AvenuesAI Limited (539807) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Infibeam Avenues Limited Earnings Conference Call for Q3 FY 2021, hosted by K.R. Choksey Research. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involves risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Parvati Rai from K.R. Choksey. Thank you. I hand over to you.

Thank you, Santel. Good evening, everyone. On behalf of K.R. Choksey Research, we welcome you all for the Q3 FY '21 Earnings Conference Call of Infibeam Avenues Limited. I take this opportunity to welcome the management of Infibeam Avenues represented by Mr. Vishal Mehta, Managing Director; Mr. Vishwas Patel, Executive Director, Founder and CEO of Payments business; Mr. R. Srikanth, President; and Mr. Hiren Padhya, Chief Financial Officer. We begin this call with a brief overview of the company by the management, followed by the Q&A. I now hand over the call to Mr. Vishal Mehta for his opening remarks. Thank you, and over to you, sir.

Thanks, Parvati, and thank you, everyone, for joining us on the call today. I hope all of you are safe and well. And I hope that you had a chance to go through our results documents. At the onset, we had the best quarter ever with a 53% revenue growth quarter-over-quarter and a 95% growth in adjusted profit after tax. Performance was very strong across both our business segments, which is the payments and the platform business on the back of robust growth in our operating metrics. Our performance is particularly noteworthy, given the macro environment and the recent pandemic. To our luck, India has done much better in terms of curbing the virus threat contrary to the global expectations. However, the next 12 months will be defined by the timely availability of vaccinations across the country as well as to the workforce to ensure mobility. Speaking about the overall performance. The budget was recently announced where there were certain specific indications on digital payment industry. The budget has earmarked INR 1,500 crores, approximately USD 200 million, for a scheme to incentivize digital payments, thereby giving a boost to the digital payments industry. There is a very clear focus by the government to set up a robust infrastructure for a boundless growth to happen in digital payments, and we welcome this move. Furthermore, the budget also announced an increase in the amount of capital expense for infrastructure and railways. We believe this could boost the procurements by these sectors on the GeM platform, which is provided by us, will significantly will allow several goods and services to be available on the platform. We believe that the economic stimulus package announced last year during the pandemic, coupled with the current growth-based budget announcements, can put the economy on fast track to achieve high single-digit to double-digit growth rates. This, along with the intention of the government to improve transparency through digitization to make India less cash economy, will significantly boost the digital transactions in this country. We, of course, have the benefit to be working in the digital payment space as we offer a full stack of digital solutions for businesses of all sizes. Furthermore, I'm also happy to inform you that NCLT has approved the demerger of our noncore businesses. And subsequently, the businesses will be listed on the stock exchange. The entities to be listed are so Suvidhaa Infoserve Limited and DRC Systems Limited. We have allotted shares to the shareholders as per the record date. I'm also very happy to announce the bonus shares to all the shareholders. The Board has approved to give 1 bonus share for every share held in the company. I would like to also intimate to you that we now will own majority stake in So Hum Bharat. We've increased the stake in So Hum to 50.5% from earlier 33%. As a reminder, So Hum will be leading the license application to Reserve Bank of India, along with consortium partners to set up pan-India new umbrella entity license, which is focused on retail payment systems. I will now hand over the call to Srikanth to give you business update. Srikanth, all yours.

Thank you, Vishal. Thank you, investors. Thank you, participants, for your time. Let me start with the macro numbers. Our global revenues for this quarter actually stood at INR 228 crore, up 23 -- up 53% quarter-on-quarter, and our profit after tax, excluding share of associates, was about INR 15 crores, up 95% quarter-on-quarter, and our EBIT is about INR 23 crores, up 33% quarter-on-quarter. So this strong operating performance has led to, of course, strong business growth and revenue growth actually for the company. I will first like to highlight the performance of our Payment Gateway business, contributing bulk of our payment revenues and consolidated revenues. As you all know, we began our FY '21 journey on a very strong note with a V-shaped recovery in Payment Gateway business. We achieved month-on-month growth since May 2020 after a fall actually in April due to nationwide lockdown on account of COVID-19 pandemic. However, by the end of Q1, that is by the end of June 2020, we have already surpassed our average daily payment processing compared to the pre-COVID level of March 2020 daily average. This outperformance was despite linked to eligible business from the 4 major sectors of our business, which is travel, tourism; aviation; hospitality; and entertainment industry business, which are some of our major contributors actually of our revenues in the past. Despite there was no business actually from these 4 sectors, we have actually grown up immediately post-COVID level to the extent of significant number. In Q2 as well, these sectors were contributing far below the normal average, yet we crossed a little over USD 1 billion on an average processing payment. Also in Q2, we registered about 150-plus new merchants daily from sectors like retail, education, grocery, IT as well as we saw a greater interest from skilled professionals like doctors, lawyers, advisers, who seem to be building their business model online. Strong merchant registration, of course, continued in Q3, which is about 20% above Q2 daily average. We activated a record number of merchants in Q3. Also, we activated about 5,000 merchants in just 3 days around the Christmas Day in December 2020. Of course, Q3 marked the highest amount of payment processing ever achieved by the company. We processed payments of about INR 27,900 crores. I repeat, INR 27,900 crores on an average over INR 9,000 crores on an average on a monthly basis compared to Q2 daily average of INR 7,500 crores. This corresponds to 23% jump quarter-on-quarter, 76% jump year-on-year. We are indeed exited December month -- we exited December month at a rolling annual run rate about INR 1,10,000 crores or about USD 15 billion on an annualized basis. Q3, being our festival quarter, along with the holiday season in December, contributed to sharp increase in payment processing. At the same time, improving economic and pandemic conditions in India with a receding lockdown restrictions led to increase in our consumption of various goods and services. Growth in Q3 was also contributed not only by our payment business but also by our platform business. And in all the merchant customers and platform business, as you all know, Government e-Marketplace, one of our key clients, continue to grow quarter-on-quarter. This growth is especially due to our transaction-based revenue model arrangements with their customer. As the procurement value grows on Government e-Marketplace portal, our revenue will also grow and so will be our bottom line. This is due to our fast-paced business model where revenue growth is non-linear to the growth in cost. We are not linked to any personnel costs. The revenue growth is not linked to any services cost or personnel cost and so on. It is typically non-linear to the growth in the cost. GeM, in the last 9 months ending December 2020, has already surpassed the GMV achieved for the full year of FY '20. That is -- they have already achieved INR 27,000 crores. This growth comes despite pandemic event. Government has committed to increase procurement from GeM based on the public reports and is ensuring increasing usage across various departments. Now buyer organization on GeM portal has touched about 50,000 while number of sellers on the GeM portal has surpassed just about 1 million sellers. Again, it's all from the public reports. Government's intention to make it unified public procurement total for all central and state government institutions in the country as well as the railways, defense and CPSEs, et cetera. And this will significantly add to the procurement on the GeM platform. Recent announcements in the budget towards CapEx on infrastructure and railways will further increase procurement on GeM. GeM will also aims to bring about 20 million to 30 million sellers across the country on its portal with a focus on SMEs and -- SMEs, et cetera. Government plans to bring about INR 100 billion worth of procurement on GeM. And government, as you all know, spent around INR 250 billion to INR 300 billion annually on procurement. We mentioned in the last quarter that we have signed the definitive agreement with Reliance industries owned by Jio Platforms Limited and its affiliates to license, customize and maintain and access Infibeam Avenue's enterprise e-commerce software and payment platform for their internal business use. This engagement is very strategic and is developing well. And currently, integrations and testings are underway, and it is going on in full swing. We will provide further updates at an appropriate time. That said, we are going to enable 2 of our 4 largest market piece in that journey to become India's largest marketplaces. Marketplace in India, whether small enterprise or large enterprise, are going through a certain amount of rough basis. But however, our profitability will grow and shall continue to grow as our business model is actually linked to deeper opening of further opportunities. Apart from this 2 customers, we also saw few other domestic and international clients and have other businesses under the platform business, which are complementary to our marketplace platform. We will continue to add such large customers and pursue such opportunities, not only in India, but also globally. We do not have any competition from any technology enabler to build and implement e-commerce platform of this large scale and such of this technological depth. Now I will come back to the payment business, particularly on the Bill Payment business. Our Bill Payment Platform offering BBPS services is seeing a record growth quarter-after-quarter, and the numbers are very evident from our disclosure in the last few quarters. Our Bill Payments volume in Q3 has increased by 222% year-on-year and 31% quarter-on-quarter. We have a 94% market share of the total 19,316 billers on BBPS platform as of December '20. We are the TSP to majority of the them. Total number of agents through whom we provide BBPS services has reached roughly around 650,000 across pan-India. And of course, there are more on the pipeline. We continue to add more billers. We have roughly 100% repeat business in this segment. We are seeing a greater traction building for BillAvenue Platform as more bill payment categories are being added on BBPS platform. Billers and agents are also facilitating bill payments through BBPS platform and transaction volume on this platform is increasing month after month as per NPCI data. As tourism and travel, aviation, entertainment and hotel industry keep opening up in the coming months, we believe we will further benefit as a traction on our ResAvenue platform will increase. ResAvenue is our hospitality platform, built on CCAvenue platform payment gateway as an additional layer to specifically target hotels and resorts in the hospitality sector. We have over 3,000-plus hotels using ResAvenue platforms, including some of the market clients in India and UAE namely Taj, Oberoi, ITC, Hilton, Carlton, Lemontree, et cetera. Moving on to our new business update, which are very crucial, and we have announced these new business updates in the last few quarters. And in FY '21, we announced to launch many new fintech solutions under payment business, namely CPGS, CCAvenue Payment Gateway Services; B2B payments; extra settlement; Neo Banking; digital lending; credit card issuance, on which I want to spend few minutes to make you understand. It is important to note that this new business or based on our endeavor to improve not only on the top line, but also to boost our margins and increased cash flows in the company. Our endeavor is also to become an all-in-one payment solution provider, one-stop payment solution provider and expand our breadth of portfolios to international markets in due course of time. This is one of our growth drivers in the company. At the same time, we also endeavored to offer our payments integrated with our marketplace platform to create enormous value to our customers. This will enable us to become one of our merchants' core e-commerce digital partner and meet most of their digital requirements under one roof. I want to spend a little bit of time on CPGS solution. With respect to our CCAvenue Payment Gateway Solution, CPGS, we launched it first in Oman. CPGS is an on-premise SaaS model global payment solution to process cards of various payment networks like Visa, MasterCard, Amex and more, for financial institutions, et cetera. This service or fintech solution is always referred to as acquirer processer services or solutions. Until Q2, we offered these services to BankDhofar, second largest bank by market value in Oman. We have now tied up with Oman's largest bank, Bank Muscat. Together, these 2 banks have a majority market share of the card business in Oman. We have replaced 2 of the world's largest payment companies that were initially offering their services to these Omani banks. It is a very attractive business, as it does not have pass-through as well as online transactions, and that comes to the bank or processed by us. Also, it is fully managed from India, and hence, entire economics is very effective. We will scale this business globally. And these 2 accounts are considerably our strong reference accounts going forward, and we will scale this business not only in India, but also globally. B2B payments is progressing very well. We onboard corporates directly as well as HDFC Bank has white-labeled this solution from us, as you all now. We have many large marquee clients using these services for automation of bills receivables and bills payable. We have branded CCAvenue Finance, and under the CCAvenue Finance, one of the component is our extra settlement. Extra settlement where we lend or settle merchants' funds instantly. Instead of they regulate T+2 or T+3 operational since September 2020, we charge slightly higher rates for offering instant settlement services, which does not have any pass-through. Cost of funds for the company are currently practically nil as we are using our own internal approach for this arrangement. As you all know, we don't have any debt for working capital and so on. We are a net debt-free company as we speak. It improves our net take rate and also hence margins. We plan to scale this to 30% of India's daily GTVs over a period of 2 to 3 years' time. Neo Banking, including lending and credit card, are being tested internally and will be soft-launched by the end of this quarter or early next fiscal. We will update the progress of this business at the appropriate time. Go Payments. Go Payments, one of our subsidiary companies in India, has now over 30,000 agents from 10,000 agents last year, resulting a growth of 20,000 agents in a span of 1 year. Across 5,000-plus pin codes in India, these agents assist customers with various services like domestic remittances, AEPS, BBPS, serve as cash collection center for corporates, offer rechargers, et cetera. They collect cash from the consumers but, in turn, convert cash to digital by making digital balance with us. These agents use our online platform for offering all the above-mentioned services to consumers. Go Payment is at the run rate of handling little over USD 1 billion of cash annually, and it is growing month after month. They also have a transaction-based revenue model. That said, these new solutions, along with our existing business, will allow us to offer comprehensive payment solution encompassing payment acquiring, which is our financial business; payment issuance, which includes Neo Banking; card issuance and digital lending; three; domestic remittances and assisted commerce Go Payments; or international remittances through one of our investee companies, RemitOnline. Separately, So Hum, our majority-controlled subsidiary company, will apply to Reserve Bank of India for pan-India retail payment license, along with our consortium partners. The final application date is 26th February 2021. This will significantly strengthen company's offering, payment offering, and will make us a truly global payment company offering retail payment solutions, including offering at global payment networks apart from India's rupee. We will keep everyone posted with updates, and this is one of our significant updates going forward if it results into action. As you must be aware, payment business, along with our platform business, is a winning combination. We call internally P+P. P+P is a very successful combination globally. Mainly software platform and technology companies are now adding payments to their business portfolio to drive growth. These companies command extremely rich valuations despite some of them having lower operating and profitability margin than us, while some of them are still a loss-making one. There are multiple companies in the U.S., Internet giants in China, some in Japan, some in Asia Pacific. In our case, we have full stack of payment and platform solution with international presence, and it's still growing year after year, quarter after quarter, month after month. In the last slide of my presentation, investor presentation, I had talked about actually our performance, robust performance, compared to some of the peers in the industry, both in India and also overseas. In the interest of time, I don't want to get into more details, but it is very self-explanatory. And should there be any questions on that, feel free to really reach out to us. Hence, we have higher operating margin and profitability margin compared to all the peers. And you can see from the last slide of our investor presentation that the investors will have significant amount of headroom, considering our robust performance, both in sales and also in margins. As I have mentioned earlier, we are a net debt-free company. We consistently convert EBITDA into free cash and have a cash conversion ratio of over 100%. And our CapEx is now behind us. We are a light-asset model company, non-linear to people, and revenues are transaction-related, and revenues are transaction-based models, both for payment business and also on our SaaS platform business. We continue to innovate and build further on our profit-centric business model and keep adding great business value for our customers, partners and stakeholders. With this, I would like to hand over the call to Hiren Padhya, who is our CFO, to discuss about our financial performance for this quarter under reference. Over to you, Hiren.

Thank you, Srikanth. Consolidated revenue, which has grown 53% quarter-on-quarter. So far as payment business is concerned, it has grown a very high double-digit percentage quarter-on-quarter, mainly due to 23% increase in payment and to gross transaction value that is INR 27,916 crores. Revenue also increased due to higher gross take rate, which increased by 33% quarter-on-quarter as sectors like retail, grocery, IT and also improvement in aviations and travel and, finally, the usage of credit card, which has increased during the quarter. Platform business also grew during the quarter, mainly due to strong growth in GeM and other businesses. Procurements on GeM were highest ever in the quarter of around INR 8,000 crores. Growth in Bill Payments, which is highest ever, that has also contributed to the growth in revenues. Bill Payments volume, which has also increased to 6.4 million in quarter 3, that is 31% sequential growth and 222 million year-over-year growth. So far as EBIT is concerned, it has grown by 27% to INR 22 crores, and adjusted debt, which has improved by 95%, to INR 15 crores. Overall Q3 ended on a very strong note. As we enter into Q4, we are very much hopeful to deliver strong results. I now hand over the floor back to the operator for Q&A.

[Operator Instructions] And the first question is from the line of [ Nilesh Soni ] from ValueAdd.

Yes. I have a couple of questions. Sir, can you please share in more details on your Reliance deal, like what is the revenue potential from that agreement? And what would be the time line or the period of the agreement, which has been signed?

Yes. I will take this question. We signed the -- this is a very strategic contract from the company perspective. We signed the contract on 29th September. We announced it to the public on 30th September. And this is our licensing of our marketplace enterprise software platform to JPL and its affiliates for their internal business use. Fundamentally that this will be a target platform for them for their internal business use. And contract permit has to do a lot more the value-added services as a part of this contract, which are significant in nature after the software actually put to use and put to target and put to go live and so on and so forth. Right now, the platform is -- actually, the software is under test stage. And the test results will be out actually. And after that, they have their own process of going live and so on, so forth. Now in terms of business model, it is basically -- there are a lot of license fee model year after year. And there are [indiscernible] model linked to the transaction's volume. And there is a facilitating model for our payment business through this target platform, primarily actually doing payment processing business for their JioMart and other platforms and so on. Of course, we will also have an opportunity to do payment processing business for their telco piece of their business. And we also support and maintain the entire cyber platform once it is going live actually. And both the teams are working very hard actually to make it go live. And it also has a training component. And it also has the customization component for customizing our existing marketplace software. So it's suitable to the needs of the Jio platform. So all combining, put together, the actions are what has already started, and it is going through a developing stage and also testing phase stage and so on and so forth. There are models of licenses. There are models of revenues. And as and when the test phase is over and going live, all these revenues will get actually [indiscernible].

Okay. Any time line or when it will be like going live for them? Have they communicated something like that?

Obviously, customer will have the time line yesterday. And it's a very huge target platform. It is not a small target. So therefore, we are working out in a very capital manner. And at the same time that it has to be a successful delivery and so on. So therefore, there's always a pull and push from the customers. We wanted to do it actually ASAP. But the time plan has also been worked up, and they keep changing the requirements and so on so forth. So therefore, I'm not able to say very upfront about the time lines because it is also getting changed from the customer side, actually. But as and when it is going live, definitely, we will keep the investors updated.

Okay. And sir, second question was regarding the Oman market. So are you targeting or approaching any other bank in Oman after this Dhofar and Muscat or is any progress on finalization of a new client or something on that front in Oman?

As far as Oman is concerned, I think we are roughly -- with the humble submission is that Bank of Muscat and Bank of Dhofar is actually contributing 90%, 95% of the market share so on this piece, actually. So there are no other major banks actually leftover in the country of Oman. However, with this, Oman being a strong reference, we would like to replicate the same success story in other parts of UAE and also in India.

[Operator Instructions] The next question is from the line of [ Deval Shah ], an investor.

Mr. Vishal, I'd like to ask that PayPal is exiting payment executed business from 1st April. Will it increase our business? My first question is this. And second question is, we are applying for the umbrella license that for that INR 500 crore capital is required. So how we will get to that capital?

Vishwas, do you want to take this up?

Yes. Yes, I'll take it up, yes. Okay. So as far as PayPal exiting, since it's their own internal call, they were not able to primarily work together in that they're not able to compete with the existing Indian players that are there that includes us, right? And they're going to still remain focused only on cross-border transactions. So from that perspective, it is one less competitor. So definitely, of course, the market is growing anyway. So if you look at the whole digital scape today, there's only 18%, which is digitized right now. So there's a whole lot of almost 82%, which still is the nondigital. So the headroom for us for every player to grow is enough, and there are only 5 or 6 serious players, including us. So I think there's a whole lot of opportunity in the coming years. Even transacting customers, only 110 million Indians are transacting digitally. The government vision is to take it up to 500 million, who will transact digitally. So that's as far as the overall stipend to grow. The second question was on the NUE. So the NUE right now at this stage of application, only INR 50 crores is required by the consortiums of the main promoters that is there. Post that, INR 300 crore of positive network is required, right? An overall investment that is coming. So that is the post-license. So right now, by Feb 26, is where we have to just demonstrate a INR 50 crores, which we can easily do between us and our very strong consortium partners who are coming in. And as you are aware, NUE license is like once-in-a-lifetime opportunity. If you see the world's most valuable company, finance companies, Visa, with $500 trillion market cap. And Mastercard is also at #5 globally. It's more than JPMorgan Chase also in the valuation. So our network license like what Visa, Master, NPCI has is very valuable, and our company is making a very determined effort for it.

So is Yes Bank is your consortium partners because there was news floating around that Yes Bank is acquiring 10% stake in So Hum?

Yes, the final one, as and when we finalize, we'll let you know. I think by February 25 (sic) [ Feb 26 ], when the final licensing is done, we will do announce who the consortium partners are.

[Operator Instructions] The next question is from the line of Devesh Kumar from InCred.

Congratulations on a very good result. And my question is about the markets. Should one be looking at your international side because domestic opportunities are so used that one gets a sense that this itself will be the engine of growth or area where you can grow very fast. So one is, how do you look at segments, domestic versus international? And in domestic, this first-mover advantage, how far that will be effective on that if you could make some comment?

Okay. I will take it, Vishal?

Yes, yes.

Okay. So look, we are already 2 decades in the payments business, right? And thing is that there's all-around focus on our progress. So if you see, we are a global fintech company now. We're already present in India and in the Middle East, mainly in Oman, UAE, Saudi. We are already there in the U.S. now. And we'll continue to grow. So if you look segment-wise, while the platform business has always been in India and internationally where we have deployed for earlier with many international brands, right, the payments business also is divided into multiple platforms. So one is the aggregator business that we do where we acquire and own the direct merchant relationships. So in India, we already do it for last 2 decades, have 1 million-plus merchants and process 1 lakh crore amount of transactions every year at that run rate. Internationally, also in UAE, we have done significantly well. We are the #2 player there, processing AED 3 billion worth of transactions every year and going fast with a lot of blue-chip customers there. Saudi also has just started, and we are making significant headway, and we'll continue to grow. So the CPGS product, as you said, is backward integration for us, where we offer the entire platform and the services to banks. And we have started off on a very good footnote in the last 2 quarters with 2 banks in Oman, that is Bank Muscat, and BankDhofar, also the Jio Platform in India who's used it. And of course, we will take it up. So there's a separate team, who will take it internationally also. So the all-around idea is that we are going to be a global company, and we are going to explore opportunities to the build, not only domestically, but also internationally.

And to just to add to what just Vishwas said. So you're right, the domestic market is huge for us. And given the 20 years that we have in this market and given the recent demonetization as well as the pandemic that the take rate in the domestic market has gone through the roof. And fortunately, with the experience and the risk management frameworks and many others that we have established and they're very deep integrations with all the bank and the banking partners, we've got more than a few thousand integrations, which are deep integrations that we've made. That, adding -- and then we are adding more than 30,000 merchants every month. So that part has worked out pretty well for us. We don't think that we have to live in a world where we say that these competitive advantages of first-mover will be there forever. So we are always innovating, and we are providing more stickiness in terms of analytics and many dashboards and many other specific feature sets that most merchants require to be able to make it somewhat more sticky and also work on the success rates, the success ratios, and analytics will be a big role going forward for us. To your point about international, you see, it opens up a very large opportunity for us because if you target merchants who already are processing with us in India and open up in new geographies, and what Vishwas mentioned, which is that now we are there in at least 4 large geographies, that on a single integration for a merchant, they can be lighted up across multiple geographies. So if you look at very large MNCs and the likes of Googles and the Facebooks and many others who have got presence in multiple countries, that a single integration with all common processes, systems, frameworks, established brand, that it opens up a very large opportunity for a set of customers that we typically only operate only for India or potentially opens up for other geographies as well. So we think that digital will not have boundaries. We will continue building up our strong state-of-the-art framework for payments across multiple geographies. And we believe that the market in India for payments has highly evolved. Whereas in other geographies, it is still in a very nascent stage compared to what India is. So this gives us a technology advantage to be able to get into those geographies and also be able to make a difference in those.

The next question is from the line of Abhishek Khanna from Jefferies.

Sir, I had one question, which pertains to your revenue breakup, which is mentioned on the Slide 4. So I just wanted to know, right now, what is the breakup that you foresee for, let's say, FY '21 between payments and platforms? And what is the breakup that you foresee, let's say, 2 or 3 years down the line? Because from what I understand is -- and is it the case that you're moving away from a higher share of payments business towards a more share of the platforms business? That was my first question.

I'll take it.

Yes. Go ahead, Srikanth.