Affle (India) Ltd
NSE:AFFLE
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Affle (India) Ltd
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Ladies and gentlemen, good day, and welcome to Affle (India) Limited Third Quarter and 9 Months Ended FY 2023 Earnings Conference Call hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashwin Mehta from AMBIT Capital. Thank you, and over to you, sir.
Thank you, Michel. Good morning, everyone. On behalf of AMBIT Capital, we welcome you all to the Q3 and 9 months FY '23 Conference Call of Affle (India) Limited. I take this part to welcome the management of Affle (India) limited, represented by Mr. Anuj Kanaha, who is the Managing Director and Chief Executive Officer of the company; and Mr. Kapil Bhutani, who is the Chief Financial and Operations Officer of the company.
Before we begin with discussion, I would like to remind you that some of the statements made in today's conference call may be forward-looking in nature and may involve some risks and uncertainties. Kindly refer to Slide 2 of the company's Q3 earnings presentation for a detailed disclaimer. I now hand it over to Anuj Khanna Sohum for his opening remarks. Thanks, and over to you Anuj.
Thank you. Good morning, everyone, and thank you for joining the call today. I just [indiscernible] you are into health. We achieved robust growth in 9 months FY 2018 to close the period with revenue and PAT almost at par with previous full year. While we care surprise at the previous full year's EBITDA by 4%. We reported this quarter with the highest quarterly revenue and profitability run rate, higher CPCU revenue and [indiscernible] conversions. Sequential revenue growth of 6.1% and a PAT growth of 17.6% quarter-on-quarter in Q3 FY '23. We achieved revenue CAGR of 58.5% in Q3 over the last 3-year period, much ahead of the industry's growth steps.
Our CPCU business noted a strong momentum diving 67.8 million user conversions during the quarter at an INR 51 PTC rate. Overall, our CPCU [indiscernible] increased by 14% year-on-year, CPCU revenues for Q3 increased by 14% year-on-year. [indiscernible] the total revenue growth of 10.8% year-on-year. Our CPCU business continues to be resilient and underline the long-term sustainable business momentum. In terms of the 9 months FY '23, we see revenue growth of 40.6% year-on-year, PAT growth of 40% year-on-year, and this growth was largely well balanced across the 3 quarters.
Now despite the ongoing global headwinds that have clearly impacted businesses globally, our strong [indiscernible] on India and other global emerging markets has enabled us to perform well. Our growth for India and global emerging markets was approximately 23% year-on-year. [indiscernible] CPCU business model and focus erection on higher profitability and productivity underpinned our margin expansion on both quarter-on-quarter and year-on-year basis. However, macro headwinds continues to impact our business in developed markets in U.S. and in Europe. I've also guided in the previous call, to mitigate this short-term impact in developed markets, we realigned our execution strategy and operating resources to focus on improving our platform level pricing and profitability as well as maximizing our [indiscernible]. We are consistently holding our ground on quality of revenue, CPCU pricing and our market position of being a high ROI verticalized business for the advertisers.
We are focused on driving [indiscernible] for our customers, growing significantly more for us -- from [indiscernible] strategy. We delivered a broad deal to growth across our top industry where the is in category C, F, G and H., because strengthened our board and our direct customer contribution stood at 71.8% of our revenue in 9 months for FY 3 2023. Our trend of delivering release, consumer experiences, we have in total are in in our earnings presentation over the last [ 6 ] quarters. These were focused on some hockey industry verticals, including e-commerce, [indiscernible] maintain [indiscernible] and so on. [indiscernible] on our hearing, our happy customers success store, this time, we have included 3 unique state studies focused on, the first 1 being [indiscernible] in India, driving greater consumer adoption for online transactions in. And where we delivered 2.3x quarter-on-quarter growth in convergence.
The second [indiscernible] is banking app, a bank [indiscernible] app in Indonesia, again, focused on growing the ease for retention financial services. Content distinction by going to [ 2.5% ] quarter-on-quarter [indiscernible]. Now what I'm pinpoint these studies, what we indicate to you is that these are actually supported by either traditional large polometer-owning and getting into visits or additional financial services like banking and essential services getting into greater consumer adoption on visible. -- and therefore, the letting or more dependent for such customers on the new funding or venture capital funding or what's happening with products. The third case study that we shared here is of saturation which is for [indiscernible] gaming. And this is a very fast going and closely resilient where it was why do we segregate including the U.S.
Now for that [indiscernible], we delivered 1.5 million user conversions in the last quarter and brought them to be the #1 app in the Android App Store in the U.S. So I think these are very important sort of qualitative indicators of what asset is focused on and how we are building our trajectory for greater growth and possibilities not only in [indiscernible], but also finding those [indiscernible] verticals in developed markets where we can accelerate and create a high-margin [indiscernible] sustainable growth possibility.
We definitely remain confident of the long-term business prospects, and we continue to invest in our organic growth operations to drive sustainable growth. We are also actively evaluating inorganic opportunities with calibrated focus on higher bottom line growth for FY 2023 and beyond, with greater emphasis on high-growth industry verticals. And so our strategy is absolutely clear, it is looking at high growth but also sustainable bottom line expenses, and that's something that the leveraged about very clearly, not just organic growth side, but also, given these market situation people, we can apply inorganic growth without compromising on the margin extraction even within the first year of a possibility. Apple continues to also be recognized as an industry portend a [indiscernible]
We were awarded the momentum leader for the demand-type platform and were included in the high-performance categories [indiscernible] Report 2020. Recently, our platform is also 7 more awards, including awards India 2012 as well as the Board and the Model Award 2022 organized by [indiscernible]. So with that, I now hand over our discussion to our CFO, Kapil Bhutani to discuss the financials. Thank you, and over to you, Kapil.
Thank you, Anuj. So wishing everyone a good day. and hope all of you are keeping safe as well. Continuing our growth momentum, quarter 3 revenues stood at INR 3,761 crores, that is INR 3,761 million, a growth of 6.1% quarter-on-quarter and 10.8% year-on-year. We had a significant group revenue growth of over 10% in India and emerging markets on a sequential basis and approximately 23% growth year-on-year. Except for the developed markets, which [indiscernible] had a lower contribution for us on a consolidated basis, our business across global emerging markets remains resilient with an overall bottom line growth momentum and margin expansion.
Our 9-month revenue stood at INR 10,781 million, which is INR 1,078 crores, robust 40.6% year-on-year. We recorded highest quarterly EBITDA of [ $804 million, ] which is INR 80.4 crores which was higher 21.4% of our revenue, an increase of 11.1% quarter-on-quarter and 18.7% year-on-year. In terms of OpEx, inventory and data cost was at 60.7% of our revenue from operations in Q3, an expansion of 138 basis points sequentially, driven by our conscious effort of focusing on higher-margin revenue. Our employee benefit expenses for the quarter increased sequentially by around 4% based on appraisals [indiscernible] and as a percent of revenue, in line with our previous quarters. Our normalized profit after tax for quarter 3 FY '23 was 690 million crores an increase of 17.6% quarter-on-quarter and 14.8% year-on-year. Normalized pad for 9 months FY '23 stood at $1,829 million, that is INR 189 crores an increase of 40% year-on-year. Please refer to on Slide 4 and 5 of the earnings presentation.
Our effective tax rate is slightly higher this quarter as it is inching towards long-term higher tax rates on account of lower deferred tax assets of acquired businesses. We remain focused on working capital management, and our cash from operations and collection efforts have been robust. We have an extremely prudent customer profile. And, as such, there are no material changes in our collection risk. Affle is very diversified with regards to markets served, tech use cases platforms, customers, publishers and has reasonable cash in hand. We remain confident of long-term business prospects to invest further in our business and stand committed to deliver long-term sustainable growth.
With this, I end the presentation. And let's please open the floor for questions.
[Operator Instructions].
I'll go ahead with 1 question for Anuj. Anuj, in international markets, especially U.S. has been a track for us. What are we seeing from a customer decision-making perspective? How close do you think are we to bottoming out? Then given our smaller scale and capabilities, where do you see the opportunities to outperform this market?
Thanks for that question. And I think it's very important for all our stakeholders to understand that Affle is not only anchored [indiscernible] on India, but also as global emerging markets contributing, together with India, almost 80% of our revenues. So the just the developed markets contribution is smaller for us, and our presence in developed market is also relatively small, right? So -- but those are very large addressable markets. So even though those markets are feeling the headwinds at the moment, we are relatively small. I mean, we have a few customers there, a few word [indiscernible], and if those customers are holding back budgets or anything like that we will see some of those headwinds impacted, which helped the case we are, in fact, quantified it for H1 this year. And clearly, we can see that we grew 23% in India and global emerging markets. So clearly, the developed markets were not doing so fantastically for this quarter.
But I think the outlook for 2023, calendar year '23 and FY 2024 is quite positive, in my opinion. And the reason why it is positive is because 1 I just came back from the U.S. in fact, I'm not yet over from jet lag. And and I have looked at what's happening in that market and more from an internal perspective, right? I mean you can say how much of this loss was -- or the slowdown in headwinds attributed to external factors? What else can we do in generally? What can we calibrate so that we can accelerate faster, more sharply ahead in some of the verticals? And I found certain areas where I know these are low-hanging fruits. We do these 3, 4 things right in the next few months or quarters, and we'll start seeing a more broad-based growth arising because our base is very small in developed markets. And the addressable market is still very nice. So I think yes, external factors are there and they have impacted us. But let's say, we're well geared up, and I know very clear action plan that we need to do over there. And let's see how it turns out.
But I have a feeling that within the next couple of quarters, we will turn the situation around. And it should be easy for us because of what we mentioned, with a differentiated proposition, we know what we need to, we just need to execute to the new ground realities, and I think we're calibrating well towards it.
Just 1 follow-up. So we also saw the margins in the international markets go up despite revenues being flattish for us. So from an investment perspective, to tap these opportunities, how are we looking at that?
it's counterintuitive. And when you think that there are headwinds, a lot of times people would say, okay, to go ahead, we need to drop our pricing or [indiscernible] a lot of people things like that. When revenue is not coming easily, one very straight reaction is that, okay, let's do something like that. In Effle's case, in fact, we follow a very contrarian strategy. In fact, I've been commenting on that quite deeply before as well. I said look, we focus on profitability. We focus on margin expansion. I mean when the headwind is already there, there is only so much that you can drive forward, but at least make sure that how much ever we try, we maximize and strengthen our moat and our position, right, hold our ground well.
Now what we did in this time is that we told our sales team and our customers that, look, the number of conversions that we are bringing into the market are quality, deep funnel consumer convergence. Now -- and there are enough [indiscernible] for it, okay? So there's -- we were not going for volume. We were not saying that, hey, give me a volume budget or I want to get INR 400 crores of revenue in this quarter. There was no emphasis on volume of revenue. It was only quality of revenue. Pricing is held. We knew we had enough quality conversions to sell. And we knew we had enough advertisers to give us a good price for the budget. We have conviction in that. We held our ground. We get that focus. And we said, look, we have on this many conversions then you take it. If you cannot pay the price, don't worry, some -- we have any other advertisers that were taken, right? So we are able to hold our ground, so we're able to hold our pricing.
If you see the contribution of India versus international, almost 65%, 35%, right, in favor of international. The CPCU rate typically would have seen some fluctuations. But in our case, we have been able to actually improve our CPCU rate in this time. which is counterintuitive, right? I mean saying that most people would think that recession or these kind of headwinds would mean pricing comes down. But if you emphasize on quality, and you put the scarcity premium you say that we have enough advertisers to buy, and I'm not looking for volume, right? I was not pushing for, "Hey, give me another few million dollars of budget." We were not scrambling like that.
Given that context, we were able to hold our pricing, actually improve our pricing. And that has reflected in the margins, not only in international, but also in emerging markets internationally as well as in India. So that strategy has actually helped us, and we are able to hold our ground and not commoditize. So when the markets actually improve, I mean, [indiscernible] we should be able to definitely defend our pricing and margin there if you are able to defend it in these tough times. So with that philosophy, I think it has held us in good stead.
Operator, can we take the questions?
[Operator Instructions] We have the next question from the line of Abhishek Bandari from Nomura Capital.
Anuj, I just had 1 small question on your non-CPCU business. While it is not material, but that part of the business seems to be declining, maybe at least for the last 2 quarters. Historically, it has grown at a pace lower than CPCU given our focus. But if you could clarify what's happening on that part of the business?
And also can I collaborate that the increase in margin also has to do with a falling contribution of non-CPCU?
I think the -- like we qualified question, first of all, it's not material the CPCU business is bulk of our business. And it's very natural that when times are tough, selling is hard, you sell what you can sell at the best price and margins, you go out there and make that happen. I think the CPCU business is clearly resilient. I mean we want to anchor ourselves as a differentiated business model, ROI-driven, verticalized for advertisers, going deeper funnel verticalized, higher-value conversions and so on and so forth. So I think the the emphasis is clear, and you work [indiscernible] when him gets up, I guess you work on your strength rather than on your areas of let's say, opportunity only, right? So I think we're maximizing on our strength.
And the non-CPCU business continues to remain a great opportunity for massive expansion going forward, whether it's online to offline conversion, whether it is driving new use cases or even platform as a service, like coming out with those kind of self-serve mechanisms of licensing or enabling technology, but there are many opportunities there for us. And those opportunities continue to remain as long term. But I think in these situations, we had to choose and say that, look, we have this much execution bandwidth and let's maximize on where we can extract our greater profitability, better pricing and so on. I think the system execution shows. I don't think you should be in dot is the opportunity of non-CPCU more shrinking. I don't think that's the correct way to look at it.
[indiscernible] Any further questions?
No, I'm done.
The next question is from the line of Mayank Babla from Dalal Asset Management Company.
My first question is regarding the growth in the quarter, specifically in Q3. So 11% Y-o-Y growth is much, much better than the sort of 25% annual growth that you are foreseeing in this industry, specifically in the CPCU business. So what is attributing to this lower growth? I mean, even though we have a higher exposure to India and emerging markets and lower to the developer, so has there been any delayed decision-making in the clients and or if you could give -- throw some light on this.
All right. So actually, I'd earlier tried to answer this question already in terms of the mix of growth, right? So when we look at Atlas business, maybe let's see it as 3 buckets: 1 India, where we grew approximately 23% in other global emerging markets, where, combined with India also, the growth is in the similar range of 23% year-on-year. And then developed market, where -- so 80% of our business, which is India and other global emerging markets have actually shown a reasonable consistency in terms of its long-term growth trend, which is -- which is what you were talking about, the 25%.
I think it's within that range given a [indiscernible] a larger base in Q3 last year because [indiscernible] season didn't have the headwinds as strongly as the [indiscernible] in this time has it. So it's not exactly comparable. But even with that, delivering 23% growth in India and other global emerging markets, I think -- I would take it as a great performance, very happy with our team's focus on emerging markets.
Now going to developed markets. Clearly, we saw that in the developed markets, there was a contraction and the contraction is on a small base. We have a small base of customers there. And if some of those customers, who are existing customers, are holding bank buckets or stopping some activity for some time, then there is obviously an impact. And we saw an impact in the developed market, largely localized into a few verticals of key customer [indiscernible] U.S. and Europe. Now is that something to become nervous about with respect to the 2023 or FY 2024? The answer is no. As I just mentioned earlier, I just come back from the trip to the U.S. and I'm in touch with the ground realities. And I know that how we can do certain improvements in our execution with internal optimization as well as -- because our base is small. As we win a few more customers and broaden that base because the addressable market is very, very large, even if that market is having headwinds and economic.
Ladies and gentlemen, the line of Mr. Anuj Khanna Sohum has been disconnected. Kindly connected while we try to reconnect them.
Ladies and gentlemen, thank you for your patience. The line for Mr. Anuj Khanna Sohum has been connected. Over to you, sir.
Sorry for that interruption. So if was just saying that the developed market, the addressable market is still large, and all we will do is have a smarter execution strategy. There are certain emerging verticals where we believe that we'll continue to find resilient budgets and growth in our [indiscernible], which will help us to win more customers. So we have our action plans in place, and I'm reasonably confident that we show meaningful results in the next couple of quarters.
So I mean, the way to look at it is like 80% of the business is absolutely on track. Yes, in U.S. and Europe markets, there is some contraction. And I think we are having action plans to neutralize that going forward. I hope that answers your question?
Yes, yes, that does. And my second question is 2 Kapil, sir, regarding the margin. So great execution on margins, congratulations. Just if you could -- if we could attribute this to, say, good execution in the acquisitions like Jampp? Or this is purely out of better cost control in the first well organic business, if you could explain that, please?
So the margins are overall -- have been improved under the strategy to work with the clients to improve our CPCU business, which is -- which has a higher margin profile as well as we have been focusing on customers that Anuj just said that we have been prioritizing the conversions to customers who are paying better to us and where we can command a better CPCU rate. So it has been a cautious strategy to improve our margins in this quarter.
Sure. And, Ajuj you giving out still what sort of margins Jampp doing or we can take it off line?
So generally, the -- if you see the profile, overall, we have increased our margin by [ 1.4%. ] That is 138 basis points. And if you see the breakup, India is under 100 basis point and versus the world is over 100 basis points, right? So there is clear synergies coming in from the markets, which are facing -- on the margin, which are facing headwinds, and we have been trying to work on the CPCU rates to hold on to margins and improve our performance on the margins. So the focus has been on bottom line margins in this quarter.
The next question is from the line of Anik Mittal from InvestorForce.
Hello, am I audible.
Yes. Please proceed.
You are.
Okay. My first question is can you spend some 2 minutes on explaining company structure as a whole? What I'm asking about is the organizational structure as a whole did as well as subsidiaries [indiscernible].
Company structure, I hope I understand your question correctly. We are a listed company in India, and we have subsidiaries around the world. We have [indiscernible] subsidiaries in Singapore, which is happening international 100% [indiscernible]. And all other subsidiaries are 100% owned, except for, I think, [indiscernible] Singapore, will give a minority ownership where is definitely ease agreement to buy the rest from the promoters who joined our company through the acquisition. Yes. So I think the company's structure is to be answered like that. Is there any specific questions that you have around it, which you would like us to elaborate on? Otherwise, it's -- basically, the Indian company has all the global business under it. The -- and it has subsidiaries internationally, which are 100% owned or to be 100% owned.
Basically, I wanted to understand the relationship of parent and subsidiary, PS structure? Parent [indiscernible] holding company.
Your holding company.
Your holding company -- what I'm asking about is.
[indiscernible] You are talking about the [indiscernible] in Singapore?
Correct. Correct.
I think the line is not there at all. And I'm not sure if you're asking about [indiscernible].
I will request that the structural question on it, this is focused on an earnings presentation. Can we take this offline?
Focus on this quarter's earnings and if you have any [indiscernible].
[indiscernible]
Ms. [indiscernible], may we request you to please rejoin the queue. Your voice is not clear, Ma'am.
Ma'am, Just 1 question, If I can proceed.
Okay, proceed.
Company is not seeing any dividend [indiscernible] growing at more than 35% in top line. So what is the company's rationale for not distributing the divide?
We are a fast-growing company. Yes. I'll let what you have, Kapil. We are a fast-growing company, and it is imperative for us to look at the capital allocation with respect to how we're creating value for the shareholders in the long term. And we are always deliberating -- we're not close to any possibility. And at the right time, we'll take the right decision as the Board of Directors looking at it from how to maximize value for the shareholders. If applying that capital for organic and organic growth is the way to create greater value for the shareholders. We would do that with prudence with the careful calibration and in a very bottom line sensible way, making sure that we are always capital efficient. And if we have surplus capital, which is not needed to fund the organic and inorganic growth plans of the company, we would certainly distribute dividend in that scenario. So that's how I would like to answer it. Kapil, if you have anything more, you can please add on?
Yes. Just wanted 1 man point. We have been -- we have stated this at our road shows at the time of listing that the company has made a policy that, for the first 5-year listing, we will not be distributing for the dividends. And we will focus on growth and deploying capital for growth.
The next question is from the line of Arya Sen from Franklin Templeton.
Opportunity. I just wanted to check, last quarter, you had given a guidance of 10% -- 10% growth on second half versus first half. Now based on these numbers, in order to achieve that, I think you will have to show Q-o-Q growth next quarter as well. So any update on that guidance? Or are you sticking to it or any clarity on that?
Yes. I think the guidance has largely held us in good stead with respect to, let's say, India as well as other emerging markets where the growth has been significant from even sequential basis, the trend lines have been meaningful. And even if you look at it from a CPCU business perspective, I think we have shown quite a good resilient growth. And therefore, I think the -- it was not really a guidance guidance because we don't really go into that specific, but I think it was more an industry outlook, which I had answered that I expect that the industry should deliver that kind of an outcome for an overall scenario. And in our case, more specifically, I think, as I said earlier to some of the other stakeholders who were asking questions that we were not really pushing for top line maximization. Like let's say, if there was a campaign coming in and advertiser giving us a campaign for, I don't know, $20,000 at a lower CPCU rate, and in some cases, we would -- in some quarters, we actually take up those campaigns, and we say, okay, we will bring the advertiser up along the way.
Like -- so you can have like a few million dollars worth of campaigns, which are maybe not as high margin or a high value in terms of pricing, but we take it and we say, okay, we'll pull them up along the way. I think in this particular quarter, our emphasis was very clear on productivity, on pricing, on profitability. And in many of those cases, we were so step about it, but no, I think we are not going to compromise on this. And it was completely okay to not have that kind of revenue, yes.
Also because some of the smaller, I don't know, campaigns or customers, there could be later quality of revenue connection kind of thing. So we just want to make sure that we're working with our larger customers, larger accounts, which will be resilient, more profitable, better pricing and better volume. And that's how we chose to execute. I hope that is consistent with what you heard from us before?
Sure. So I mean, just to clarify, I mean, typically, we have seen a sequential decline in the March quarter. So most likely, that is likely to remain, right? There's no reason to believe that this time would be any different?
I think there is -- it should be more flattish than -- I mean I think that's the kind of decline you'll see. And the reason for that decline used to be not because there's something wrong in Q4. I think it was always because Q3 was where the advertisers have exhausted most of the budgets. Now when the festive season has headwinds in front of it and economic recession clouds on top of it, the advertisers are also more like balancing and flattening it out just to spend a little bit more in Q3. But typically, I think in this case, we will see a more balanced Q3 to Q4 versus usual kind of thing and that's because the Q3 was not as exhaustive in terms of the advertiser spend. So I think Q3 to Q4 should be more flattish than otherwise.
Sure, sure. And on the outlook for India and EMS, which are continuing to do quite well, what's the outlook there? Are you seeing any further -- I mean any improvement there? Or is it sort of continues to be similar? Or can there be a risk there next year? So what's the outlook on that part?
I can give you 1 thing. From a competitive mode standpoint, Effle is very strong in a happy place. A lot of our competitors, big ones, small ones, first of all, they're not calibrated on India and emerging markets. So they are in developed markets where the headwinds are stronger and the business conditions are harsher at the moment. So our competition is getting weaker.
In terms of India and emerging markets, our competitive moat is actually quite strong. And I am I -- have no reason to believe that what we have delivered in 2022, we should be able to at least deliver that kind of growth and hopefully a much better as we go on and execute in 2023, I mean in terms of calendar year.
And so I am I mean given the [indiscernible] situation, nobody wants to hear an absolutely unqualified bullish statement. But if I could make one, I would say, India and emerging markets will hold us in good stead. And if we get our act together with some of the execution plans that I have put in place after my region visit to the U.S. at least, I think we should be doing -- we will be surprising our stakeholders with the resilient continued growth performance going forward.
The next question is from the line of Dana from ASK Investment Managers.
Am I audible?
Yes. Go ahead, please.
Is it possible to share the breakup of the converted users between India and outside India for this quarter and last year?
I wish it all. It's not at the moment because we believe it's competitively sensitive information to reveal our CPCU average pricing for India as well as other markets. Having said that, I think qualitatively speaking, I can tell you that India is 1 of the most difficult markets in terms of unit economics and the fact that we are running successfully the bottom line, good margins and sustainable growth performance. it should give you a lot of confidence that if active capabilities over these years can do well in India, then it is able to do better in other emerging markets like Indonesia, Africa or other Southeast Asian emerging markets and then followed into [indiscernible]. And I think this is a good thing because the CPCU pricing is better in other emerging markets than it is India. And then, of course, in developed markets, it's multiple times better. So overall, I can give you this level of detail and insight at the moment. And as and when we feel that we are competitively safe enough to reveal more details about our pricing across markets and verticals, we will definitely keep you informed.
Sure, sir. And just a follow-up on that. Based on your previous commentary, so pricing was the sole reason why our CPCU rates have remained flattish on a year-on-year basis despite the skew increasing towards the Indian geography, is rising the sole reason for that, better pricing?
See, when our revenue used to be a 50-50.
Sir, we are not able to hear you. Mr. Anuj Khanna, we are not able to hear you.
just check if he is on the call or not.
He's connected so, but we are not able to hear him. Sir, do you want to...
Can you dial him again?
Yes, sir. I'll do that. So in the meanwhile, do you want to take this question?
Sorry, can you hear me. I am still speaking. What happened?
Yes, -- we were not able to hear you. kind continue now. We can hear you clearly now.
Okay. All right. I'm not sure what the reason was -- so basically, what I was saying is that even in these times, we are able to make sure that we can keep our pricing impact and still deliver meaningful growth across India and emerging markets because it was linked to pricing. And even in the past, I think India versus international, I think we have shown how the CPC has progressed with the mix of business.
The next question is from the line of Hitesh Malla from Stemberg India Advisors.
Am I audible, all right?
Yes.
I just had 1 question for you. I wanted to get your view on the recent updates to the Google Play policy for India. How do you think it will impact the industry as a whole? And how should we quantify the potential benefit to happen given your strong OEM relationships?
Yes. Thanks for that question. I think this is super important for the ecosystem in all emerging markets around the world. Can you still hear me well? I'm just getting a very low network for some reason. Hello?
Yes, we can gear you.
Okay. Great. So yes, I think it's very important for the industry to have a fair playing field for -- especially when we have ecosystem players that can have disproportionate control. And they are the empire of the [indiscernible], and they're also playing the math, right? And I think in those kind of situations in any industry, it is important to have some balancing factors coming in. And so we are quite happy to see that the Indian ecosystem is standing out towards that.
Having said that, I think we will have a playbook. I mean they have seen this across many geographies. And it will be an ongoing process. It's not going to be as simple as that, but there is a certain order that has [indiscernible]. I think it's too early to take sizes or if we start celebrating 1 way or the other. I think it's going to be a long drawn process. But the end goal of [indiscernible] efficient marketplace or a business dynamic or a healthy business to happen is to have a fair balance in the playing field. And I think that's a good thing for the industry. And for us, as Affle, I think we were able to negotiate our growth quite well when rule was dominating [indiscernible]. And now that they are being checked, I think it should still be a meaningful play for us.
So I'm not -- I'm not calibrating my business plans around what happens to Google. I mean, independent of whether they are kept in check or they are not, I think Apple has a resilient growth plan. But other than that, for an overall ecosystem level, I'm actually quite happy to see what's happening in 1 step at a time, but a long, long way to go.
Understood. And just a quick follow-up on that. Is it possible to give us some rough idea of the scale of your OEM business? How big would that be with respect to the overall company?
I'm not at liberty to give that breakup at the moment, but I can tell you that one of the clear areas of emphasis is how do we maximize ecosystem level strategic partnerships, right? So we talk about our strategies. And typically, we talk a lot more about the 2 was in the Affle 2.0 strategy. the 2 deals is verticalization as well as both for advertisers and the industry sort of level and vernacular. But then we also talked about the [indiscernible], which is operators and OEM partnerships and so on. We think that the operators and OEMs are very important phase in the ecosystem, and that we can absolutely partner with them and aid them to navigate to this journey. And then we would treat them more like a publisher partner with whom we can gain symbiotic relationship in the ecosystem. So we see a lot of value in that collaboration across emerging markets specialty and also actually in developed markets progress. But can I quantify that and give that you right away? No. But it's Appnext on area of consistent growth and value add for us.
The next question is from the line of Arun Prasath from Spark. The current participant has left the queue.
We go to the next question, which is from the line of Rahul Jain from Dolat Capital.
Just to have a same terms your comment regarding this [indiscernible] India and emerging growing at 23%. If I do my basic math, it implies that there's a 20% kind of a decline in the international developing market. So first, a clarification on that aspect? Conversation is suggesting to...
Give something there. I think the analogy that you have been to some of the people. The growth that we are seeing for our business in India is also consistent with the growth that we are seeing up to almost [indiscernible] percentage is almost uncanny how similarly India and the global emerging markets is behaving for us, right? Where we are seeing almost 23% year-on-year growth. And then the terminology used is that other developed market, international [indiscernible] like U.S. and Europe in that, where we have a smaller base, smaller base of customers, and it's a very large addressable market. Now when you have, let's say, [indiscernible], let's say 20 customers or 30 customers in the U.S. market specifically, and if [indiscernible] budgets, you would see a certain contraction. And that's what we have seen. And we have actually quantified that for H1 in our previous earnings call that if not for that, you would have delivered even more fantastic outcomes. I think that's how we are [indiscernible].
Sorry to interrupt, sir, we couldn't hear your last line. Your voice is fluctuating, and it wasn't clear. Can you repeat your last line, sir?
No, I was able to get through so that's fine.
[indiscernible] I'm seeing a full network here. I'm not sure when you're able to hear and when you're not.
Charter, I'll let you know, sir. Sir, please continue.
Secondly, I think all set that rule Yes. Yes. Go ahead, please.
Sorry. So secondly, full part of my question. With the kind of growth that you're seeing in different markets and the kind of mix you may have, -- is there a new aspirational margin that we should keep in our mind now? Or is there a number that we should change specific?
Look, I think we -- we should definitely look at Aspen as a company that is not only looking for a certain healthy level of growth, right? But for us, growth comes almost in the same breath with margin expansion with sensible bottom line execution. And we don't limit ourselves is EBITDA and PAT. I think we are very granularly focused on cash flows, and we have shown that consistently as a company. So -- and this is -- I mean -- and this is not something that has become new to us because we have gone public and because of the market dynamics.
For the last 10 years, this is the DNA of our company. We have always grown like that. We've been capital efficient. We have been cash flow efficient. We have been bottom line and hit and so on and so forth. Now one of the things that we have always done in the -- at least in the last 3 years, is that we have done inorganic growth, and we have gone and bought those companies, which were breaking even and their average is down in terms of our margins. right? And now we've reached a level where we are at a 20% plus in terms of EBITDA, 17% odd impact. And I think that's a very healthy place to be. Now of course, as we continue to scale up, we are a asset-light business model. Revenues would hopefully grow and continue to grow. Cost will also grow, but but not go as much, and therefore, there should be margin expansion on a consistent basis. And also to give you a better sense of risk is where we are saying that if we do any M&A now, and we are in discussions, which have already -- there's no secret anymore that we are actively in the market. We think in 2023, we will find the right pricing to buy already meaningfully profitable companies, which we then can unlock greater growth risk for them and for us, as a combined strategic unit. And we don't think that now onwards when we do M&A it in 2023, that should not average us down in terms of our margins, right? So yes, it is reasonable to see us defending our margin position over time and expanding it. So if we take a 2- to 3-year view to this I'm reasonably confident that there is enough merit in our business to defend and expand the margin step at a time. Can I give you a number right now? Can you spare me [indiscernible] granularity?
No, no, this is good enough.
The next question is from the line of Karan Taurani from Elara Capital.
Two questions from my side. One is any kind of shift within the business models or the offerings that you have. So I think the growth in the last 2 to 3 years has been driven by lot of these companies going for customer acquisition, and that's 1 of your larger revenue contributors, right, in terms of getting more users for a particular app.
The second 1 is, of course, increasing frequency for the existing user -- so any kind of shift that you've seen, right, from just about customer addition towards an increase in frequency? And what kind of an impact this has on your margins or your revenue growth?
I think the -- at least in emerging markets, the emphasis is very clear for us, and the emphasis is on new users, new customer acquisition. And that is true because the demand from the advertisers is always going to be to get to the next $100 million, the next 200 million that are coming in India and other global emerging markets around the world, right? So you can see in the case studies that we also share consistently, I mean, they're looking for more user acquisition. They're looking for more mind share and more market share and expansion, and new entrants are coming in, right? A lot of traditional companies, which are -- so on one side, people are looking at, okay, the start-ups and the funding and all that kind of situation. But how many large traditional conglomerate, so every other business, which is out there is going digital.
And when they go digital, and if they are consumer-focused, they need that reach, right, how do we get them? Even larger established digital companies, I would say, let's say, even Google, Facebook, Apple or any of -- Amazon, I mean, all of these companies who have tons of technology and digital capabilities and data insight, even when they come to emerging markets and they want to get to the next 200 million people, they also need to do digital advertising. So I think, for us, there is enough big budgets to expect from enough large enterprise customers.
At the same time, we are very carefully also picking on those larger let's say, newer age companies that are reasonably well funded, where we know that we can continue to work with them for many years and at least get our collections eventually. So we do a real risk managed. We are working on this, but user acquisition in emerging markets will continue to be a key driver. And the definition of those use cases is also evolving, like from mobile, mobile to off-line, where we go into driving footfall and user acquisitions and transactions and so on. Having said that, in developed markets, we also see an opportunity to help them where the users have already been onboarded for certain customers, but drive repeat conversion...
Ladies and gentlemen, the connection for Mr. Anuj Khanna Sohum has been disconnected. Kindly stay connected while we try to reconnect him.
Ladies and gentlemen, thank you for your patience. The line from Ana has been connected. Over to you, sir.
My sincere apologies, everyone. I'm maybe not sure my network is perfectly fine, but I keep getting dropped out. And I know if I answered the last question well because I kept talking and was this a fair enough answer for you?
Yes. Am I audible.
Yes.
Yes.
Right. So that is fine. So you're getting -- the point we're trying to make is that the dependence on user acquisition remains to be high. Now the next question to follow up on this was that A lot of these companies right now, the commerce companies and the fintech and the gaming and the new age companies. A lot of these companies actually spend a large chunk of the advising money on digital. And I think within digital, they were spending more chunk of ad spends actually coming towards the user acquisition part, which I think is now kind of drop. They are now trying to focus on profitability, which is why they're trying to cut our spend on user acquisition, and they're basically doing more ad spends on [indiscernible] conversion. So just [indiscernible], is there a bigger negative impact for a player like Affle because of these kind of reasons because I think 1 is these new age companies or intent or commerce companies are going to have digit gal ad share of close to 60%, 70%. And when times were good last year, they were spending a big amount of budgets over there.
But what is the broader impact in terms of budget cuts? I understand that 23% growth is what you're expecting the emerging markets and [ ]in the negative impact. But can things go worse from this end?
Sir, when people focus on profitability, as you rightly said, then if -- there are 2 ways to gain the profit. One is that you're getting a repeat conversion from an existing users; and secondly, by getting a new conversion from a new user. Now typically out of these 2 choices, if I tell you, I'll get you INR 10 of sales from your existing customer, and I get to INR 10 of sales from a new customer, which 1 would you prefer? It is easier, I'm telling you to sell that, okay, I want the revenue from the new customer because the existing one, I might anyways get this month or next month. But the new customer, I don't want to lose it to competition.
Now as far as Affle business model is concerned, it is ROI linked for the advertiser. It is a no-brainer for the advertisers to work with Apple to drive conversions. Now Affle also delivers conversions for existing user conversions. It's part that we. [indiscernible] it's not that Apple's preference is that because my product only -- it's not like that. My product works for all the use case scenarios, new user conversion, repeat user conversion, online to offline conversion, connected TV conversions. We are -- our technology stack is allowing us to go deep as well as wide.
What I was telling you was that this is the advertiser sentiment. And then you are right that the advertiser is focused on more profitability and ROI. So they are being more careful with where they are spending their digital budgets. And the want, give me ROI otherwise, I'm not going to spend. That is helping us more and more because we are cost per converted user ROI linked business model, whether it is a conversion from a new user first time or a repeat user online second time, or whether it is online to offline conversion from a new or repeat, all 3 use cases, Affle has been supporting prior to our going public, and we continue to support those
I was only telling you where the industry trend is still and not whether Effle is more on this side and less on that side. Effle is able to address all of those use cases. If my customer wants to spend 80% budget on repeat, I can do that. If they want to spend 80% of user acquisition, I can do that. And I was giving you my outlook that the advertisers are still spending and saying, "Hey, Effle, if you can get me that conversion from a used user, please get that first. If you can't get it from a new user, okay, fine, let's get it from a repeat user also.
Right. And what are the kind of margins -- I mean, how margins are different for both these segments [indiscernible] as a company?
I think for us, we are reasonably balanced on that. I think it's not dramatically different in terms of margin because [indiscernible] -- I mean, technically, I have a chance of charging more for new user acquisition, right? But while it is a new user for the advertiser who has got the conversion for Apple platform, working across thousands of advertiser apps promoted with us, chances are that user has already converted with through Apple platform before. So actually, technically, if you think about it, everything that Effle might be doing is a repeat conversion, right? I mean, from an Apple platform perspective, but for a certain advertisers, it might be a new user. Does that make any sense?
Yes. Yes. Just 1 more thing under....
I'm sorry to interrupt, sir. I would request you to rejoin the queue, sir. There are many other participants waiting in the line. The next question is from the line of Arun Prasad from vendor.
Thank you for the opportunity. My line got earlier. I just wanted to get a clarification. We say that we have very less base from the developed markets. We are mostly towards the emerging markets nationally also. So it's still then puzzling that our international business has grown only by around 6 percentage on a Y-o-Y basis. So can you just give us outlook qualitatively on the each country in which operating under the international portfolio, how it is there, and how they have performed and what is the kind of outlook that you were expecting in calendar year?
All right. Sure. I can explain it again. So you can look at our business as India contributing 30% to 35% of our revenue. You can then look at other global emerging markets, let's call them EMs, contributing another, let's say, 45% or so of our revenue, 45% to 50%. And then we can say, developed markets, DMs, contributing roughly approximately 20% of our revenue. Now, therefore, India and emerging markets is approximately 80% of our revenue, right? On that, we are delivering consistent growth. Now India is India, as you know, is already 23%. What are in the other emerging markets you're talking about? We are talking about countries like Indonesia, we're talking about countries like Thailand, Malaysia, [indiscernible], Vietnam and so on Southeast Asia, Africa and emerging markets as well as Latin American markets.
When we look at emerging markets on a broad basis like that, and [indiscernible] the growth is actually [indiscernible] in tandem with how we are seeing India's growth. In developed markets where we have a smaller base. So when you say international, right? For international, for us, then becomes 65%, of which around 45% is emerging markets and 20% is developed markets.
If the developed markets see a contraction and the emerging markets see a 23% growth, they are neutralizing each other, net-net, we are still growing, right? But with margin expansion, with pricing being defended, and therefore, you are seeing a much more positive outcome for our company in terms of how we have performed in the last year. Because from a bottom line perspective, we have seen margin expansion. From a top line growth perspective, we have continued to see strong resilient growth in 80% of our business. And where there is impact, we have a clear action plan with a very hands-on clear leadership on the ground to go and execute and solve it.
So this is how we see it. And in developed markets, our base is small. The contribution of developed markets to us is small, but the addressable market is very large. Even if that market is shrinking next year or next 2 years, it is still a very large addressable market for a small base. We need to execute into that market to find our growth, and we will certainly give you updates on that in the next couple of quarters and how we are [indiscernible].
Just to get clarified. You are saying that out of the -- your international pack, the emerging markets continue to grow at 20%. And because the developed markets are kind of decline, so that's how the weighted average number 6% is is coming. Is this what I'm hearing?
That is absolutely right. And when you look at developed markets is contracting, you have to see it on a small base, few customers, and some of those customers have held back their spend or their budget because of the economic factors that we are seeing, and therefore -- I mean, it's not something that I am losing my sleep over. If I was, I would have sensitized our investors about it.
The next question is from the line of Anmol Garg from DAM Capital.
Two questions. Firstly, so our data inventory cost as a percentage of revenue have reduced somewhat drastically in the last couple of quarters. So any particular reason for the same? And also, what can be a sustainable number that we can expect from our data and inventory costs. Can it remain in the [ 16% ] range or it can go downwards further? Yes, that's our first question.
Well, thanks for that question. I think the way you have to look at it is that the ratio of data and inventory to the revenue is actually anchored out of the fact that we are able to command a more meaningful pricing with respect to the CPCU rates, one. And on the data and inventory costs, of course, we are not allowing that to go up. So I think the incremental benefit of the CPCU rate pricing and making sure efficiencies that the data and inventory cost has helped us. Secondly, we have focused on quality revenue, which Kapil also mentioned that certain advertisers, if they are -- they come in with smaller budget, smaller rates, and in terms of in an expansionary mindset, one would say, okay, let's take it on, and we will slowly scale them up and improve the pricing as we go along.
In the current state of mind, we didn't want to compromise pricing. We took a very stiff call in terms of execution, and therefore, we would say no to some of that. And when that happens, you will see margin expansion as well.
In terms of any guidance on that going forward, I think the -- I would say that look at -- from a modeling perspective, it would be somewhere within that range. I'm not suggesting that please go and see every other quarter, we'll have a few percentage points there. But overall, in terms of, let's say, EBITDA or tax, our goal would be to consistently look for overall margin expansion because whether it is on data and inventory costs or whether it is on OpEx, we expect that should not grow on a combined basis as much as we will grow our revenue. The revenue growth should be at a higher level, and therefore, we will see margin expansion at the bottom line. But can I give you a specific number, state of the [indiscernible] on how to model it? Not exclusively so, but it should be in that range where we are looking at the data inventory cost to be in the 60% plus/minus -- more plus than is in that range, yes.
Just secondly, my question on acquisition. So we were hardly stating that we are looking for acquisition return, which is relatively sizable one. So can you talk a bit more on that? And when can we expect it to close? Also from which geography are we expecting to close this acquisition?
I think it will be maybe taking it too far to maybe reveal our cards on it because I'm sure that those who we are talking to negotiating with are also listening, [indiscernible] listen to our earnings call. I don't want to give them any reason to negotiate better with us. But what I can definitely tell you is that this is a good time for Effle to be a buyer in the market. And we will find very value-driven [indiscernible] appropriate transaction, which will be complementing [indiscernible] with us in 2026. So without giving any reference to clear time line, in terms of transaction size, I can tell you that these transactions would be in the range of -- I mean the kind of transactions that we've already done before. So when we bought Mediasmart, it was relatively smaller, but over we [indiscernible]. And then we bought Appnext, and we had already grown in size and then we bought Jampp. I mean as a proportion to our own size, at that time when we bought these companies, I mean, we are going to look at a similar proportion and scale. So we're not changing the playbook on size or strategic [indiscernible]. The only place where we have clearly communicated that we have changed the playbook is that, instead of after acquiring a breaking even company and waiting for year 1, 2, 3 to turn it to a higher profitability, which we have already done in Mediasmart and Appnext, we are looking at, in 2023 there is a clear
Sir, you are not audible. Anuj, sir you are audible.
Anmol, I can continue. And the answer on that, that we have, in our earlier call, I also mentioned that we are looking at inorganic. And our announcement after the Board meeting in December was also taking back. And we will update as and when the negotiations or we have closed down any thing.
Right.
This is a record-breaking earnings call, I've been kicked out of the call for the fourth time, I think, anyway. Sorry about that, everyone.
The next question is from the line of Najman Isa from Sumitomo Mitsui. I would request Mr. Esa to restrike question to one, please, kindly proceeds, sir. [indiscernible] requested this 1 question.
If you could share a bit more color in terms of the because of change of mix towards slightly less in the basis in that at 50% 2 years ago compared to today, can you share a bit of trend in terms of the acquisition cost side percentage-wise versus the conversion, how much has it come up or is it reduced?
You mean the cost of traffic acquisition or...
Yes. Yes. So I think from my the cost of traffic acquisition [ 3 ] years ago about 60%. I just interested to see how has it trended since then? And also how much change of mix will affect these numbers as well?
Okay. So I think I expect the data and the inventory costs, which is traffic acquisition cost plus the cost of all the processing of data and the cloud computing related to that and so on and so forth to be in that range. I think it will be plus or minus between 60% to 65%. But when we invest more into, let's say, going deeper into rural or trying to calibrate intel around the next sort of frontier of users and markets, we would typically, in some cases, invest more in certain scenarios, you can pull back.
But I think the trends have been quite consistent overall. What I'm also seeing now is that, for the same amount of money that we spent, we are able to listen more, let's say, deeply or widely in terms of connecting with the inventory and the scale because it is no longer just looking at individual specific targeting with looking at more contextual intel. And so when you listen more widely, you build certain deeper contextual capabilities of what's happening across the verticals, across different segments and cohorts of different categories of users. So I think our intel is much broader and wider and it is deeper because of the verticalization strategy that we have. So we can drive more efficiencies as we go along at in. And in many cases, we are also seeing that the first-party data that is coming from our partners where we work with them as a technology partner to deliver outcomes for them is also becoming a very positive trend and that leads to more efficiencies as we go along.
Thank you, sir. As that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
All right. Well, thank you so much for joining the call today. And I wish all of you a very successful rest of the year 2023 and a great financial year 2024 ahead. And I assure you that Apple will continue to deliver resilient and growth-oriented and bottom line sensible performance. and I look forward to having our next conversation in a few months. Thank you.
Thank you, Sir. On behalf of... Yes, sir, please continue.
Thank you, everyone.
On behalf of Ambit Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.