Affle 3i Limited (AFFLE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Affle (India) Limited conference call to discuss Q2 FY '24 earnings, hosted by Elara Securities Private Limited. [Operator Instructions] Please note that the conference is being recorded. I now hand the conference over to Mr. Karan Taurani from Elara Securities Private Limited. Thank you, and over to you, sir.

Thank you, Akshay. Good morning, everyone. On behalf of Elara Capital, we welcome you all to Q2 and H1 FY '24 conference call of Affle (India) Limited. I take this opportunity to welcome the management of Affle (India) Limited represented by Mr. Anuj Khanna Sohum, 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 the 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 24 of the company's Q2 earnings presentation for a detailed disclaimer. I will now hand over the call to Mr. 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 trust all of you are keeping in good health, and I wish all of you a blessed Deepawali celebration ahead. H1 FY 2024 marked the strategic transformational milestone in our journey as Affle (India). We have come a long way since 2006 and will conclude FY 2024 as our 18th financial year. Based on our past performance trends, we are well-poised to reach INR 18 billion or INR 1,800 crores of revenue this year as we look ahead towards achieving our Growth Vision 2030. In Q2 FY 2024, we attained our highest quarterly revenue run rate, highest EBITDA, highest consumer conversion and the highest CPCU rate. We continued to enhance our consumer-centric platform offerings as well as leverage synergies towards overall operating margin expansion, delivering stronger than ever quarterly EBITDA of INR 872 million. We attained revenue growth of 21.6% year-on-year and PAT growth of 13.8% year-on-year in Q2 FY 2024. Our CPCU business achieved 72 million conversions during the quarter at a CPCU rate of INR 55.6 that resulted in CPCU revenue of INR 4 billion or INR 400 crores, an increase of 21.6% year-on-year. In terms of H1 FY 2024, we achieved revenue growth of 19.3% year-on-year and PAT growth of 16.7% year-on-year. Overall, for H1, our CPCU revenue increased by 19.4% year-on-year. Our CPCU business continues to be resilient and underlines the long-term sustainable business momentum. Our strong anchoring in India and global emerging markets enabled us to perform well. Our growth for India and global emerging markets combined was about 20% year-on-year, and almost all of it was organic. Notably, this is despite the fact that there was a pullback effect of about INR 110 million or INR 11 crores due to regulatory changes towards applicability of GST within the online gaming industry in India. However, this impact was completely offset by the all-round, broad-based growth in advertiser spend across other industry verticals in India. So if we were to exclude this impact of online gaming industry, our growth performance in India would have been much superior. However, global emerging markets performed really well for us and grew by about 28% year-on-year, wherein this growth was also majorly all organic. That gives us confidence that the broader market tailwinds in India and global emerging markets continue to be intact, and that is almost 75% of our current revenue. Speaking of developed markets now, I'm happy to confirm that our decisive turnaround plan has started to yield positive results, where we expect consistent growth, particularly from the lens of second half of FY 2024, and that is despite the pullback effect in the fintech vertical in the last quarter of about INR 140 million, about INR 14 crores. Our realigned approach towards upselling, cross-selling, integrated consumer platform propositions with emphasis on premium and key resilient verticals with our highest number of full-time team members anchored in the developed markets until date instills confidence in us to deliver broad-based consistent growth from here onwards in developed markets. Despite the combined impact of INR 250 million or about INR 25 crores from the online gaming in India and from fintech in developed markets, we delivered the highest revenue and EBITDA ever in this quarter, and our CPCU business continues to be resilient and positions us strongly for multiyear growth ahead of us. We are consistently enhancing our strategic moats towards building sustainable global market position. And I would like to highlight 3 anchor initiatives that we have undertaken to power our long-term sustainable growth momentum. The first area I would like to highlight is OEM anchoring partnerships. We are strengthening our strategic partnerships with greater scope, deeper touch points to enable premium use cases across OEM ecosystems and app stores. We have secured our partnership with Samsung in India for their Samsung platform 12 touch points across the premium Samsung Galaxy App Store and Discover Services placements, where 2 phases of development and integration have been achieved as of the last quarter, and we are expecting to attain completion of the most significant Phase 3 in 2023 itself. We have also completed development and integration on Lenovo smartphones across all major international markets, including North America, Europe, Japan, Korea, Southeast Asia and LatAm. Next, anchoring gen AI strategy. We are leveraging our core R&D capabilities and are investing in emerging technologies for our customers globally with key emphasis on pursuing new tech IP and innovative use cases for responsible integration of generative AI technology. We have recently released our first gen AI-powered product, which is a multilingual keyword recommendation tool for our iOS Apple App Store Search Ads advertising platform. This will automate advertisers' play across search touch points to scale their iOS user acquisition effectively on Apple App Store and engage vernacular audiences who search for apps in their native languages. These are all significant achievements, and we are more ready than ever before with our products, partnerships and people, and our overall position in the ecosystem is much stronger to unlock sustained multiyear growth ahead of us. We also want to congratulate all our shareholders and investors for their trust and support has enabled the success in our ongoing strategic fundraise process. Affle (India) secured a commitment letter from Gamnat Private Limited, which is an entity of the Ministry of Finance, Government of Singapore, for their binding offer to invest INR 7.49 billion or approximately USD 90 million in our company, and this will definitely strengthen our next 4 years of strategic growth initiatives. This is a certificate of credibility and the confidence in our resilience as a company, and that has inspired even greater loyalty in all the Afflers towards ensuring consistent success and value creation for all our stakeholders against all the odds. Continuing to share our customer success stories this time, we have included 3 more case studies, which are focused on online trading, fashion growth with a vernacular approach and loyalty program for a global FMCG company. Affle continues to be recognized as an industry thought leader. Our platform was named amongst the top mobile advertising company 2023 on Business of Apps. One of our platforms was recognized as a high performer at the G2 Fall Report 2023 as well as won an award in the Connected TV category at Agency Reporter's Front Benchers 2023 Awards. Another platform was recognized as the best in data technology in e4m real-time awards and won silver in programmatic category at MMA Smarties. With that, I now hand over our discussion to our CFO, Kapil Bhutani, to discuss the financials. Thank you. Over to you, Kapil.

Thank you, Anuj, and a very good morning to everyone on the call. Hope all of you are keeping safe and well. In Q2 financial year '24, the company reported revenue from operations of INR 4,313 million, that is INR 431.3 crores, a growth of 21.6% year-on-year. We delivered a broad-based growth of about 20% Y-o-Y across global emerging markets, including India. Emerging markets continue to be in high-growth momentum with strong operating profit performance. [Audio Gap] INR 8,379 million, that is INR 837.9 crores, a growth of 19.3% year-on-year. Our EBITDA for the quarter stood at INR 872 million, that is INR 87.2 crores, an increase of 20.6% year-on-year. Our EBITDA margin stood 20.2%. Despite acquisition consolidation, our EBITDA margin was in the line of Q2 last year, while it improved about 100 basis points on a sequential basis. In H1 financial year '24, our EBITDA increased by 17.3% Y-o-Y and INR 2 -- INR 1,653 million, that is INR 165.3 crores, while EBITDA margin stood at 19.7%. In terms of OpEx, driven by our consistent effort towards enabling platform synergies and greater productivity, our data inventory costs stood at 60.5% of the revenue from operations in this quarter, resulting in improved operational efficiencies and better margin realization on both year-on-year and sequential basis. Our employee costs as well as other expenses remained relatively stable sequentially and increased by 2.1% and 6.4%, respectively, on a quarter-on-quarter basis. Our profit after tax for the quarter stood at INR 668 million, that is INR 66.8 crores, an increase of 13.8% year-on-year. We had an impact of high interest cost of INR 27 million, that is about INR 2.7 crores, in this quarter due to new term loan availed by our subsidiary for acquisition of YouAppi business as well as a higher amortization. The increased amortization was account -- on account of intangible assets that were put in use in this amortization of identified assets of acquisition of YouAppi, and this increase is in line with our historical Q2 trend. We remain focus on our working capital management. And as such, there was no material changes in our collection business. Our OCF, operating cash flow, for H1 stood at INR 989 million, that is INR 98.9 crores, which is close to our target of 80% OCF-to-PAT ratio for H1. Further, in regards to our commitment received for -- from Gamnat PTE Limited, a federal subsidiary of Ministry of Finance, Government of Singapore, the utilization of net proceeds is intended towards 3 identified uses and rest towards general corporate purposes. One of the uses is about INR 335 crores towards investment in technology and platform products, second is INR 150 crores towards inorganic opportunities and INR 75 crores towards repayment of outstanding liabilities for past acquisitions. Please refer to our Objects of the Issue for detailed disclosures that is given in our Notice of our EGM and is available on stock exchange as well as mailed to our shareholders. Looking ahead, given the anchoring growth initiatives that Anuj just discussed earlier in this call, we are ready with our generative AI initiatives and are stronger than ever before with our products, platforms, partnerships and positions in the ecosystem. We remain confident for the long-term prospects and will continue to invest to drive sustainable profit growth for FY '24 and beyond. With this, I end my presentation. Let's please open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Karan Taurani from Elara Securities.

Anuj, so question was pertaining to the India business. You mentioned clearly that the gaming vertical has led to a lower growth year. But what are the other verticals that are kind of doing well or possibly could see offsetting negative impact of the gaming vertical? That's one. And secondly, what is the normal case scenario for the India business in terms of growth over the next 2 to 3 quarters? Because historically, if you look at the growth, it's been very good at 20% and 20-percent-plus kind of number. So should we assume that for the next 3 quarters, India business could be at mid-teens to low-teens?

Thanks for your question, Karan. Well, it is part of my detailed commentary that yes, the GST impact on the gaming industry in India definitely has had a measurable impact, and we have quantified it as well that about INR 11 crores or INR 110 million worth of pullback effect has to be measured in that sense. And had we got that, I think if we were to eliminate the impact of that and we just see non-gaming to non-gaming comparison, our growth has been very, very resilient. And you know that we are a broad-based company. We have over 10 industry verticals that we have already named for everyone in the categories EFGH, which includes entertainment, e-commerce, education tech, it includes fintech, foodtech, FMCG, gaming is just one of the categories and then we, of course, have health care, hospitality and so on. And a lot of these categories are having broad-based set of advertisers working with us. And this is where the strength of Affle is most clear, and it gives me a lot of confidence as well as a matter of pride that we are broad-based sufficiently to be able to take the impact of even a INR 11 crore pullback in the gaming industry for us in the last quarter. But yes, if you see overall, India did really well to keep up to neutralize that impact. And also global emerging markets, where we saw broad-based growth across all our industry verticals, overall, across emerging markets, we were still able to achieve 20% growth year-on-year, mostly all organic because of this broad-based risk-managed approach. Now going forward, on a normalized scenario where there's no one-off event or surprise events impacting and because whenever there is any such surprise event, there will be a little bit of a hiccup until the industry finds its feet again, that particular segment of the industry finds its feet again, gets back into a certain predictable rhythm and pattern. Now my long-term belief is -- and emphasis is very clear, we have a multiyear growth trend ahead of us because in emerging markets like India and global emerging markets, the advertisers are under calibrated on digital. I expect 50% to 60% of the ad spend to decisively go to digital in the next 3 to 4 years. And therefore, we will see broad-based growth trends. And yes, we should calibrate it within that range around 20%.

Right, very useful. The second question was around the international business. So even excluding YouAppi, we have seen a better performance in the international business. But if you can give us some sense in terms of the U.S. business, where is that standing? Because I think you're expecting some kind of a turnaround there as well. So what is the kind of growth rate there? What is the kind of traction there? Are things as of plan, and then on the other emerging nations apart from India?

Sure. So see, the way to see our business and, of course, our reporting since pre-IPO until now has been India, international, but we have been adding more color and emphasis around the way to see it is India, other global emerging markets and then developed markets because the behavior patterns of India and emerging markets globally seem to be a lot similar, and that's almost 75% of our business. And then roughly 25% is, let's say, developed markets. And in those developed markets, again, we have quantified it that barring one -- okay, first of all, all the internal decisive steps that we have taken to turn around all the internal issues of the company, I think that has already been well rested, settled, and we are in a very positive spirit and momentum to go ahead and capture the growth that we deserve. In terms of our team, our people on the ground, I think the spirit and motivation and I'm speaking -- I've just come back from a sales offsite of our North America, developed markets-focused team and plans for how will we continue to grow from here. The pipeline is strong, the spirit is strong. So I think all of those internal issues have taken -- been fully addressed now. In terms of the external issues, I think all the pipeline and the results of all the industry verticals that we are addressing in developed markets, in the U.S., are all doing well, except for the one that we again quantified for you in my commentary where we talked about fintech. Because of the interest rates on loans being so high, I think there is a pullback effect in that in the last quarter itself, and we quantified it to be about INR 14 crores. And had that not been the case, and of course, you factor in these things, you're talking about INR 25 crores of revenue, which we could have absolutely seen coming in the pipeline, but didn't happen because of India gaming and developed market fintech verticals. Even without those -- that even -- without that revenue and the pullback effect that happened, we saw fairly resilient growth across other verticals. And gaming has been a positive vertical in developed markets for us, while, of course, in India that wasn't so positive in the last quarter. So I think developed markets-wise, we have a lot of confidence right now that our team, our products, the way we are providing unique propositions on premium placements even on Affle's ecosystem, I think we have a very, very strong position. I would say I'm bullish today more than ever before in terms of our position in developed markets. And I say that with U.S., of course, as the anchor market, but also seeing it extend towards Europe as well as Japan.

The next question is from the line of Mayank from Enam AMC.

I wanted to -- I was wondering, what was the contribution from YouAppi during the quarter? Because last quarter, we had around INR 45 crores of contribution in 2 months of consolidation. If we just adjust for that in this quarter, I mean assuming equal contributions, so around INR 67 crores was from YouAppi, and then the Y-o-Y growth rate falls significantly to 2.5% Y-o-Y. And the 2 main sources of impact that you quantified were INR 11 crores from emerging markets and INR 14 crores from developed markets. So am I on the right track? Is this right?

So on the YouAppi, it is not very sequential as we are -- as Anuj mentioned that we are on to integration part. So there is somewhat of consolidation of revenue on the YouAppi side, and it cannot be seen in consolidated on a linear way as for the last quarter.

Okay. So sir, even -- but you are largely on that...

You're doing the math largely correctly. And the way to look at it is that most of the contribution from YouAppi is obviously towards developed markets. Now in the developed market, we have seen a combined effect that, yes, we are stronger than ever before, but the fact that we did quantify that about INR 14 crores in fintech category was the pullback effect in the last quarter. Now if we take that into the overall account of what we said, so again, the way you have to look at our business is saying India and emerging markets is largely organic growth, and that together is 20%. Then in developed markets, there is a pullback effect as well, and there is an add-up to the fact that you have -- YouAppi added for 1 additional month. And when you do the math of that, therefore, you see developed markets, there is a growth of approximately INR 10-odd crores or INR 10 crores to INR 11 crores because you see an addition of -- you see a minus of INR 14 crore, but you see an addition of around INR 20 crore plus for the additional month of YouAppi. And that's how -- because I know you're slicing and dicing it that way, what I would encourage you to look at it and also tie it up with my commentary is India, global emerging markets and then that 20% year-on-year growth. So what happened in developed markets, there is a pullback effect that's about INR 14 crores, then there is an addition of YouAppi. So I think that's how you look at the math. But sometimes overanalysis doesn't give you the essence of the business. And the essence of the business is that India and global emerging markets have very strong continuous tailwind. And in developed markets, together with YouAppi, now we have revised our position to be in a situation where we can look at consistent growth going forward. And I think that is a very important turnaround that we wanted to achieve within this year. And I think in the last quarter, we will see decisive and very clear numbers anchoring what I'm saying right now in words.

Sure, sure. And Anuj, in the beginning, in your commentary, you mentioned about some partnership with Samsung. Sorry, I missed that. Could you repeat that, please?

Absolutely. So with Samsung in India, I had mentioned -- and I'm just quoting what I was saying earlier, largely the same words that I've said before. So our partnership is with Samsung in India for their Samsung platform, which has 12 touch points across and including the premium Samsung Galaxy App Store and Discover Services, where we have already completed 2 phases of development and integrations with their technology and our technology. And we have also achieved an absolute clarity that within this quarter, before the end of 2023, we will have the Phase 3, which is the most significant phase, completely integrated and hopefully fully rolled out.

The next question is from the line of Aditya Chandrasekar from UBS.

Just a couple of questions from my side. So on the CPCU rate, we have almost come to around INR 56 this quarter. You had previously said that the range would be, say, between INR 55 to INR 58 for the year. Just wanted to check if you think that we can kind of hit this upper end of this range or even exceed it? And going forward ahead into FY '25, et cetera, how do you see this growth in CPCU rates? Is there a kind of theoretical CapEx, which stops growing? That's my first question. And second question, I just wanted to kind of get an update on the Connected TV space. I think you had mentioned it last quarter, just to get a sense of how it is on the ground, and what's the kind of outlook for this space?

Aditya, thank you for the very important questions. I think your question about CPCU and the pricing band of CPCU between INR 55 to INR 58 and whether we will hit the upper end of the band is an important question, but not so much from a quantitative lens, but from a qualitative aspect. Please see that what Affle is doing is consistently moving up in the value chain to more premium segments of consumers, more premium segments and touch points, be it the partnership with Samsung on Galaxy Store touch points, be it the gen AI-related product that is addressing vernacular capabilities on the Apple App Store search ads and so on and so forth. I think there is a very clear message that is coming out in all our commentary, and that message is directed towards going to the more and more premium segments so that we can deliver higher value to the advertisers, right? When you get them better quality touch points, better quality of consumer audiences and greater tech-enabled powered experiences, you do better partnerships, you do better pricing, and better pricing almost necessarily means better margins in most business models. So I think what Affle is trying to do consistently is to avoid -- so we are a fast growth company, and we never allow a fast -- increasing revenue phase to -- we will not want to give that power to our customer to bring the price down just because they're saying they're spending more with you. So the only way to defend that is to go more premium. You say our products are becoming more premium, please pay more. We will deliver you more ROI, and therefore, it all makes business sense. So what you see in our CPCU pricing and what you see in our products and partnership initiatives in my commentary today is influencing that and will definitely consistently inch upward and positive because we are building the company not just to deliver revenue growth, but deliver profitable cash flow, positive, better margin revenue growth. And I think that endeavor will -- the starting point of that is you're going to sell at the right price, you've got to sell something premium, and you need to take a defensible moat on those ecosystem positions. And I think that's what we are doing with that. So thanks for asking that question. Connected to that is your second question on the CTV space, and the CTV is an important strategy for us, not only because we are a consumer platform company and a lot of the consumer households are going to adopt Connected TV. In emerging markets, in developed markets, that has already happened in a significant way. So you will see more and more Connected TVs as one of the influencing touch points for the consumer. So you will have smartphone devices in your home, you will have tablets in your home, you'll have Connected TV in your home, and how can we create an integrated consumer experience to drive conversion for the advertisers, and that's our endeavor. So Connected TV product has been ready. Household sync, which is an important enabler for how Connected TV would connect to other connected devices in the household, is also something that will be now out in the market, and we have been consistently educating and building top leadership across emerging markets with our customers. So we are seeing positive traction. However, when a user converts for an advertiser, it would necessarily always be with some element of, okay, there was a touch point on mobile, there was a touch point on Connected TV, and it has to work in conjunction. So it should not be -- in our opinion, technology-wise, product-wise, proposition-wise, we don't want to segment it out, but we want to say it's an end-to-end consumer platform where you can connect with the consumer on one additional touch point, which is Connected TV, and made that play a positive role in the consumer conversion that we deliver to the advertiser. I hope that answers your question.

Our next question is from the line of Arun Prasath from Avendus Spark.

My first question is on the focus that you are having on this OEM partnership in the last couple of quarters. I guess I'm just wondering, this OEM partnership, we always add to Appnext. So what is this time different from what we have been doing or what Appnext was doing for several years? Is it different materially, that means it's just -- the partnership is only differing in the size or it's, qualitatively, it's much deeper? Can you help us understand this, please?

Yes. Thanks for that question. Yes, premium partnerships mean that, let's say, you're moving up the value chain within the partner ecosystem, okay? So there are different, let's say, touch points that one can go to. And I could safely say that going into the app store of an OEM partner and partnering with them on and around the app store is perhaps the highest premiumness that one could achieve, and this is highlighted in the commentary that I made earlier today. So going deeper with partners means that you are integrating tech at a deeper level. It also means that you are having a longer-term relationship with those partners, so most predictable path for consistent growth, and you're doing higher impact. So not only is the partner important to us, but we become important to that partner and take it to a new level. So what Appnext was doing before was, in my assessment, a very important stepping stone to take on premium partnerships and deeper partnerships, which we have now brought to a level of maturity that we can now start talking about some of those partnerships, as I have updated in my call today, like the Samsung one or the Lenovo one and so on and so forth. There are, by the way, many more. But I'm only highlighting those that I think are of the level of premiumness or the level of impact that would give you a stronger indication to our strategy.

Right. So which means that we will have a much better conversion and predictability of the conversion is also -- that removes uncertainty from -- for the customer as well, that's how we should say it is?

I think what it will do for us is -- I mean, see, the conversion is always linked to the consumer. But what it is absolutely achieving for us when we have these kind of OEM deeper partnerships is that it's a message to the ecosystem that Affle as a platform will help the advertisers to reach the most premium segment of consumers to drive the most premium conversions and, therefore, Affle deserves a higher CPCU pricing and deserves a better margin and so on and so forth. And I think that is what premiumness does, and this is what I was trying to answer to the earlier question from Aditya as well when he asked how is your CPCU pricing is going to go up. So Arun, the answer is the same that when you go and do premium products, right, where you're solving gen AI, when you're going deeper on vernacular verticalization, when you go into the app stores and do deeper tech integrations and capabilities, then you go to the advertisers and say, hey, I have all of these products, these partnerships, this ecosystem level market position, I deserve a better price. And of course, the advertiser would eventually judge it and say, if I'm paying you INR 56 or INR 58 CPCU, did they achieve the ROI that they had in mind in the campaign. So I think it makes business sense. And you are right that by having these partnerships, we are one step deeper and closer to charging more premium pricing to have better margins. And when we look at it with a 4-year perspective, can I reasonably say that these are multiyear, long-term, deeper integrations and partnerships? And then the answer is yes, then you will get predictable, sustainable moats around the company. And I think that is why we are bringing it up to your attention.

So if we translate this in terms of numbers, current margins still have a lot of potential to go up. Is this the right way of reading this, what you have said?

I think there is already a good outcome that we have delivered in the last quarter. You see that all 3 months of YouAppi, fully loaded, and it's less than 6 months, by the way, since we acquired it, we have delivered over 20% EBITDA in this quarter. So -- and you know and we all know that any acquired company was -- is at the lower level of EBITDA than that. So that means minus that, the business is already, on an organic basis, is in a healthier zone of much above 21%, 22%. And I think that is where we are constantly striving. And it's not just numbers, right? Numbers is a result of decisive action and clarity of strategy, and the clarity is go more premium, go more deeper, build better products, build deeper connections; the partnership ecosystem, make sure it is a predictable long-term path, deliver on the higher pricing ROI to the advertisers and inch it one step at a time. And that's how you -- and that's how we're doing it. And that's why I'm feeling that we are entering into this quarter as well as going into the next year 2024 with a really more stronger position than we've ever had.

Just to add to what Anuj said, you should look at it from the lens of sustainability and growth rather than from looking at the margin is what I will say. This discourse is to bring out the sustainability and the growth potential of the company.

Understood. Understood. Right. My second question is on the capital allocation. I understand that recently, you have filed -- your stock exchange filing indicates some broad counters of how you will be using the INR 750 crores, which is coming in. But if you look at it, we had a cash balance of more than INR 500 crores before this. Now our cash balances are most closer -- must be more than INR 1,200 crores. So I'm just wondering how we can effectively use these resources without diluting ROCEs. What is your vision for this in the near term? Of course, long term, you'll have much better sync, you can go for acquisitions whenever it makes sense. But near term, do we find any use for this cash?

So just to answer on this, if you see, the first object of our utilization is on the tech development, and the AI development would not be very significant in 1 or 2 years. The time to utilize this money is, say, December '27, which is about 4 years from now. So ROCEs -- adjusted ROCE or ROCE will not get impacted until we have delivered or consumed the amount mentioned in the object clause for the purpose of innovative tech developments, right? So the impact is going to be very smaller as we will remain large on cash balances for the period of development of over 4 years.

The next question is from the line of Ankur Baheti from JPMorgan.

My question is regarding the digital ad market dynamics in India. It's a fact that it continues to remain healthy, but there are ad publishers like Truecaller, Dailyhunt, ShareChat, which have seen year-on-year decline or slowdown in ad revenues in 2023, largely driven by a falling CPM, while ad impression growth and other variables continues to remain strong. So I wanted to know that which pockets in the market are underperforming and seeing weaker growth momentum and what's growing -- what's driving the low CPM in such pockets of the market?

Thanks, Ankur, for that question. And we have -- I've been in this business for over 18 years. And I have mentioned this over the last 5 years to public market investors since we were on the road show of the IPO that the only way, and I say it again to our industry as well, the only way that in emerging markets, that one could run a 20-plus percent or 25% EBITDA company is not by selling the commodity of impressions on CPM prices. That business is too commoditized because we are selling -- there is -- in India alone, we have 650 million smartphone users who, on an average, are per capita usage of -- time usage or data usage of internet on smartphone devices in India would be one of the highest in the world. So the number of impressions that are getting generated on all of these kind of apps is an ocean of those impressions. Now the impression itself of the fact that people are using the smartphone devices and generating impressions is not where the value lies. The value lies is in -- when you jump into that ocean of impression, jumping deep with unique equipment like the DMP, the NPAT, the deeper connect with the OEM ecosystem, deeper products with vernacular verticalization in there. And then you find those pearls of conversions where the user has actually converted or delivered an ROI to the advertiser. When you bring that out, then you charge a pricing of increasing CPCU rate of INR 56 or so on to make a 20% EBITDA into this quarter. That is how the business is differentiated. Now we are a buyer of impressions. We are a buyer of impressions from a lot of the publishers, so we know that what is happening. Of course, this is demand and supply economics. There's way more impressions and consumer adoption of digital today than the advertiser has shifted their budgets to digital. In emerging markets, the total ad spend versus total digital ad spend ratio still has a lot of catching up to do, but the consumer has gone into digital big time. So there is a lot more impressions than the budget to buy those impressions. So in terms of demand and supply, the impression would go down. And as intelligence becomes more consumer oriented, then the value of each particular placement is, let's say, not as important. If I can get you converted to a particular advertiser on a net premium placement, then I will find a way to do that, right? So because that's where optimization comes in. And algorithms, AI, machine learning, all of that is working to achieve that. So I wouldn't look into this data point with nervousness. I would look at it with deeper understanding that, yes, there is a lot of digital consumption from consumers. There's a lot more ad spend coming from the advertisers into the ecosystem. With the right business model, there is a good amount of consistent money to be made. And I think Affle has been doing it for more than almost a decade. I mean I do not know of any other active company that is focused 75% on emerging markets and is consistently cash flow positive for more than a decade. And I think that's to do with the fact that -- we saw it this way, I said you have to sell something more higher value, take more risk, sell something higher value and run a system which is differentiated. And that is why you can be sure that Affle will defend its pricing and will continue to charge more and inch upwards a step at a time to deliver that demand.

The next question is from the line of Animesh Yadav from Purnartha Investment Advisers.

Good set of numbers. So first question, a few quarters back, you shared with us that you have outlined a clear and a concise action plan, and you expected that to turn around from Q2 onwards. So how do you see that? Is it on track? And has Q2 numbers come up in terms of your expectation? Or is there any setback which is -- secondly, if you can share and guide us in terms of how do you expect that to reflect in terms of the measurable outcomes for Q3 or Q4 from that?

Thanks for your question, sir. In our commentary, I think we have already answered almost all of your questions. But let's put it this way, in Q1, it was in May 2023, I announced that we had to do an emergency operation on our developed market, internal operation on our teams, and that was a decisive action plan, which is not for the fainthearted, okay? And we took that head on. We talked about it very clearly. We took those steps, and the operation was largely completed within the first quarter by June end or, let's say, later by July, the operational was done. The recovery period was August, September and so on. In the month of October, I can tell you that we have fully sorted out that operation. We have fully cured, and we are full guns blazing with the largest motivated team of salespeople on ground in developed markets than we've ever had. And our products, our partnerships, I think we have got a much stronger position than ever before in developed markets. And therefore, I'm confident that we will deliver consistent, dependable growth in developed markets from here onwards. Okay. Of course, we cannot change the macroeconomic factors. But what we can do is have hedge strategies to cope with it, like we have across different verticals in India and global emerging markets. Similarly in developed markets, we have the same broad-based, cross-industry verticals growth strategy. Yes, last quarter, fintech had a pullback, we could quantify it. And we had a pullback in India in gaming, we can quantify it, and yes, deliver dependable, sensible, bottom line sensible results. And I think we'll be fine. I'm taking into account that internal issues are fully sorted out, and we are out there to achieve our highest potential. Macroeconomic factors permitting, we should be doing well consistently. If there is any particular industry vertical where there is any pullback effect, we will keep this transparency of quantifying it, bringing it back to you and keeping it measurable, but at the same time, building the trust setting. We have a broad-based growth coming in the company, and we will not be setback -- one-off setbacks here and there. Those are just hiccups in the journey, which any mature company should be able to deal with. And I think Affle is certainly dealing with it gracefully, and we're going to continue to deliver growth.

Got it. Sorry, I joined late, so that's why I didn't get it. Just a follow-up to Kapil. The other expenses look to be a bit high this quarter. So anything specific out of that? Or like it is, I mean, just -- I mean it is in line in terms of your expectation?

So it is in line with our expectation. The amount which is added is more coming from the acquisition of YouAppi. And certain -- this is a period where we invest on marketing activity as peak festive season. So we invest more in Q2 in the road shows and other things. So this is in line with our expectation.

The next question is from the line of Swapnil from JMFL.

A couple of questions. First, a clarification. You mentioned that there was a hit of around INR 11 crores because of the GST changes that happened in the gaming industry. Now I just wanted to understand what these changes -- the INR 11 crore impact that you mentioned, was that for the entire quarter or that was from the time that the GST notification came in?

So I'll take this question, Anuj. This change came in July, and the behavior of the clients changed immediately because they wanted to figure out what could happen because 28% cutting out from the amount deposited by then had a significant gearing. So everybody was recalibrating their strategies and waiting for 1st October to come in and at least where it will kick in. So the impact was in Q2. We will see how much it gets eased out in Q3, and we are yet to see a significant change in the behavior at the moment. So we are in close touch with our clients to see how it impacts Q3 or Q4 going forward.

Okay. That's helpful. And second question is with respect to your developed markets trends, right? Now I was doing some back-of-the-mind calculation, and I realize that your revenue in developed markets in 2Q was around INR 70 crores. Now if I adjust the current quarter of revenue that you mentioned, if I adjust for the YouAppi acquisition and then I add the INR 14-odd crores impact that you mentioned on fintech, still, your quarterly revenue is around INR 55 crores. Now that's a difference of around INR 15 crores on a Y-o-Y basis, around INR 20-odd crores on a Q-on-Q basis. Now I fail to understand like where is this difference coming from?

I think I have already given the detailed breakup and the analysis of our numbers. And what I can tell you absolutely is that in developed markets today, I'm not sure exactly what Excel sheet you're analyzing on, but I would encourage that we talk to the Investor Relations team and get the correct set of numbers. But for developed markets, today, our revenue, our progression, so it's about roughly 25% of our revenues overall for this quarter is developed market. And that you can already do the math on the INR 431 crores, 25%, that is the number for developed market in this quarter. You take out YouAppi, you add this, you take out the pullback effect and so on, whatever slicing and dicing you do, I can tell you one thing for sure: our position, our number of active customers in developed markets on a broad basis industry vertical today is stronger than ever before. Our number of salespeople on the ground who are passionate, believing in what we are taking to the market and they come from competitor companies and they are top talent in the industry are very committed and confident that we can deliver growth and success. Our pipeline is strong. And there is -- and by the way, the market is so large in developed markets. There are numbers -- whether you take the numbers that you have or what I'm saying, it is a very small number. So from a small base, with a competitive product to grow from here is what is most important. So where are we today? We are higher in developed markets than ever before. We have solved our issues, internal ones. External ones, we have quantified for you. We have a strong pipeline, and we are going for consistent progressive growth from here quarter-on-quarter. And on a small base, in a large market with a differentiated position, and with our entire team and with the leadership that I'm directly talking to you about it right now today, we are directly on the ground making it happen. So I can tell you that, that is the reality on the ground. We can keep doing the slice and dice of the past, and it's super important to do that, and I've tried my best to give that to you in the commentary today.

Sure, Anuj. If you can just quantify the number, except YouAppi, for developed markets, then it would be really helpful.

All right, I'll quantify it one more time, okay? So in this quarter, 75% of our business is India plus emerging markets, roughly 25% is developed markets. In the developed markets, most -- a lot of the contribution is coming from the U.S., a little -- very little contribution from Europe and, let's say, Japan. But overall, when we look at developed markets, about 25% of our total revenue is there. YouAppi has been a positive contributor within that and has helped to strengthen our position in developed markets, especially in gaming vertical. In terms of fintech, we have already mentioned that why in developed markets, especially in U.S., there was a pullback effect, and we have quantified that to be INR 14 crores. So these are the numbers, and this is all in my commentary, proactively disclosed, and we can do all the analysis on the past. But what's most important is where are we today and what does it mean going forward, and I think we have given you some deep insights on that as well.

The next question is from the line of Rahul Jain from Dolat Capital.

Firstly, just wanting your big picture kind of a view. Of course, you mentioned it in some certain ways, but with the changing mix of business, both in terms of the technology that we offer and the mix of market and all, what is the best way to understand the potential growth in the various markets if we have to slice between India, the emerging and developed markets, both from near as well as medium-term basis?

See, our long-term growth trends, I believe, anchor deeply on that. Had we not been consistent about our growth vision for 2030, we would have not taken some of those actions that we have always talked about. So I think our clarity of thought, our confidence in our capabilities, the commitment to pursue it relentlessly and being resilient to changing dynamics and situations, I think all of that puts us in a position of a lot of strength. And with that, the big-picture view that we have, Rahul, is very, very clear that we are going to continue to keep a strong broad-based growth trend across our India and emerging markets. And we are going to consistently push for more premiumness so that we can improve our margins, our pricing and position in the ecosystem. Now the mix of markets, India and emerging markets globally, I think it is fair to say that these markets for next, let's say, 3 to 4 years, will continue to deliver broad-based growth for the whole industry and, of course, for us. The difference between everyone else and us is that we are running for only the profit pools in this growth segment, right? So when you see growth coming, okay, digital advertising is going to grow, but not every dollar of growth is worth 20% EBITDA plus operations. So we have to pick those segments of growth where we see the profit pools are robust enough for us to make an ROI for the advertiser, charge sufficiently, make margins for us. And so we are very selective about which pockets of growth we are going for. And with that, we should be able to deliver good growth in India and global emerging markets. In developed markets, we -- of course, those markets are called developed because there's already a lot of growth that has happened. And so there is going to be, at a macro level, lesser growth there. However, the addressable market is so large. Our base being small, we should be able to notch up and hit above our weight to get better growth for our own selves on absolute basis, better than industry average growth in developed markets. So our long-term growth thesis hasn't changed. You also asked about the short term. And I think just purely in the context and acknowledging the fact that our company is going to complete -- Affle (India) is going to complete 18 financial years by the end of this financial year, I took a little bit of a liberty to emphasize that we will, and we will aim to reach the INR 18 billion, which is INR 1,800 crore revenue mark this year. And we are -- I think we are well poised to work towards that direction. And it's largely in this context to connect the dots for you that I'm saying so, that I think the important thing is the big picture, and the tailwind continue to be favorable with that longer-term view.

Just one small clarification. When you say the addressable TAM is big, so you're saying about the total TAM or you're talking about this TAM where a 20% margin can be achieved even by the aspect of a very large market?

Your voice is not very clear, but you're perhaps asking about the total TAM or the TAM where the margins are large enough. I'm talking about there is broad-based digital advertising growth that is expected to be very positive for India and global emerging markets. Now that is something that is undisputed. I think any industry report you'll pick up is going to tell you that digital advertising is set to grow for many years to come in global emerging markets because it is under calibrated versus what it is in developed markets. In China, in U.S., in Europe, I believe that there is more than 70%, 75% of the total ad spend is digital. We are nowhere close in India and other emerging markets to that percentage. So we will see higher calibration of ad spends going to digital. So that is a large total addressable market. Within that total addressable market, Affle makes very clear, calculated decisions about which pockets of this growth should we have as our revenue because we are not gunning for every revenue in the market. If the pricing is too low, I would rather not take that campaign than to take it, right? So it's very important to run an organization with a discipline and the discipline to our sales team is that, hey, this is the range of pricing. This is how we work. And if we are not seeing sufficient ROI for the advertiser and margin for ourselves, it's better not to do that revenue, right? So therefore, we are picking our battles carefully, and we think there is sufficient growth that we will derive in this market, and that will be premium in nature, and we will get profitable sustainable growth going forward, therefore.

I appreciate the color. And lastly, if I can squeeze in, about this announcement of Elad. So do you see the management bandwidth getting slightly thinner and more responsibility coming up for you or we would look for right replacement?

So I think I don't see that to be the case. Whenever we acquire a company, there will always be a clear transition that must happen. When we did the acquisitions post our IPO, this was COVID times. And because it was COVID times, you maintain the structure of the deals in such a way where we took a 3-year view to the full transition, integration and getting the acquired assets, the level of unit economics that we wanted them to come to. Now since that has been achieved in some of those acquired assets, it's time for complete transition and so on. So I think Elad's move is expected, and it has happened honorably. It has happened effortlessly, and it's the right thing to happen.

Next question is from the line of Onkar from Shree Investment.

My question was regarding -- if you look at your results, you have given the segregation of segmental revenue, India and outside India. If you look at the revenue growth for outside India, it's about 25%. But when you look at the margin, the growth in the margin is at least it's around 7% to 8%. That means there is compression in the margin, and that is around 70% of the overall business. So can you articulate what's the issue on that front?

So if you see our results, there is a footnote below the segment that the segment is based on the billing entity, whereas the earnings presentation is based on the user, where the user is based and where the ad has been served. So those data are not comparable, right? So this data is given in the earnings presentation for better understanding of geographically where the consumer is and how the market in that geography is responding. As Anuj mentioned earlier, it is consumer behavior which drives the growth and adoption by the consumer. So that is why we gave a different set of numbers based on the location of the ad where it was served and where the consumer is located. And that is why the reporting on the geographical information on the results sheet would always be a little different in India. Also in stand-alone India, we would deliver certain ads which are outside India. So that will move to the other geographies. So they are not comparable numbers. Please see the footnote of the segment.

Yes, okay. So -- but if you look at the margins within India and outside of India, excluding the developed markets, what kind of margins are this comparable to India?

So the margin definitely would be higher in the international markets as we have been stating that the CPCU pricing is higher in the international market as compared to India. The unit economics in India is much more tougher than the developed markets and other markets, right? So we -- if you see our DRHP, you will see the CPCU rate multiples. Post that, we weren't giving it, but you can get an idea from the old reports available publicly. You will be able to understand better that the India is the most toughest unit economics geography to operate to.

Okay. The second question is on the growth of CPCU. Even though your conversion rate has -- the growth in the conversion rate has fallen down, the pricing has improved. So is that going to be the strategy going forward?

I think the strategy on -- is going to be that we must maximize the growth as well as the pricing by -- I don't see that it has to be one or the other. I think both have to grow. We're going to drive for more conversion. We're going to drive for more pricing as well. And I think both of these factors are very strong defensible moats of the company, the ability to drive conversion, the ability to find those consumers who are going to be doing the necessary conversions for premium placements, partnerships, touch points across mobile as well as Connected TV and so on. This is the strength and capability of our platform and our product, and of course, being able to deliver an ROI-linked business model and improving pricing, both are very, very important. I wouldn't say that you should go by one particular year or a few quarters of trend because this year has been slightly different from our usual pattern of growth, right? We saw pullback of various times, internal issues related to Jampp, external macroeconomic factors related to certain verticals and certain markets at different times. So this year was a complex year in that sense. But if you ask me for the long term going forward, am I bullish about more smartphone users and Connected TV users doing more active digital conversion? Yes. Would you see higher value of digital conversions happening from consumers going forward and higher frequency of those conversions? Absolutely. And so given those factors, I'm pretty confident that the number of conversions should continue to rise and should keep up with the long-term growth trends. And on pricing, I think I've answered it a few times on this call today.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to management for closing comments.

All right. Thank you so much for your very interesting questions, especially related to the strategies of the company going forward. I'm very confident that our company is in a better position today than ever before. And as an 18-year old, as a young corporate adult, Affle has definitely been brought up very well, and I'm very optimistic about how we will shape up going forward in many years to come. I would look forward to the upcoming EGM. For those of you already shareholders of the company, please participate, give us your participation and support. And I wish you a very, very happy Deepawali and maybe -- may the next year be even more successful and prosperous for everything you want to do. Take care. Thank you.

Thank you, everyone. With season's greetings for the festive season, thank you.

Thank you. On behalf of Elara Securities Private Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.