management. Thank you. Ladies and gentlemen, we have the management reconnected. Sir, you can go ahead.
Okay. I'm not sure where I got disconnected and apologies for this aberration. I was basically talking about the fact that we have delivered 68.7 million conversions. And the way our algorithms and AI algorithms work is that they look for the highest probability of conversion with any particular instance of recommending an ad or a product to the end users. And in doing so, we have, let's say, one particular recommendation that can give to a user at any given moment out of 1,000 advertisers.Now what that does is it creates competitive bidding between the advertisers. If they really want their campaigns to scale up to really be promoted to those consumers, they need to have very strong product proposition for the consumer. At the same time, they need to bid a high enough CPCU bid rate for our algorithms to prioritize them. And therefore, there is always, let's say, the way we create a premium for our platform is to create competition between the advertisers to bid for it. So, while the -- most of the advertisers are on a recurring basis working with us for several years, but we do not guarantee to the advertisers that, hey, we will definitely deliver your conversion. What we tell them is, please come on the platform and bid and our AI algorithms will be honest to the consumer recommendation. And as long as the consumer is engaging and converting, you will be invoiced and you will see a conversion benefit and ROI from there. So, it is not a typical scenario where we are trying to lock in only the budgets of the advertisers and we are getting budgets from the advertisers, and we're giving them good guidance and also competitive pressure for them to bid higher on our platform so that we can give them better volumes of conversion and that's how the platform works.What we typically balance is across our verticals, let us not see any customer concentration in any of the markets with one particular customer or one particular vertical. So keep it very, very broad-based growth and providing a variety of recommendations to the consumers so that we can balance out the repeat conversion, the new conversions with the consumers. I hope that makes some sense. But essentially, advertising is how we earn our money. But the core business model being CPCU is very consumer-centric, which is a core differentiation and remote for our company.
Just to add to Anuj, we would have all seen that consumer adoption of online payments with UPI or RuPay cards coming in with lower transaction costs. So, a lot of business has moved on to the digital payment mechanism and that is helping us to get expansion into various verticals. So, the payment transfer or various payment gateway supporting with different verticals to do online business is supporting growth of verticals and [ material ] penetration with our clients across the particular verticals.
Sir, another would be, since last 2, 3 quarters, we have seen that our growth has been slowed down from the previous quarter and also we see that we are growing faster than the industry. Then does it mean that industry growth of 30%-plus has been also slow down? Or how should we look at?
I think the way to look at it is that in the industry, there are, I think, several categories of customers. And if we just go by the metric of revenue growth, I mean, there is really all kinds of categories of customers out there. What we do is very selectively pick those quality of customers who will continue to sustain and grow and be together with us for many years to come, where payments and credit risk is reasonably predictable and controllable so that we -- because when we do this business, we want to make sure that we are giving sustainable quality revenue growth, premium conversions with premium customers and so on.So I think this is not about -- if it was about just getting all kinds of revenue and growing, we may not be seeing as strong bottom line trend that we have today. When you look at it from a cash flow lens, I think Affle has been very superior in terms of reflecting the quality of revenue that we get. So we are selective about which customers that we choose and work with and you identified that in your question as well that instead of just taking money of old start-ups, who have recently been funded to actually waiting for them to mature out a little bit more until we can absolutely scale them up. So I think those are the factors that is contributing.So in terms of looking at 20%-plus growth in India and emerging market verticals globally, I think that is a very, very sustainable and a sensible performance given that we are doing at least in those markets north of 20-plus percent EBITDA. As far as developed markets are concerned, we saw a pull back. And because of that effect, you see that the overall growth might be looking a little bit more subdued but long-term tailwinds and long-term moat of our company is intact and our confidence and outlook remains positive for the long term.
Our next question is from the line of Ashwin Mehta from Ambit Capital Private Limited.
Anuj, one, wanted to get an update on the OE partnership that we were wanting to sign for a short supply. Has the contract been signed? And when do we and how much should be the benefit from this? When should it start to kick in?
I think we have been cautious about setting a precedence of announcing every contract that we signed. Having said that, I think we have made very clear commentary about the fact that we are strategically focusing on O&O OEM app stores. And we have highlighted about the fact that we rolled out the product for iOS App Store and Apple search ads. We have remained a bit more sort of guarded about the other OEM contracts where we are enabling monetization for several years on the app stores already for them, so it's a continuing relationship, but what we are emphasizing is that we are going deeper strategically with them. And some of the contracts have already been signed to that effect and they are still in the integration mode and so on.And when it is the appropriate moment to announce it when the partners are ready and so on, we will certainly come to the market and announce it. At the same time, the business is already on and the business is already seeing incremental premiumness and benefit as we continue to grow. So, please give me a few more months before we can make any named announcements, but it's all in good stead and it's a very, very solid position that we are in.
The second question was in terms of India. So, we've seen some softness in terms of -- from a sequential perspective, we're kind of flattish for the last 3 quarters. And you've already talked about that this will be a slightly back-ended year wherein the holiday season is pushed out. So, how do we see the remaining, say, 6, 7 months of the year from an India perspective and especially in light of the Cricket World Cup as well, what are you hearing from the CMOs?
I think the broad long-term trends for India as well as global emerging verticals is really, really encouraging and the outlook is very, very favorable and positive, okay? I think I alluded to that in my commentary earlier as well. But if we are looking at, let's say, very specifically within this year, I mean there are still a few macro factors. I mean the announcement of, for example, the additional tax on some of the gaming, real money gaming and certain other factors. We are still calibrating what's the impact going to be. But then there are a lot of positives as well. For example, a lot of the other verticals are really rising and shining and there is no hang up or any pull-down effect there. There's also the world cup coming. There is a festive season in October, November, December.So there are -- I mean, a lot of positive tailwinds, but let's be conservative. Let's continue to see that we'll defend our organic growth trends in India and global emerging markets and verticals. There is no reason to not uphold that and to continue to do better pricing on CPCU, more premium propositions even in India and global emerging verticals. So, I'm very confident that our execution and the strategies and the clarity with which we are pursuing them is very, very strong and very, very robust and defensible. Can I give you any immediate guidance on numbers? I think we will wait for the results to come.
And just the last one. So, we earlier talked about 20% to 25% growth for this year. Now in the context of the current numbers and some uncertainty, how are we looking at that?
So I mean, if you allow me some flexibility, I would give you that I would still want to maintain the math of those numbers, but let's say, on profit after tax growth. I think we are -- we're very confident of delivering sensible bottom line margin expansion-based growth this year and allow some room for the company to consolidate to derive acquisitive synergies for the next 3 quarters and still deliver overall. Organic plus inorganic very healthy growth and a robust platform to build upon going forward. But bottom line growth of over 20% in that range, which we have also delivered in this quarter. Of course, there were some tax efficiency involved and so on, but I think that is where we want to be measured. And if you are modeling our company, then you can absolutely take that as the bottom line that we will be gunning for in terms of delivering growth on the bottom line above 20%.
Our next question is from the line of Mayank Babla from ENAM AMC.
Congratulations on consolidating, integrating YouAppi to the organization. My first question was to Kapil, about YouAppi, apologies I missed the part where the contribution it had to our EBITDA this quarter. So if you could give us some clarity on that.
I previously mentioned that our -- the contribution to our top line from YouAppi was about just a shade over 11%. And YouAppi is sitting at its own EBITDA of about a shade above 10%.
And what can -- for modeling sake, what can we assume for the rest of FY '24?
See, we are into integration mode. I believe that we are looking at the synergies to drive in and we have committed already in the previous call that we will be taking it to the mid-teens kind of by the year-end. By the year-end, that means by June of '24, that is 12 months of integration -- or 12 months of integration.
And my second question was to Anuj about the connected TV space. You mentioned that it's been rolled out in India and developing markets during the quarter. So what sort of response have you seen from clients in this space? And what are the contribution to the revenue for this quarter? And what can be the potential over the next 2 years from the connected TV space.
When we emphasize that our business is a consumer platform business, essentially, the core tenet of that is that wherever the consumer is Affle's platform should be able to engage with the consumer over there. Now this necessarily means that mobile and smartphone devices becomes the anchoring point of contact with the consumer. But then very quickly from there, we are seeing that within a household, right, within a family, there is a connected TV at home, there is multiple smart devices at home. And therefore, there is this very interesting technology capability that we have, which we call household IT-based household thing.Now when we show, let's say, when we derive a consumer conversion, okay, the consumer conversion could have happened when we showed an ad recommendation to the consumer on the mobile device as well as showed ad recommendation to the consumer's family or household ID on other connected devices, including connected TV. So while there is one conversion that has happened with the consumer, the consumer may have been engaged on multiple touch points within that household ID.Does that make sense?
Yes.
So therefore, when we talk about revenue attribution, we are an integrated platform. The ad and the ad formats are varied. The touch point of those ads on various consumer connected devices is also varied. And therefore, when we derive efficiencies of cross-device campaigns, connected mobile devices, connected TV and so on, we are able to get highest ROI and efficiency as well as much deeper insights than most of the competitors. Now what we have done is that we have taken our differentiated business model of CPCU and launched that on CTV as well. So if an advertiser is spending budget with us on CTV, we are no longer charging them for just showing their ad. We are saying we will charge you if we derive deeper funnel conversion in CPCU-based model and that is creating a differentiation of how we are going to market with CTV.And especially in India and other global emerging markets as well as now we have launched this in U.S. market, I think we are seeing that the market is receiving it well. We have seen our platform being ranked well in industry forums. We have been seen as a thought leader, winning the Gold award in various campaigns on CTV category that I mentioned about the DATAMATIXX Awards in '23. All of these are indicators that qualitatively, we are on the right track. The customers are receiving it well, the industry is taking note of it and we have a differentiated go-to-market strategy as well as the product proposition with the household ID and think capabilities being brought to market. So, we are very positive about the direction that we are taking.In terms of quantifying or taking it out as a segment of impact of revenue, it is still part of the CPCU business and they're not slicing and dicing saying that, okay, how -- what percentage of ads are on CTV versus on mobile. Mobile is by far the dominant force and CTV is an emerging touch point for consumers. And I think this touch point will be a lifestyle shift, which will happen across most of the affluent households across the world.
Our next question is from the line of Swapnil Potdukhe JM Financial.
I have a couple of questions. First, the question is on the international markets revenue growth. If I were to slice out your YouAppi acquisition and consider that the currency has depreciated, the INR depreciated versus USD. Can you give us a sense of like what would be the constant currency growth that you have achieved ex of YouAppi in international markets? That's question number one.And question number two is with respect to the impact of IPL and let's say, the Cricket World Cup, which is going to come in the next few months, how does that generally affect the advertising budgets? And do we get a certain boost because of these events taking place typical? Can you just help me with that as well?
Just on the currency front, I'll take that question. For 9 months, the currency has been quite stable, right? The currency depreciated last in July of '22 or August '22. So, the currency has been very constant. I think so we need to check your model on that. So last quarter also, the currency was about INR 82 per dollar and we deal in multiple currencies. So please, that question of slicing YouAppi in the light of the currency needs to be reached out by you.Anuj, you can answer the second question.
Okay. On the first question also, I can give you some insights. When we look at India as one and international markets as another, this is at a broad basis, the way we have always reported since we went public or even when we went roadshows before the IPO. Now one thing is very clear that within international, there is emerging market verticals and then there is developed markets. Developed markets is majorly anchored on the U.S. Emerging markets is Southeast Asian emerging markets, Middle East, Africa, LatAm and several -- the emerging markets vertical is behaving in very similar organic growth trends as India is. And we see very similar dynamics in those markets, okay? Whether the advertisers are showing stronger affinity to the CPCU business model and the kind of innovations that we bring into the market and so on.So I think we are also seeing similar competitive forces within emerging markets and anchored out of India becomes a competitive advantage for us because we are one of the very few companies in this space that is deeply still anchored. Almost 60% plus of the business is anchored on global emerging markets, India and included in that. So, when you see that as the length, then you would find that a big part, okay, from an organic perspective, over 80-plus percent of our business is India and global emerging markets. And there, the organic growth is very resilient, whether you take whichever currency adjustment or whichever angle you look at it, CPCU, conversions, revenue, customer growth, all aspects, broad-based organic growth is robust in over 80% of our business organically.In developed markets, we have already given very clear commentary for last several quarters now that we were facing macro headwinds, internal issues, how are we coping with that and changing for it in order to rebuild our foundation to a bigger base and a bigger foundation than ever before in developed markets, what actions we have already taken and we have given an update on that as well in this commentary. So, I think we should be assessed based on that and I am very confident that even in developed markets, the base that we have now is defensible, is solid and robust on which we can then build up sensibly with all the products and platform initiatives, the strategies, the team focus and so on. I think we are in a good stead today. And also the macro factors have eased out a bit. So, we are more optimistic that we can take this head on.In terms of the second part of your question, IPL, Cricket, World Cup, there will always be certain events, festivals, which will create some boost effect. But what the advertisers typically do is they plan a budget for the whole year, the whole financial year, the whole calendar year. And then they typically optimize that budget between different quarters and different markets based on such events. So for example, if there is an IPL happening, some advertisers would go double down at that point, some advertisers, in fact, might hold back and say there's already too much noise and too many advertisers. They may work around it strategically. So, I think we are seeing that for the World Cup. We should see some positive impact from certain categories of advertisers. But that will at least help to hopefully utilize the impact of certain other things where the government is introducing, let's say, certain taxation in real money gaming or certain other factors. But we are looking at it in the balanced way. IPL, Cricket World Cup, festive seasons, these are definite positive.Can we quantify it and tell you that, okay, because of this, how much will we do next quarter? I think we would want to wait for the results to come. But I mean, this is not a one-off event, right? I mean, yes, the World Cup happens, but there are other such events, which are constantly happening in each year, there will be such moment. But the overall budget of the advertiser for the year is now being optimized and spent in and around that. But there is no sort of dramatic shift in the overall annual budget that we advertisers put on the paper.
Sorry to interrupt. Mr. Swapnil may we request that you return to the question queue for follow-up questions as there are several participants waiting for their turn. Thank you. Our next question is from the line of Rahul Jain from Dolat Capital.
Just 1 or 2 questions. Firstly, the run rate which you mentioned for YouAppi for the quarter suggest that this is like a flat year for them on a Y-o-Y basis. So any clarity or input on this front would be helpful. And secondly, the exposure and potential impact from this new GST taxation norm that has been announced in India for RMG companies. And any expected trend in Q2 for domestic business this year given that the festivals are a bit delayed. So, do we expect a softer Q2 sequential trend versus past years?
Kapil, allow me to take this. So with respect to any acquisition that we have done in the past, typically, in most scenarios, our focus within the year 1 of the acquisition is to try and improve the profits and the margin expansion of those businesses because in -- as you can imagine, in any company, which is pushing for top line growth, some of that top line is coming from segments that are not profitable. And they are just pushing for top line growth and wanting to sell the business, wanting to package the business. It's okay if the margin is not there. So to bring that discipline we are absolutely focused in year 1 in any acquisition to ensure that we rationalize and say, guys, we should only work on unit economic basis and every campaign and every project, every activity has to -- and every region has to have the discipline of bottom line sensible, sustainable growth.So there is some recalibration that typically happen. And therefore, our focus for this year is really to ensure that we bring the entire group in a consolidated way with acquisitive synergies extracted for progressive margin expansion. And it is not to be seen that, oh, it is flattish and [indiscernible]. No, there is a lot of growth to be had in gaming. But the growth, which is sensible, profitable needs to be done in a way that let's get it right and then let scale, right? So if we continue to press the accelerator of scale, the unit economics and the margin, you would then see a situation that, oh, you're getting the growth, but you're not seeing the margin expansion. So I think we need a few quarters to make sure that the integration and the synergies are consolidated for margin expansion and then press the pedal for acceleration on that new base of unit economics. So that's how I would like to answer your question on YouAppi as well as it's a consistent pattern across our acquisitions.And with respect to Q2 and Q3, festive season being delayed is one aspect, I mean, delayed as in sense with dates. It is normal for the advertisers to peg their budget for the whole year around certain sort of events. And it might be balanced by certain other events. So whether it's the World Cup, whether it's the festive period, the impact of GST, there will be positive. There will be some negatives. But I think overall, we remain optimistic and positive on the longer-term trends. Even for the immediate Q2 and Q3, I think it is fair to expect flattish but an upward trend in these 2 quarters as well. How much exactly? Let us see how these effects pan out with respect to the World Cup, the festive period, the GST and so on. Not everything can be fully quantified. But what we are hearing from the market gives us the confidence that we are on a positive trajectory.
Just to add, we just got a clarity on GST with regards to the -- on the RMG only last week, where the -- it is not upon the betting it's upon the wallet [NPR]. addition to the wallet, one-time placement of the amount. So, we will be in touch with our clients over this period and to see how we are going to react. We are not seeing a knee jerk reaction. But yes, let me be patient for getting the full effect of the GST, which is still not out, and which is going to be rolled out, out of 1st October.
So your July is so far trending in the usual behavior. There's no very startling?
So initially, there was a knee jerk reaction, but it is got stabilized now. There was 15, 20 days of a knee jerk reaction but then it has got stabilized.
Anuj, just a small clarification, I appreciated your color on the YouAppi, your process and that has really helped all the past transaction that you have done. But from this quarter point of view, is it that those recalibration that you're talking about, a big part of it would be already behind us? Or you think it's too early and you would review each and every aspect over a period of time. So that run rate volatility could still exist for some time and then we would see the real potential to play out?
Yes, absolutely. I think we have to not be in a rush to impress. I think what is important is we are building this for long-term growth and sustainable, profitable, cash flow positive growth. And that requires a different kind of a mindset to run and that mindset to be transferred to the next in line leadership, and that is why it is super important that I am stepping forward and being the CEO of Jampp, being the CEO of Appnext, being the CEO even of you YouAppi, as the CEO of Affle, driving and leading from the front to ensure that we embrace, consolidate and derive the acquisitive synergies as a growth. And together with the management team of Affle, working with the next in line leaders of these acquired entities because they are mature next in line professional leadership within each of these entities, bringing it together to make it happen.And I think we are on a very, very good stead. I'm very positive with our direction. And there is no urgency, let's say, okay, let's press the pedal and extract every element of growth, even though it may not have the unit economic sensibility. So I think we have been very disciplined about it because once you allow some room and leeway, then it becomes a bad habit. And we do not want to entertain any campaigns or any budgets which are not following the unit economic model that we insist upon.
Our next question is from the line of Alisha Mahawla from Envision Capital.
Just on -- with respect to the growth guidance, I know that you're not commenting on it. But earlier in the call, you did mention that we're expecting the INR 55 CPCU to sustain and the range is between INR 55 to INR 58%. Even the users that we're having is healthy. Then why the hesitation in giving an outlook for the year?
No, there is no hesitation, ma'am. I think it is just about being prudent. What we are giving you guidance for is and transparency for is what we are doing inside the company. What products are we rolling out? What is the focus of the management? Who is managing, which markets, what are -- we're giving as much transparency as I think anybody could give, including on things that are working well as well as on things that are challenges that we are working and tussling to turnaround. So there is absolutely no hesitation in our transparency.When I talk about going for premium use cases and propositions into the market and in the context of that, it is a very clear trend that the CPCU rate is moving upwards because of 2 factors; developed markets contribution as well as the premium use cases in emerging market verticals. It is not something that I'm giving a guidance on. It is something that one can see in the trend line that is going to be in the INR 55 to INR 58 range. So it's not some guidance. I think it's a fact that is reasonably evident today itself. And what I'm saying is that it's defensible and it is sustainable.The same thing I'm saying about our profits. We have grown our profits in this quarter year-on-year over 20%. Some people would ask and say, hey, there was some tax advantage and so on. Is it sustainable? My answer is yes, it is sustainable. Why is it sustainable? Because there are several areas of growth that we are expecting, profitable sensible growth that we are expecting as well as we have continued to see certain tax advantages for the rest of this year. So therefore, we have also given guidance on the bottom line aspect.In terms of top line, I have given clarity that our focus is on making sure that we take out the acquisitive synergies as a group and do margin expansion progressively. Therefore, I'm not pressing the accelerator or any areas where, let's say, the margin is not so high, let's just get the revenue because incrementally, it is high. What we are wanting is a disciplined execution from our team where they know there is no leeway for that, okay? So because where do you draw the line? We're talking about a 650 people organization across so many geographies. We need to have certain rules for internal disciplined execution. And that means that we are giving a very strong message to our sales teams, to our execution teams on what is allowed and what is not allowed.And that is why I'm telling you that with full transparency, there is absolutely no hesitation whatsoever. And we have given long-term guidance all along, and we will stick by that, that overall, the long-term organic growth in India and emerging growth market growth vertical is absolutely intact. And in developed markets, we have rebuilt the foundation by doing certain tough decisions organically as well as cementing that position inorganically by adding YouAppi to it to have at least a critical mass of customers, employees in those markets so that we can build upon that.
And just one last clarification. For the 17% Y-o-Y growth that we've achieved, how much will be organic growth?
So I think the answer to that, again, is my commentary, at least as far as the organic business, which is over 80% in India and global emerging verticals has delivered over 20% growth for us. Developed markets, we were -- we had a de-growth in April and May. But in June, we were able to recover the trend. So we were -- we obviously had year-on-year degrowth in developed markets versus where we were before. But we have cemented that position with the inorganic growth. So what we have now achieved is the baseline run rate in developed markets that's higher than it ever was for us. And so therefore, that's a new baseline to achieve. So the growth is in India and emerging market verticals. The degrowth is in the developed markets and we have solved for that, both by taking turnaround steps as well as the inorganic cementing of the position there.
[Operator Instructions] Our next question is from the line of Onkar Ghugardare from Shree Investments.
My question was regarding -- just a clarification, which you mentioned earlier in the call. April-May was a de-growth and June was a turnaround for you. So how has been the trend for July? Has the turnaround still -- is this turnaround still there? Or like how is the trend?
Yes. I think we have already, very clearly stated that we have bottomed out. We are on the way back up. And we are consolidating our position to make sure that not only we are on the way back up, but we must do progressive margin expansion. So I think the position is strong. And the way I would want you to visualize it is that the foundation in developed markets, which was shaky for last 3 quarters or more, has now been cemented with the decisive actions taken both organically as well as cemented with the YouAppi association and putting it together as an integrated platform, having highest number of customers in developed markets, especially in the U.S., having the highest number of team members on the ground, having a strong integrated product proposition with which we can confidently go and now convincingly win.The inspiration of the team, you can imagine a team that has seen revenue in developed markets going down, they're not meeting their target, some of the people were let go. They are now re-inspired as a unit. They are seeing a bigger team on the ground than ever before, more live customers together and so on. So I think there is a lot of inspiration back. And therefore, with that lens, there is no reason to be nervous on how Affle will do in developed markets in the rest of this year and let us have the moment to consolidate and bring it back up and get to the margin expansion and then scale up.
Just a follow-up on that. Just was asking regarding the growth of international business. So this year, year-on-year, this quarter, you have achieved around 10%, 12% growth in spite of 2 months of decline. So if you calculate that for the rest of the year, what kind of growth you are expecting in the international business since you are saying it has been turnaround from your side?
I know that I've been asked this question multiple times and in fact, challenged that why are we being hesitant in giving you the numbers. Let me once again anchor it that we will look for over 20% growth in bottom line PAT performance of the whole group by focusing on consolidation, convergence, acquisitive synergies for margin expansion. In terms of revenue growth, I would absolutely work on that. And the growth on India and global emerging market verticals continues to be resilient, north of 20%. In developed markets, we have arrested the situation where it was coming down on de-growth. So that is no longer happening. How quickly can we press the accelerator of growth and how much goes into the developed markets, give me at least one more quarter.And when we come back to you with the results in -- for July-August-September, from there onwards, perhaps I will give you even more clear guidance. But let me build it up further with the team and then get back to you with a clearer guidance. The only reason why I'm guiding you on the bottom line is because those plans are very clear to me and we are able to anchor on it.
Why I'm asking this question is because the international business is putting pressure on the overall business? Because in terms of India growth, it's quite healthy, around [ 30% ] revenue growth this quarter year-on-year as well as on the profit growth it's more than 40%. But if you look at the international business, profit growth is flat and the revenue growth is around 10%, 12%. So putting the pressure on the entire Affle as a group. That's why I'm...
So I understand why you're asking and I can tell you that I look at our numbers right from cash flow to every aspect of our numbers very, very deeply. What I am asking you for is allow the team to execute this quarter and to derive the margin expansion synergies and then press the accelerator for greater growth. What I'm trying to calm your nerves on is that there is no nervousness about will it have more de-growth. Is there any other thing pulling it down. And I think that part, I'm trying to address very clearly in this call right now.What I'm also giving you confidence on that with our plan for margin expansion and the unit economics in every market and geography, in every business unit, including YouAppi, the most recently acquired one, we will derive consolidated acquisitive synergies. We will do margin expansion and I am confident that we will deliver PAT growth of over 20% this year. In terms of how much will we grow in developed markets in terms of revenue, I think it should be a healthy outlook, but I will give you a quantified response on it when I give you Q2 results and the earnings. Is that fair?
[Operator Instructions] We move to our next question. That is from the line of [ Mohana Kumar ], who is an investor.
Congrats on executing on the plan that we had mentioned during the last earnings call. It's definitely encouraging to see that things are picking up in the last couple of months. Just put some context with respect to the turnaround that we're seeing in the international market. So is that with respect to last year the U.S. [Technical Difficulty] we spoke about this a lot. I'm just trying to get a sense of is there any plans of expanding into other developed markets or are we just largely focused on the U.S?
See, U.S. is the largest market in the world for digital advertising today and will continue to remain so for a long time. And even for us, in terms of developed markets contribution, we believe that if we win that battle front well, we will have a stronger sort of turnaround situation. So, we are focusing on anchoring the turnaround efforts on the U.S. market a lot more. And I think the -- what I mentioned earlier that the current base of revenue in developed markets, the current base of integrated customers in developed markets. And the number of full-time employees that we have in the U.S., this is the highest that we have ever had in the past, okay? And that means that the -- what I'm defining as a rebuilt new foundation is a robust foundation, which has the ability to give us the installation to go and convincingly win more from here. So that to the extent -- do we have plans to enter other developed markets. We already are having some presence in Europe. But our focus would be, for sure, on anchoring around turning the U.S. because I think that's where we will see the highest impact for this financial year.
Ladies and gentlemen, due to time constraint, that was the last question of our question-and-answer session. I would now like to hand the conference over to the management of Affle (India) Limited for closing comments.
Well, thank you, everybody, for today's call. And once again, as I said at the beginning of my commentary earlier that this is a very significant milestone for Affle as a group to have our 4th IPO anniversary. It was on 8th of August that we listed in 2019. I think we have built credibility and consistent performance anchored on the trust and the support that we have got from over 364,000 shareholders. And we are very optimistic about not only meeting our challenges and turning around, but also delivering long-term sustainable profitable cash flow positive growth. While we are also deeply excited about the things that we are doing in the new areas of R&D on responsible integration of generative AI, large language model and so on, there were no questions asked on that today. So, thank you for that. But we will certainly see more happening in that area by the time we have the next earnings call.So stay-tuned and continue to support us, and thank you for supporting us.
Thank you.
Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.