Emerald Finance Limited (538882) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Emerald Finance Limited Q1 and FY '25 Results Conference Call hosted by Kirin Advisors. [Operator's Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Chandni Chande from Kirin Advisors. Thank you, and over to you, ma'am.

On the behalf of Kirin Advisors, I welcome you all to the conference call of Emerald Finance Limited. From management team, we have Mr. Sanjay Aggarwal, Managing Director; Mr. Talin Aggarwal, Head of Business Development. Now I hand over the call to Mr. Sanjay Aggarwal. Over to you, sir.

Good afternoon, everyone. I am delighted to welcome you all to our Q1 FY '25 Earnings Call. Thank you all for taking time to join us today to discuss Emerald Finance Financial performance for the first quarter of FY '25. In this year, our total consolidated -- in this quarter, total income was at INR 4.4 crores, which represent a substantial year-on net increase of 858.41%. On stand-alone loan basis, our total income increased by 42.35%. Our EBITDA margin jumped by 114% on a year-on basis to INR 2.95 crores and on stand-alone basis 565.52% to INR 1.94 crores. Our PAT also increased almost doubled by 98.92% to INR 1.17 crore, and on a stand-alone basis increase of 45% to INR 1.10 crore. It is a major focus in the last quarter and the going forward will be on the EWA product, which is earned wage access. This product is weak in U.S. -- mainly in U.S. as well as European countries. In this particular product, we tie up with the employer, and thereby, we give a dashboard to the employer, and he think -- links to all his employees. And by that -- from that link, employees can withdraw up to 40% of their monthly salary and the repayment comes from the employer, next month. He deducts from the salary, let's say, whatever, let's say that employee salary is about INR 20,000 and he withdraws upto INR 8,000. So next month, employer deducts INR 8,000 from the employee salary and he pays INR 8,000, and the balance INR 12,000 gives to the employee. So we have till now total 15 partnerships -- live partnerships. And the major focus is going forward also is going to be on this particular product. Here, the money is almost 100% secure because the repayment is by the employer. So there is no hardly any chance of delinquency coming in. The only worst-case scenario will be only the employer is [indiscernible] from the employee salaries. And the second growth was -- major growth was from our subsidiary, in which we did almost more than INR 50 crores of gold loan business through Axis Bank and HDFC Bank. Here, it was only a [indiscernible] thing, and we didn't have any risk involved in this thing. And the first quarter for the FY '25, we also issued warrants of INR 10 crores to our industry global. It's a Mauritius based FDI. We have received 25% of the payment and the balance 75%, we expect to receive in this coming quarter. In the closing, I would like to express my gratitude to all my employees, customers, partners as well as shareholders for the unwavering support and trust in our company. We are really excited about our future growth prospects, mainly in our EWA as well as our Syndication business. Thank you once again for joining us today. And I'm looking forward to engaging discussion and addressing any questions you all may have.

[Operator Instructions] The first question is from the line of Bhumika Jain from Desvelado Advisory.

My question was, you have told that -- you have guided that the 15 companies in total, and you have given a target of 100 to 120 corporates this year. So how are you planning to [indiscernible] this target.

See, we have a [indiscernible] pan India. We are targeting about 50 subagents pan India. And even if there -- each one of them gets two corporates, we should easily cross INR 100 crores mark. We have got a very quick one HR firm in Bombay. So we have -- they are working at a senior level recruitment for Tata, Birla, Mahindra. Even if we get one or two major corporates like that, you should have substantially disbursement for them.

Okay. Sir, also your fee-based income has also doubled. So what can be the reason of fee-based income? Is there any reason existing clients? Or there -- is there any addition in new clients?

Addition of new clients. Actually, we have addition of new clients only. Of course there have been talk for businesses, but there is a major increase of the -- we're almost working in 100-plus cities in pan India for the distribution business. For HDFC Bank, I think we are third or fourth largest distribution for [indiscernible] pan India.

Okay, sir. Also, if you are planning to increase on new contracts now. So the [indiscernible] now. And are we planning to increase on your ticket size also?

Come again, come again please.

Your ticket size of EWA is INR 20,000 to INR 50,000 for now. Are you planning to increase on your ticket size?

No, we are not planning as such to increase the ticket size. It depends on what is the salary bracket of the employees who are taking money. We normally can give up to 40% of the salary. If somebody's salary is INR 50,000, we'll disburse INR 20,000. If somebody's salary is INR 2 lakhs, then accordingly, we'll disburse INR 80,000. See, normal people who take this EWA from is they have the salary bracket of INR 15,000 to INR 50,000.

Okay, sir. Also, your debtor days have been doubled. So is this the reason for not increasing the ticket size?

Come again, come again I couldn't hear, please.

Debtor days have been doubled. So is this the reason for not increasing the ticket size?

No, no. See, ticket size is not -- is any constraint. If somebody employee who has a salary of, let's say, INR 2 lakhs, he wants to withdraw up to INR 80,000. We are more than willing to disburse the amount to him. See, debtor days increase basically of fee-based activities, our Syndication business, where sometimes payments get delayed from either from the parent company or from the individual major company. It does not mean EWA collections. We are receiving on due date. All the payments are receiving on the due dates. Normally, in EWA, we receive the payment on before 15th of next month, [indiscernible] all money is collected. These debtors are mainly on account of Syndication business.

The next question is from the line of Harsh Shah from [indiscernible] Family Office.

Congratulations firstly on a great set of numbers.

Thank you, very much.

I wanted to ask a couple of questions. So the first question is like what is the total loan book size currently? And out of the total loan book size, if you can give me the breakup of business loans and early wage access that we are doing currently like monthly? So if you can give me that breakup, that will be helpful.

Total book size is around INR 49 crores. Currently, EWA is only for INR 2 crores out of that. But going forward, we expect EWA to increase -- much more focus will be on EWA. EWA was started about 3, 4 months back only. So we are just setting up subagents and tying up with more and more corporates. Our future growth prospects will come majorly from EWA. As of date, it's about INR 2 crores only.

So in the last con call, I guess, we -- the EWA was INR 1 crore monthly. So we have increased that to INR 2crores.

Yes. Yes. Yes.

Okay. And sir, so what -- can you give me like what is the -- like how -- status on the partnerships that we are tying up that we are doing with the corporates? So have -- are we in talks with many new corporates, if you can guide me on the growth.

Yes, we talked with a number of corporates, and we got a major tie-up which is like I told you HR firm and a couple of CA firms also, who are also sourcing clients for us. See, the main problem in this product is it takes a little time more to tie-up with the corporate. We have to convince the corporate to tie-up. Once that tie-up is done, then the business flow starts automatically. That is a major challenge. That is the major challenge. Tying up with the corporate is the major challenge in this product. See, technology-wise there a very robust technology. We can -- our system can handle 20,000 transactions per second, unless system get robust. Major challenge is finding new corporates and convincing them to tie-up for this particular product.

Follow-up question on that. So what exactly is the challenge that we face in terms of onboarding or tying up with corporates? Because in the model that we see, there is typically no cost that the corporate or the company has to pay, right? Because the employee is bearing the interest and the corporate has to just repay the thing that -- repay the money that the employee works for, right? So the cost on the corporate is 0 per se. So what is the challenge that we face in tying up with corporates?

See, the major challenge always comes from the HR department. They have to do additional work. I'm talking with one of the large corporate in Mumbai. So even the CEO and the CFO is agreeing, HR department is not agreeing because they see this additional burden, additional work they have to do. Otherwise, CEO has cleared, CFO has cleared the proposal. We get mostly that stuck up at the HR department level. But still that's not because the slowly and steadily number of corporates increasing month-on-month. And now we got -- in the meantime, we are setting a very good network also, which will -- they will source up the corporates for us. We pass certain amount of commission to them. So they also -- somebody else also have the advantage of sourcing for us.

That's helpful. And one last question was like out of the total employee strength of a corporate, like what is the percentage of the workforce that avails for the EWA facility month by month for example...

10% to 15%.

So 10% to 15% of the employee strength?

Yes, 10% to 15% employee strength, what we are typically seeing. But that keeps on increasing by word of mouth increases month-on-month. Let's say about 100 employees in a company, let's say, 10 people take, they tell their neighbors also no, the coworkers that we have taken. And they also -- we typically see 10% growth in every corporate which we have tied up. And this is majorly by word of mouth only.

The next question is from the line of Himanshu Mande, who is an investor.

Sir, my question would be, which market cap businesses are we concentrating on? I mean to say that is it to the mid-cap companies or large cap companies that you are making tie-ups and giving your services?

See, we are open to all the corporates. Like I told you, we have onboarded one agent who has tie up with us. He has been working for Tata and all major corporates in India. But we are not able to make onboard as such right now. Currently, the 15 companies we have, these are basically small companies or mid-cap companies, you can say. But we are open to all sorts of companies because our system is robust enough, we can handle, as I said earlier, 20,000 transactions per second. So even if we are able to board some very large corporate, we will be able to handle the volume of business. And funding is also not an issue because we have a tie-up with State Bank, term loan from State Bank, the money will come from there.

Great, sir. And are we only concentrating in the Indian market? Or do we have any future plan to accelerate the business in the global world?

Indian market is so huge. It's totally untapped as of date, totally untapped. It is a trillion-dollar market. We will not go elsewhere. Just focus on to this. It's a huge -- I don't know why it started in India. If you look at U.S., this EWA product is so popular over there. I mean, I was recently in U.S., the market is like take their salary after every shift. In U.S., so they work in the morning and the evening, they withdraw their salary.

Yes, sir. Actually, sir, I am a TCS employee, and I already know all these things that my company is also providing the similar kind of services. I don't know which company is tied up with TCS at this moment. So I am also sometimes utilizing these facilities, which company is providing. And my next question would be what verticals are we planning? Is it to any vertical-specific plans you have? Or -- I mean, for the future as well as for now? Or it is like you said that it is open for all?

Vertical in the sense, any particular segment?

Vertical, yes, verticals like automobile, IT, pharma, like...

There's no particular vertical like that. We are open to all.

There is no relation?

No, no. We have recently tied up with -- [indiscernible] Services in Chandigarh. This is one of the largest IT company, about 1,500 employees. So next week, we'll start the disbursements also. So we are open to all sectors.

Okay. Great, sir. And my next question is, are we only tying up with the private sector companies? Or do we have any future plan by going with the government subsidiaries or some government organization or something?

See, currently, we are working only for the private sector. We had approached a couple of government companies also. But the problem over there is they are hesitant to share the data of their employees because we need all the KYC documents, the salary brackets. We approached a couple of departments in Haryana. So -- but they said they will not share all the employee data. But in our particular product, we need to have the entire KYC documents and bank account numbers supplied by the employer. Government departments are a little hesitant on sharing that particular data.

Great, sir. I wish we will get these things also through with the government sector companies or maybe the subsidiaries in going future. Sir, how Emerald is getting income out of all these things what we are doing? I mean, see, you are giving money to the employee, employer giving it back to you. So is there any interest? Or what kind of income Emerald is costing in between?

See, we charge upfront processing fees. Like, let's say, if we disburse somebody, INR 10,000, we deduct a certain processing fee upfront from the employee. See, we have given a range of 18% to 60% to RBI. We have submitted the entire product program to RBI. The interest rate ranges between 18% to about 60%. We don't charge 60%. It is much lesser than that. It's upfront -- processing fees upfront deducted from the disbursal amount. And the employee pays, let's say, somebody is withdrawing INR 10,000, we pay him INR 10,000 minus the processing fees and the employer will pay us back INR 10,000 complete.

Fantastic, sir. Maybe this question is also related to the same. So it is the only income model Emerald has? Or are we also switching in some other income models in future? I mean, if I want to stick with the company for a longer period and maybe I will increase my stake also. So is it -- I mean, what kind of models are we planning in the future, business model I mean.

Currently, we have 3 models. One is they are doing business loans. That is what we've started with. And majority of that chunk of book size is because of business loans as of date. Two is the EWA. Third is the distribution model, which we're doing pan India for almost 40 banks. We are distributing the various retail products, right from gold loans to personal loans to business loans to home loans and loan against property. And going forward, we are talking to a couple of more -- starting off a couple of more products, that is still in the pipeline. As and when they mature, we'll let you know. We'll inform the [indiscernible] on that as and when we start with that. But we have 2 things that are already in the pipeline for that.

[Operator Instructions] The next question is from the line of Raj, who's an investor.

My question is like who are our competitors? And what is our USP that makes a company choose us instead of any other firm and other competitors that we have in India?

We have got 3 main competitors, [indiscernible], that's Chennai based. Second is [indiscernible] and third is [indiscernible] is not doing -- not into but they are in completely personal loans. See, only 2 NBFCs currently have this doing this EWA product. We and the [indiscernible] Chennai, [indiscernible] have an NBFC license. But they have received funding from Nexus and one more [indiscernible] investor.

And like you keep saying like we have capability of having 2,000 transactions per second. Just to see the scale, like where are we right now? What is the current utilization if we can call that?

I think it's quite less. It is quite less 20,000 is the maximum the systems can handle as of date. So right now, we're quite less on that. I think as of date, we have about 900 clients.

The next question is from the line of Gaurav Magu, who is an investor.

So are you facing like -- are we facing any kind of competition from private banks, who keeps these salary accounts with them of these employees? Are -- have you seen -- I mean are they preparing any such product? Or have they approach corporate with some similar kind of a product or not?

No, we have not come up date. As of date, only 4 companies in India are doing. And [indiscernible].

And how many clients have we added in this quarter?

I think about 6 more clients, 6 or 7. Total as of date are 15.

Okay. [Foreign Language] Like we have not tried even the service probably.

It's a huge -- it's a trillion-dollar market. It's a huge, huge market. We are right now focusing -- which is now to activate our subagents. And we have done 1 or 2 major partnerships in Mumbai. And I think that results should come -- should start showing in this quarter, max the next quarter. These are agents who have huge corporate tie-ups with them. We're parting certain part of the fees to them, and you should have major growth prospects maybe going forward next quarter or end of this quarter.

And is there any clients who have stopped doing -- stopped using these services or they started with us.