AvenuesAI Limited (539807) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Infibeam Avenues Limited Q1 FY '22 Earnings Call, hosted by InCred Research. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to [ Mr. Sri Shankar ] from InCred Research. Thank you, and over to you, sir. .

Thank you, Malika, and good afternoon, so good evening, ladies and gentlemen. We have with us Mr. Vishal Mehta, Managing Director; Mr. Vishwas Patel, Executive Director; Mr. Srikanth Rajgopal, President; Mr. Hiren Padhya CFO; and Mr. Purvesh Parekh, Head of Investor Relations from Infibeam Avenues on this call -- analyst call for the first quarter FY '22 results. Without much delay, let me hand over the call to Mr. Vishal Mehta, MD and CEO, to give his opening remarks and the key highlights for the quarter. Thank you. Over to you, sir.

Thanks, [ Sri Shankar ]. Good afternoon to all of you. Good evening to all of you, and welcome to the First Quarter FY '22 Earnings Call of Infibeam Avenues Limited. As we are all aware, and we know that we are witnessing a series of pandemic events and the impact on the domestic as well as global economies. And as new virus strains are panning out, it seems that this pandemic is far from over. COVID has posed a huge challenge to the humanity and currently, touchless to 0 contact seems an inevitable solution that helps us keep the virus of COVID-19 at bay. My reason to ponder on this issue is mainly because the future economies that I see steering towards a complete digital domination is inevitable. The world economy is at a very crucial transition phase. And I see an exponential growth in coming years for digital economy and Infibeam Avenues. As we all adapt to digitization as a whole and digital payments being a very vital and important part of it for keeping everyone secure from touchless transactions. The more society turns as a whole towards digitization and stores their data digitally, the more exponential growth I see for digital economy and Infibeam Avenues. No doubt, COVID-19 is paying the entire human race. But friends, whether we like it or not, this pandemic has created and been a catalyst for digitization. God has blessed us all humans with this intrinsic indomitable nature, where we overcome sufferings and obstruction sooner or later. This nature of human race has made every entrepreneur in business fight this invincible virus in its own way, paving the path to human's race for safety and success. We at Infibeam Avenue believe in looking at the bright side of every adversity and challenges. In this challenging time, we decided to look towards the bright side and outgrow in turn all adversities to the advantage. The advantage I see for humans is a permanent digital world or digital economy. It reminds me of the famous Roman philosopher Seneca's quote, "Luck happens when preparation meets opportunity." I firmly believe that we, at Infibeam Avenues, amply fit this quote. We are an excellent example of preparation meets opportunity. Infibeam Avenues for years has been prepared and created assets, building payment gateways with vast national and international clientele, data center infrastructure, processing payments at a run rate of $18 billion. We have garnered over more than 3 million merchants with full KYC. We have developed and provided SaaS-based solutions for clients, including the likes of [ IRCTC ], GeM, several of the Indian banks and others. Now over years of preparation with work wonders, we believe, for years to come. Imagine the kind of data that we are sitting on top of and due to years of preparation of such high-end Fintech technologies and services that we have built over time, it has put us in a position to get the most out of this mass digitization of economies that has now begun in full swing. The digitization of human race for most of the work, especially the payments is irreversible. Infibeam will soon foray into the credit business, which we will be one of the biggest bets for our exponential growth. But at the same time, it will be the safest bet. Now of course, why safest? As I mentioned earlier, preparation meets opportunity. With the mass digitization and digitization of economies, data-driven credit/lending will be the way forward. We are well poised to scale it within a few months of our entry as we are sitting on top of huge amounts of data, both users as well as merchants, and with an upsurge of digital payments and adoption by various organizations, our user data has practically doubled in the last one year. Scaling up Infibeam Avenues profitably by multiple times via Neo Banking and data-driven lending poses an enormous opportunity for the company. Our Neo Banking and data-driven lending will be asset-light and digital-only, almost a plug-and-play format for us. Our current payments platform already has millions of customer data, to whom we will be providing credit financing via strategic tie-ups with banks and NBFCs. Merchant data on our platform is growing in leaps and bounds, almost every month, due to the pandemic as well as our reach. And we will soon reach more than 10 million merchants using our platform. That quote of preparation meets opportunity also aptly fits here because in the monsoon session, the Government of India has passed amendments to the factoring law, which is now enabled as many as 9,000 nonbanking financial companies, NBFCs, to participate in the factoring market instead of just 7 NBFCs. The factoring or bill discounting market is worth $6 billion in India. The factoring market accounts for only 0.2% of India's GDP, way behind comparable developing economies such as Brazil, which is at 4.1%, China at 3.2% accordingly to a report of the parliamentary standing committee on finance, which endorsed the bill. The factoring market worldwide is projected to reach $9.2 trillion by 2025. Our credit business will be data-driven lending, matrix derived from our existing business functioning, which will be deployed to tap this factoring market starting with Indian markets. Our CCAvenue payment gateway infrastructure is at a run rate of processing $18 billion worth of digital payments for FY '22 and another $10 billion on GeM platform. In this -- if this trend continues, where people, institutions or organizations are adopting digitalization at such a fast pace, we may soon process more than $100 billion worth of digital transactions. Briefly, exponential growth in digitalization has led to exponential growth in data creation and massive use of online payments, which will help our credit business. We won't set up our own NBFC at present as it is not our core business. But surely, we will have tie-ups with several strategic banks and NBFCs and other credit/lending products, including business loan, working capital loan and other parts of factoring bill discounting. So we will not only experience a growth coming from transaction fees from payments, which we currently have, but also from high credit commission fees that we will receive by enabling such transactions. Why would an NBFC or bank prefer us? The reason is very straightforward. In a data-driven lending, banks and NBFCs will get verified data on merchants, financial status, standings, that has been created by merchants themselves with the years of transactions that have been passed through our payment gateway network infrastructure. This is an opportunity where merchants will be able to get collateral free, highly competitive rate loans. Thus, credentials and credit repayment capabilities are assured to a certain extent for such banks and NBFCs. That's it from me. I would now pass it on to Vishwas. Vishwas, all yours.

Thank you, Vishal. Good afternoon to all of you. In this challenging times, technology has been at the forefront to strengthen the business activities, especially for millions of MSMEs and small vendors, who have been badly affected through the -- throughout the pandemic. Our Fintech portfolio of digital payments and e-commerce SaaS platforms has enabled more than 1 million merchants since the start of the pandemic last year. Unlike what we saw in the same quarter last year, digital adoption and usage has been higher this quarter. Last year in Q1, our TPV was around INR 18,765 crores, that is 28% lower than Q4 of FY '20, that was a pre-COVID quarter. This could -- this can be attributed to sharp downturn in travel and hospitality business from slowdown and many other businesses. But it was also because of the relatively lower adoption and usage of digital platforms to do business during the pre-COVID period compared to now. However, COVID seems to have pushed businesses to adopt digital as a primary mode of doing business. We say this because we achieved a record TPV of INR 50,650 crores in 90 days in Q1 of this year, which is up almost 2.07x versus quarter 1 of last year. This is also higher sequentially -- while our core like travel and hospitality business are still below the average, but many other traditional businesses adopted digital means and new businesses with technology for businesses, models are coming online, including individual [ office needs ]. Utility, retail and education are among the leading contributors to this growth. As we have mentioned in the past and on several calls with analysts and investors, demonetization set the stage for digital adoption, while COVID has surely accelerated the digital adoption. Both our businesses, payments and platforms have benefited massively during this period. Our TPV has increased from INR 12,600 crores, that was just under USD 2 billion in FY '17, the year of demonetization to a current run rate now of INR 2 lakh crores, that is almost USD 28 billion for FY '22. Also some new payment options have brought the informal economy into the formal economy, which will also boost digital transactions going forward, and digital business models where will eventually become a new normal. We are also certain that many old and traditional and small and large businesses will adopt online platforms for growing businesses going forward. We are seeing a huge section in India from conglomerates and other large enterprises expanding into digital businesses, fast taking their digital launches and their go-to-market strategy. Tech businesses are also raising funds to fast pace the digital journeys and extend. More than 21 unicorns have been created in a short period of 8, 9 months. And many new new-generation entrepreneurs players will also start with the tech-frist business model. And all these payments will be at the center of all digital transactions. And our payment business, CCAvenue, as you all know, is one of the India's oldest and the most innovative retail payment gateway, and among the most trusted by the businesses and banks, will surely benefit. Plus the tailwinds are strong and supportive as there is ample headroom for growth. Consider this as on FY '21, digital payment transactions per capita per annum in India was just 33 transactions. Indonesia was 34 way back in 2017 and South Africa 79, and Singapore and Sweden were way ahead at 782 and 498. Also, over the last few years, our assessment of online payment gateway industry shows that it has grown annually at 50% for the last 4, 5 years. And with that currently at USD 175 billion as of FY '21. Top 5 players contributed around 70%, 75% of this TPV. We believe the industry will grow annually at a minimum rate of 25%, reaching about USD 550 billion in FY '26. And if this growth continues, it will reach USD 1.5 trillion by FY '31. We will not be surprised to see a higher growth exceeding expectations. Various sources indicate that a number of digital payment users in the country were approximate 175 million in FY '21, which has increased to about 225 million, 250 million after the second wave in just 3 months. We expect the digital payment users in the country will reach 650 million by FY '31, while the smartphone penetration could reach 900 million to 1 billion and with 250 million plus 5G connections. Also digitally transacting merchants will increase from 15 million, 20 million currently to over 50 million by 2031. With this, the overall monthly digital payments in India defined by RBI could reach USD 10 trillion in FY '31 from the USD 2.4 trillion in March 2021. And our payment business is always on the automatic growth more due to the exclusive digital transactions, of which we will be a big beneficiary due to the full stack of portfolio that we offer. Our payment business, TPV has increased 134% year-on-year and now averages over INR 10,000 crores every month, which was less than INR 5,000 crores in Q1 this last year. And with a multichannel, multi-tech, multi-country portfolio, the payment business growth will accelerate. The payments business is a cart and the platform business is the horse before the cart. That's why we will emulate our growth. I will now request our CFO, Hiren, to talk about the financial and operational performance in Q1 FY '22. Thank you. Hiren ji?

Good evening, everybody. Gross revenue was up practically by 120% Y-o-Y to INR 215 crores as total processing volume has jumped 170% year-over-year to INR 50,651 crores. India and UAE payments, GeM and Go Payments have all increased sharply, which is contributing to the growth. Volumes have also increased very sharply to 55 million in this quarter. We are also seeing a great traction from merchants. Over 1,500 plus merchants have been activated or onboarded daily in Q1. This helps us build a strong future pipeline for growth. We have experienced this with a growth in total processing volume over the last 2, 3 quarters, and this merchant pipeline continues to be very strong. Bill payments have shown a stellar performance. Gross revenue has increased over 1000% in Q1 or over 10x year-over-year. Gross margin has increased 3x year-over-year, and we expect it to improve further in the next few quarters as transactions ramp up. Revenue in this business is transaction-based with a flat fee structure as per the guidelines of NPCI. Now coming to EBITDA. Our payment business EBITDA as a percentage of net revenue is over 50%, which is among the based for any payment company. This margin is comparable with some of the top international payment companies in a similar business. Our UAE payments business generates even higher margin. Majority of business is through credit cards. Platform business also generates very high EBITDA margin of nearly 60%, as there is no pass-through like payment business. The Enterprise eCommerce software is already built by us over the years, which is amply fitting the quote preparation meets opportunity. Now so far as PAT is concerned, it has grown 14% to INR 13 crores compared to INR 12 crores in the same quarter last year. This combination of platform and payments is a very successful model for us and globally also it is well proven. It consistently generates positive cash flow for us quarter after quarter and our cash conversion ratio, that is cash flow from operations by EBITDA is consistently above 100%. With this, I hand over the floor back to Shankar to begin the Q&A.

Malika, can you take the questions, please?

[Operator Instructions] The first question is from the line of [ Unnati Bhavekar ] from K.R. Choksey.

Hello? Hello.

Yes, please go ahead.

Yes. Thanks for the opportunity. It's [ Unnati Bhavekar ]. I have -- net revenues have grown at a slower pace of 3% as per the presentation and the results against [indiscernible]. And you've also mentioned that it's because of firm growth [indiscernible] has been offset partly by fall in other operating revenues year-on-year. So can you please explain what's the other operating revenue comprised of, whether it is subscription revenue from the market cash flow, whether it has weakened year-on-year...

The voice is not very clear to me at least. I'm not able to hear the questions properly.

Yes, I'll just repeat my question.

Yes.

Yes. So you have said that the net revenues have grown at a slower pace, although the gross revenue has grown at a much stronger level. So just wanted to understand -- you've mentioned that other operating revenues were the major reason behind these lower growth in the revenue year-on-year. So just wanted to understand whether subscription revenue from the e-market software side has weakened and that is the reason why there has been weakness in the net revenue growth year-on-year and whether it has the same set of reasons that are attributable for the quarter-on-quarter weakness also in the net revenue?

I will take this question. So basically, on the net revenue tax, it was actually 8 bps in the previous quarter and the current quarter, it actually is 7 bps. The fundamental point is that on the overall, if you really see the blended take rates, it is 6.9 bps actually in Q4 and 6.8 bps actually in Q1. It is actually a 0.1 bps drop in the net blended take rates on both platform business and payment business. So for all practical purposes, that as we have been publicly articulating, we have 2 horse engine actually to pull our car. One is payments. As Vishwas was mentioning that INR 32,489 crore was our payment value for this quarter. And on the transaction-based e-commerce enterprise platform, it was INR 18,000 crores. So all put together, it is about INR 50,000 crores, INR 50,651 crores. Now the basic point is that still, as you know, that we started our second wave during this quarter under reference. And still the hospitality sector, entertainment sector, to a larger extent, even aviation sectors, travel sectors and hotel sectors have not been fully opened actually on the entire pan-India basis. So that is our profitable sectors, actually, this is our legacy, and that is our one of our profitable sectors, and which has a huge business with double-digit business vertical concentration, actually. So despite that, our volumes have gone up primarily because of our BillAvenue platforms, read with our utility bills and our energy bills and education sectors and so on, that really compensated the growth. So once these sectors gets actually fully reopen, we believe that there will be a north-based movement actually on the net take rate actually.

The next question is from the line of Ravi Mehta from Deep Financial.

Am I audible?

Yes, Ravi.

So I see the mention of getting into Neo Banking, the CPGS rollout globally. And so many initiatives being mentioned in the press note. So I was just wondering whether the OpEx could be a little bit on the higher side for 1 or 2 years to do all these rollouts. And then probably we can see the higher profitability coming in? Or how does it work?

Yes, Ravi. I think you hit the nail very, very correctly. I think there are actually -- if you ask me, there are 2 new initiatives. One is on the credits and lending space actually tying up with banks and NBFC, for which we started investment actually during the current quarter under reference towards our platforms, towards our framework, towards our credit algorithm and towards our overall credit solutions and so on. So that bases of investments have actually started during the current quarter under reference. So this kind of an investment possibly may continue for a few more quarters to get into the full-fledged lending partnership with banks and NBFC and to make a difference actually in the lending market. And as you know that our potential net bps actually for our PG business is about 10 bps on an average, and that is what the peak, right now is about 7 bps, 6.9 bps and so on. But on the lending, the margins are multifold or higher. So therefore, lending is definitely the accelerated growth driver for the company, and that is what we visualize. And that is what actually as a vision statement, Vishal had made actually as a road map in the beginning of this conversation that we are entering and foray into the credit space actually. So therefore, this is not the new road map and which we have publicly articulated in September 2020, that we are getting into the new banking. And for that, actually, we have a GRIT card insurances, card issuance as platform. And for that to start the lending, actually, we have started the express settlement. Ravi, as you know, that we talked about actually in Q4 and also Q3. Fundamental point is that our run rate, we started in a bootstrap from 0 on the express settlement to as part of our lending. And by the end of FY '21, that is last year, our run rate was roughly INR 3.5 crores per day, which is about roughly $100 million. And now based on our Q1 run rate, we have actually almost doubled it. We have done -- we are doing now on an average INR 6 crores per day. So this would mean that we have already -- we have guided the market that we will double the run rate of our express settlement from $100 million to $200 million. And I think we have almost doubled, actually, even by the end of this first quarter, actually. So based on the current run rate. So now today, we are doing extra settlement of a little over $50 million on a quarterly basis. So this is one of the profit drivers. So therefore, Neo Banking in a way towards express settlement on a secured lending has already started. But this is not enough. Therefore, we see a bigger opportunity in the lending given the fact that we have a huge database of merchants. And we are invested. Actually, we started investments in a phase manner towards various credits algorithm, framework solutions, technology frameworks and solutions. And with the merchant database, which is a data-driven approach, we believe that we will be able to attract some top banks in the country towards partnership, because banks are willing to really do that because they lack actually this kind of an onboarding process. So we believe that, that is going to be a good opportunity for us because the market size is 3 digits in billion dollars. Even if we get actually 1% or 2% of that over a period of time, and that is going to be a huge loan book actually for us. Of course, the caution statement is that we are not exposing any credit risk, we are the enablers. But however, we make actually huge filling actually through our solutions. So that is basically the strategy. So that is we have started, and you will find a little bit effect actually on our margin percentage in the next few quarters because of this initiation, but this is going to be a state capital, which we are doing out of our internal accrual for the future growth actually, Ravi. In that sense, you are absolutely correct.

And I believe nothing will be capitalized on the balance sheet, everything will be expensed.

Yes.

Sure. Any aspiration of what kind of lending book you aspire to reach, once you are tapping this opportunity tying up with NBFC and banks?

Market opportunity is huge. It's very premature to really numbers. Any number is a good number, actually. So the opportunity is really very, very huge. And the challenge is that to build the nice credit algorithm and programs and the technology solutions enable our huge database of our merchants. In addition to that, we have existing relationships with the large players, actually. So we believe that we will be able to leverage that relationship to boost this lending business actually.

Okay. And the target market would be somebody beyond the reach of banks, preferred by NBFCs or who would you target?

The target would be -- I mean banks and NBFCs are our -- credit exposures, have been exposures actually partners. And for all practical purpose, the ultimate loan takers are, I would say, end merchants, actually, to a larger extent, could be SMEs and MSMEs, even corporate players and a bit of the high and low end and all these kind of combinations actually because the exposure is going to be taken by the banks and NBFC. Of course, we have some moral responsibility, but not legal responsibility. But our role is basically an enabler role to make sure that we get a end-to-end success actually through this lending model actually.

And we won't be giving any kind of some credit guarantee or something like maybe generate. So is there some...

Yes. Under regulation, we cannot really neither take the credit exposure, nor give any LOGs or guarantees and so on, which is under regulation because we being a PG player, but that is what we are partnering with banks and NBFC.

[Operator Instructions] The next question is from the line of Santosh.

So my question is kind of a generic one, which is I just want to inquire about the e-commerce platform enterprise for Jio, JioMart specifically, whether it is for website as well as android app? I mean, whether we are giving services for both? And the second question would be, I mean, whether the payment gateway was active because the last time I checked, it was being directed to pay you money.

Right. Basically, that the mobile and app base is definitely in the road map, and it will eventually come. And as far as the payment processing is concerned, I think we completed the white labeling process actually with Jio and it has gone live. And we will -- as in the past, we will continue to compete with the other players to grab more PG business actually through our relationship.

[Operator Instructions] The next question is from the line of [ Sri Shankar ] from InCred Research.

Yes. I have a couple of questions. My first question is see, the way we have moved into Middle Eastern markets and gaining traction over there and has been doing pretty well. What is your road map going forward to grow internationally? I mean, I'm asking this question despite knowing that there is a tremendous opportunity, domestically itself for us to grow. But I would understand that the take rates are going to be much more on the higher side in the international market than what is it locally, because of the serious competition out here. Can you answer on that, please?