One MobiKwik Systems Limited (MOBIKWIK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to MobiKwik Limited Q4 FY '25 Conference Call hosted by Investec Capital Services Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nidhesh Jain from Investec India. Thank you, and over to you, sir.

Thank you, Abrat. Good evening, everyone. Welcome to the Quarter 4 FY '25 Earnings Conference Call of One MobiKwik Systems Limited. To discuss MobiKwik's financial performance and address your queries, we have with us Mr. Bipin Preet Singh, Managing Director and CEO. Ms. Upasana Taku, Chairperson, Executive Director and CFO; Ms. Komal Sharan, Head Finance, Corporate Development and IR; and Mr. Anand Kumar, Head of Corporate Development and Investor Relations. I would now like to hand over the call to Ms. Komal for her opening comments. Over to you, Komal.

I will start by giving a short overview about what MobiKwik is, what it does and a little bit of our performance, and we will then hand back over for questions. MobiKwik, as you know, has built a business primarily focused on wallet over the last 15 years. We have seen significant growth in our payments GMV in this space, and we believe we have carved a niche for ourselves as a leading wallet player in India. We have also introduced innovative products like wallet and UPI, which is a smarter way of doing UPI, keeping our bank accounts safe, clutter free. Over and above that, we have built a lending vertical. Lending as a market, we believe, has massive potential in India given its underpenetrated nature. Across these two businesses, we've been earning an overall 30% contribution margin. Payments as a business, as you know, affords us about 20% margins. Lending at a portfolio level was about 40%, translating to 30% margins at the company level. Going forward, we feel there are three key drivers for our business. First pillar of our growth will be the continuing growth in the payments business. The major bet for our business continues to be in the payment space. As you saw in our IR presentation, last year, we have grown our GMV by over 200% to cross INR 1 trillion or INR 1 lakh crores of GMV on our network. We see payments GMV only accelerating from here on, given the increasing digitization of the economy and use cases. Within payments, besides existing use cases, we also expect exponential growth in not just Pocket UPI, but also RuPay card. RuPay card, we feel has become as big as Pocket UPI given its inherent product market fit and good unit economics. Moving on to lending. While we've all seen in the past few quarters, we have had certain regulatory changes, which have impacted this space. However, we feel recovery is imminent in this space, and it should start reflecting in numbers in the second half of the year. We are already seeing positive commentary from banks and NBFC partners for an H2 recovery. The regulatory changes, while they had a short-term negative impact, have also had overall positive impact in the space, including streamlining the pricing for unsecured PL as well as making the business stable from an overall perspective. Therefore, lending, we feel is coming off the back of a few weak quarters, but it will soon see an inflection point, and it will take a few more quarters before it starts getting back to its portfolio levels of contribution margin. The third key pillar of our growth is our Zaakpay business, which is another arrow in our arsenal, which we have not yet fired. We've received the full PAPG license from RBI. And now we believe we can play an even larger role in the payments ecosystem. Overall, we do feel that while we are a smaller player in the fintech ecosystem, we remain confident that our headroom for growth is much higher, much disproportionate from here on. And therefore, we are investing for this growth. Profitability is inevitable. We have demonstrated in 6 out of the 8 last quarters. Last 2 quarters, of course, our EBITDA has been negative due to lower CM coming from lending business, even as we continue that higher investment for future growth. We do feel we are at a point of time where we are well invested for future growth. We are confident of seeing an inflection and the inherent operating leverage in the business model playing on from here on. With this, I would like to pass back to the operator to open the floor for Q&A.

[Operator Instructions] The first question is from the line of Aman Jain from Gopaisa Netventures Private Limited.

I wanted to inquire specifically on -- there is a special feature on the app called the RentPay feature. Where exactly are the revenues for that accounted for in which particular line item?

So this is accounted for payment line item only.

The payments GMV?

Payments GMV and revenue from payment services.

Revenue for payment services. And what kind of gross take we have on this specific line of business?

So we are actually not tracking on a category basis. Our blended take rate for this quarter is 0.64% including all the...

This is for the entire business or specifically for payments GMV?

Payment GMV. So in this quarter, we have done INR 33,100 crores of GMV in this quarter. For the entire year, we did INR 1,15,000 crores. So for this INR 33,000 crores, our take rate is 0.64%.

And what is the contribution of this specific line of business for the rent business, rent execution payment?

We are not tracking it actually on a use case basis.

Okay. And what would be the top 3 use cases within this? And where exactly how are you seeing the growth going forward for within the payments vertical?

So if you see our numbers, last year, we have done INR 38,000 crores. In FY '24, for the full year, we had payments GMV of INR 38,000 crores. And this year, we have done INR 115,000 crores of total GMV, right? So you would see use cases like UPI, BBPS, wallet, these are growing extremely well. So we are seeing growth across categories.

[Operator Instructions] The next question is from the line of Rahul Jain from Dolat Capital.

Just have a few questions. Firstly, related to the lending business, which continues to see some challenge and the Q4 exit rate is pretty weak versus what we started off with. So any color if you could talk in terms of what kind of growth we are expecting in this segment for FY '26? Do we think we can do a positive growth given the exit run rate? And similarly, if you could give a flavor to the full year because even on a full year revenue basis, the Q4 revenue is same as what it was Q4 FY '24. So are we seeing any growth for FY '26? And what should be the driver for the same?

Thanks for the question, Rahul. I think in terms of the overall digital credit number that we report, I would urge you to strip out the ZIP GMV, which, again, we have highlighted in our presentation that the shorter duration product is something that we are discontinuing. So the real number to see is the ZIP EMI GMV, and that number actually has continued to grow. We do feel that Q3 was really the sort of bottom quarter as far as lending is concerned. Between Q3 and Q4, that number has grown 32% quarter-on-quarter. And like I mentioned at the top of the call in my opening remarks that given in any case, we work with partners, both banks, NBFCs, we are seeing positive commentary from lending partners about a potential recovery in the second half of the year. And we do appreciate the pace at which our partners want to disburse, right? So we will only grow at the pace they want to grow. But we are equally confident that the worst is behind us. And to that extent, what you were saying in terms of exit for March, definitely, while again, those numbers are not disclosed, but that was, I would say, higher for -- compared to the previous 2 months of the quarter. In terms of overall revenue, it is a function of what the disbursement is. In fact, you would see that given the fact that we have continued the shorter duration product, the take rate has only increased. So therefore, to that extent, revenue should flow through from higher disbursement, and that is something which we continue to track. Secondly, I would also say that in the lending space, besides an overall recovery, I think we are also enhancing two things. One is the product suite, which is effectively also focusing on risk-free distribution where we've ramped up over the last quarter or so. And secondly, also increasing the products that we offer. The RuPay credit card, like we've been saying in the past, is a replacement of the shorter duration product. That creates a good 30-day credit product while also creating a funnel for the overall longer duration product. So we are continuing to focus on that and focus on profitability.

Secured products. Secured products, so basically loans against mutual funds, right? First card, which she has highlighted earlier.

Right, right. And just one last piece on the lending part. Our lending expenses continues to rise. Is it pertaining that realignment with one of the customers that we have reported some exceptional charges? Is that what is causing this recurring cost to increase while the revenue have not in the same way? Or is it pertaining to some DLG allocation, which might have happened while the revenue might come much later? So any color on why lending expense continues to rise while revenue goes down?

That's correct. So like -- I think you've answered the question yourself. Mathematically, one, the revenue is lower. So therefore, the lending-related expense on a lower base shows higher. Secondly, we've also moved to the DLG model starting September, where a larger part of the cost gets booked upfront, pretty much all the costs get booked upfront and very small revenue comes upfront. So the revenue is back-ended, cost is front-ended, and that is causing the overall lending-related expenses to be slightly elevated mathematically. But from an overall credit quality of the book, we remain confident that, that quality has continued to hold.

Right. And Upasana, on the usage of funds point of view, we see that basis the utilization of fund that most of the investment so far has gone into the payment side of it and not so much on the devices or the lending side of it. So when we plan to scale that up and where this investment on the payment side is going? Is it going towards advertisement or customer acquisition side? If you could elaborate that?

Sorry, Rahul, this is Komal here. I'll take that question. So you're right, I think large part, given the fact that the IPO proceeds only came to us at the back end of December, and we started using them in a way towards the second half of January as we did those expenses, right? Therefore, you see the utilization has been lower. But within payments, it is going across prefunding of a product, across acquiring customers, across incentives, et cetera. And of course, within lending, the stated use case is the FD for the new FLDG contracts, and it's being tracked as per the plan and as per the business performance.

Right, right. And so on the one part of it remain unaddressed, like when we plan to scale that investment on DLG and devices side and when we start reporting the other devices count or in terms of subscriber base, when we reach that scale when we start reporting that data?

Rahul, this is Upasana. So thanks for the question. So on the lending side with regard to using the money for the DLG FDs, that we have already started doing starting from January. And on the merchant side also in terms of the deployment and scaling up in terms of new merchant acquisition, soundbox, card, EDC machine deployments as well as on the merchant loan side, we are making steady progress. But if you track the overall status of the business, we have been predominantly stronger on the consumer side and therefore, more investment and more growth on the consumer side. We are trying to scale up on the merchant side also across devices as well as merchant lending. But currently, that is a small business for us, and it will take us a little bit of time to scale that up.

And on the balance sheet side, if I see our borrowing plus other liabilities as a combination have scaled up from INR 450 crores to INR 620 crores from H1 to now. I understand that proceeds have come in December, but still the liabilities continues to remain high. So is it like the covenant of the past liabilities are such that we cannot pay for it for now? Or is it a restriction from a usage of fund perspective, which is limiting this?

So Rahul, as you have seen that the payments business has scaled 3x during the year FY '25. And basically, in the payments business, we have a large wallet play. And so therefore, there's a user outstanding and merchant outstanding at the end of every single day, and that would be the case in terms of 31st March also. Perhaps it would even be 2 days if it's generally a holiday on 1st of April. So that's what it is. Because of the scale up of the business, you should expect that the liabilities for 1 day will go up. And if we scale up payments even further, next year, this will be again a higher number. But that gets paid off the next day.

Understood. And it's like a 2-day investment on the GMV side of it?

That's right.

Right. And just last question from my side, if I may. On the payment business side, I understand our wallet, [indiscernible] wallet continues to be the star performer, but our take rate continues to go off. So is it like the UPI mix is impacting this number? And what is your sustainable expectation on the take rate because it has been coming off for the last 3, 4 quarters on the payments?

Yes, yes. So see, on the take rate side, I think you are highlighting revenue divided by the GMV, right, for recent quarters. So if you look at the UPI number also, so our UPI contribution of the overall GMV has gone up in Q4. So earlier, roughly, it was nearly 30%, which has gone to 36% now, right? So the take rate is roughly in the same range if you remove UPI. But because of UPI contribution is going up, the take rate looks like it is slightly on a lower side. That's not the case. But the ideal way to look at is the net payment margin, which is basically take rate minus payment gateway cost, minus user incentive. In the last quarter, actually, the net payment margin has gone up from 13 bps to 15 bps as you compare quarter-on-quarter.

Right. Right. Yes.

If you see the gross margin last quarter, the gross margin is at 23.9%, which is net payment revenue minus payment gateway cost, minus user incentive. If you do net divided by revenue, which is 23.9% for payment business.

Yes, yes. We have noticed that there is a gain on the payments margin.

The next question is from the line of Harshvardhan Agrawal from Bandhan AMC.

Just wanted to understand on the lending piece, what kind of run rate in the disbursement one should assume? And also some -- if you can give some ballpark ideas as to what the take rates could be and what the related expenses could be, that would be really helpful.

So on lending, I think like we've been highlighting, while we will not able to give any specific numbers, but we are expecting and seeing early green shoots of recovery. We should sort of go back to at least what we used to do 4 quarters back as far as lending is concerned over the second half of this year. I think happy to also state that take rates in lending have continued to remain stable. So from a unit economics perspective, net take that we earn, which is after the DLG costs and other credit costs, et cetera, can be about 4% to 4.5% range. And lending in a steady state once the book is stable, earns us a contribution margin of 40%. So we do feel that over the next few quarters, we will vector towards that.

So ma'am, just to understand this for this quarter, our revenues were at around INR 56 crores in the lending business and the EBITDA was around INR 2.5 crores. So we expect this waterfall to be maintained over the next -- over the coming quarters. Is that how one should look at it?

So Harshvardhan, you said revenue of INR 56 crores in the recent quarter. What was the second point that you highlighted?

So if I -- with the lending revenue, then if I were to subtract the expenses, you are left with around some INR 53.8 crores of expenses. So you're left with around INR 2.4 crores, INR 2.5 crores. So should one expect this waterfall to remain steady over the coming quarters?

So like I explained at the beginning of the call, there is sort of -- there has been a triple whammy of sorts where disbursal is lower, right, and therefore, the base is lower. Over and above that, given that we moved to the new DLG contract starting September, this is a full quarter impact of the new DLG contracts, where a large part of the cost of the expected credit loss gets booked upfront and that is reflecting in the higher cost. At the same time, the revenue is deferred. So revenue is back-ended, cost is front-ended, and that is what is causing the overall contribution margin to be lower. We do feel that as it stabilizes over the next 2 or 3 quarters, the portfolio contribution margin, which lending used to get to us of about 40%, that should stabilize in the same ballpark.

Okay. So you're saying maybe at around 40% is what it should stabilize over a period of time?

That's correct. As the book stabilizes, as we've kind of -- today, roughly about 50% of our contracts are on the FLDG model. It will take a little bit of time, 2 quarters, perhaps a little bit more for 100% of book to be on the new contract. Once that happens and once lending also stabilizes and steps up in terms of disbursement, we do feel that it will come back to the overall gross margin, which was 40%, if you see last year or inherently as a product, it is a 40% margin business.

Great. And ma'am just one last question on the payments GMV. What kind of growth rate one should expect? Maybe I understand you may not give a number, but maybe let's say, the industry growth rate process plus 10% or how should one look at it?

See, Harshvardhan, if you see our yearly numbers, right, if you see last 2, 3 years number, in '23, we did INR 20,000 crores. In '24, we did INR 38,000 crores. In FY '25, we did INR 115,000 crores, right? So we are kind of -- last year, we have achieved -- overachieved more than like 100% plus. Last year, in FY '24, nearly 100%. So we are kind of a doubling every year, right? So we expect a healthy growth rate going forward on the payments and we are quite positive on this business.

[Operator Instructions] The next question is from the line of Aravind Kodipaka from IME Portfolio Managers.

Just wanted to get a couple of things around the payment side. What will be the key driver? I understand payments growth is something that's been accelerating in terms of Pocket UPI and RuPay card or RuPay card is a potential that everyone has been talking about. What will be the driving force here, average ticket size, frequency or in terms of your registered users? Among those 3 factors that typically everyone talks about on a platform, what would be your main driver there?

So Aravind, I'll take this. This is BiPilgrim'sn. So look, I mean, what we have seen is that our hero product currently is Pocket UPI and followed by RuPay card, which is in the process of actually just getting the right growth numbers right now, it's very early, which is the first card. Both of these are indexed on UPI. The first one, especially Pocket UPI because of the deep experience we have built over the years on the wallet business and also the recall that we have with the customers of being a wallet, there is a great benefit we are getting as more and more customers are discovering that they can bypass their bank account in order to use UPI and they can use wallet. So the kind of retention numbers that we see there, the kind of growth numbers that we see there are significantly better than our overall business and of course, much better than anything that is there in the industry. So we do believe that this business will become extremely important, continues to be extremely important for the growth of user engagement and then thereby resulting in the same users can then use the card in different circumstances and the same user can then sometimes use bank UPI also. So overall, we believe this Pocket UPI is the kind of hero product. And with this high retention and the fact that we are the kind of a very natural choice given that there is not much alternatives available for such a product that we will continue to get the benefit over the next years to come.

Yes, sure. No, I understand that because I personally also experienced the Pocket UPI and a bunch of people I know have sort of moved their payment in that way. So I understand the hero product proposition and it's excellently advertised and serviced. But what I'm trying to get to is over the next, say, 2, 3, 4 years, right? Even with competition, without competition, will the MTU growth drive the majority of payments growth? Or is it more the existing users to keep mining more and more and increasing wallet share, right? Because it's either -- it's obviously a combination of that, but which one is the bigger driver that you guys are focusing on?

So I would say that -- I mean, you answered it. It's a combination of both. But what I would think is a significant percentage of UPI users in the industry have yet not experienced pocket UPI and the benefits and convenience of something like Pocket UPI. So what we are trying to do is to make sure this communication we can take as far and wide as possible. It's also -- obviously, we have lots of KYC customers. We have one of the big KYC bases as a wallet company in India. So even amongst our current base, there is a decent percentage of customers who have not yet started using Pocket UPI because historically, many of them were using wallet and then as wallets became less relevant, they moved to UPI. But now we are seeing that they are actually discovering Pocket UPI and getting back on the UPI bandwagon, Pocket UPI and the wallet bandwagon. And of course, if you see the overall user base and just the brand penetration of MobiKwik, it's obviously not the biggest in the industry, right? So we -- like Komal was saying, we have a huge headroom for growth in terms of just adding users. So we believe that doubling or tripling this user base is something that is very much doable over the next, let's say, 3 to 5 years. Of course, our current run rate is about 20 million or so, which we are adding on a yearly basis. What that does is actually exposes more people to the idea of Pocket UPI and therefore, increases the opportunity for them to come and become retained in our customer base.

Sure. Perfect. I understood. Secondly, on the MDR and UPI, I understand this is, of course, the NPCI subject and we have to finalize this. Given the fact that, say, about 30%, 35% is UPI, what proportion of this do you think will benefit from this MDR in terms of, say, I think the condition was greater than INR 2,000 per transaction, I forgot the condition apologies, but what proportion of this would benefit from the new introduction of MDR?

So I think we can't give -- even we'll have to do some math to come up with what portion will get it. But like you said, MDR on UPI, MDR on PPI, UPI is something that is already in motion from RBI and it's under discussion in the payments ecosystem across multiple industry players and should go live soon. From our perspective, it will definitely bring like a new source of revenue, which today we are not getting. And so it's basically all 100% a profit for us from where we stand today of anybody using Pocket UPI. And we do believe a decent chunk, a decent double-digit percentage of our GMV will benefit from this MDR.

Sure, sure. And one final question on the payment front. I understand you given me a 40% contribution margin stabilized sort of financial services guidance or more or a target. What does the net payment margin before we start baking in or before we start looking at MDR benefit because that's something we don't have a full picture of. How would that look like? Is that the same mid-20s sales as we've seen in this quarter?

So I think if you see the last many quarters of MobiKwik, where actually we have been publishing results even before we went public, we've been publishing yearly and even before that, 2 years back, we've been publishing reports. I think for us, the payment business has always been a contribution margin positive business. And historically, it was 15%, 16%, 17%. And as we doubled down and got more high-quality users, it has gone to above 20% right now. And it has stayed in that 18%, 19%, 20% and now above 20% zone consistently. So when the MDR comes on PPI, UPI, this itself will be directly impacted because it will directly contribute to the net contribution margin of the payments business.

Yes. No, sorry, if I wasn't clear. I actually -- what I meant was before the MDR picks, right, what would the stable normalized net margin profile that the payments business would likely see? Because I know what you're saying, the 16%, 17%, 18% that we've seen in the last, say, June, September, December quarter. But in the quarter ending March, we've seen it jump to about 25%. So that's a healthy jump, and I'm not complaining about that. But the question is, is that sustainable?

Yes, I think it should stay in the same zone, 20% plus, even without the PPI, UPI, and MDR.

Perfect. Finally, can you just elaborate one last thing on from my end. Can you just elaborate on the Zaakpay strategy? You obviously received the PA license and this will be targeted towards online merchants. And just wanted to understand what would the spending on that front be? And what would the merchant acquisition strategy look like on that front? And how big do you think this will scale? Because I do see your historical numbers on payment gateway, and it did grow healthily and then I think we had some suspension of temporary blip there because of the license requirements. So how do you see this business shaping up? And what would the profitability look like a broader strategies and all this.

So on Zaakpay, look, I mean, it's a business as a subsidiary that has existed for a long time, and we have built the platform. First, we actually built the platform to process payments for MobiKwik. And still a decent percentage of MobiKwik's processing, payment processing does happen via Zaakpay. Over a period of time, we opened it up for other merchants as well, which is I'm talking about many years ago with very high-quality and large merchants in the travel space, in the e-commerce space. And they continue to use Zaakpay. However, we have historically underinvested in this business. And specifically, what happened after COVID is when the licensing piece came, we got stuck because we didn't get the license on time. And so I think there was a period of uncertainty. Thankfully, that period of uncertainty is now behind us. We have got the full license for Zaakpay. Now if you imagine the digital payments ecosystem, especially the online payments ecosystem over the next few years, everybody knows that payment gateway and payment aggregators is going to play a significant role. Zaakpay is extremely small right now compared to the industry leaders. But it also means that there is a significant opportunity for us to unlock value by focusing and selecting the right use cases, the right set of merchants and the right set of partnerships that we are very confident of building to build a sizable business, which will start contributing not just to the GMV, but also to the profitability of the overall business. Coming back to profitability specifically, look, B2B payment business like Zaakpay is inherently profitable because you have a cost which you incur on processing a payment and then there is a charge that you make to the merchant. And the difference is what is your profit. So inherently, it is profitable. Marketing costs are usually low. It is just fixed costs. So therefore, we are very confident that the profitability that Zaakpay has shown, by the way, consistently over the last many years, and it is disclosed in our Zaakpay statements also means that this business is going to be very important for us over the next couple of years as we scale it and its margins and profits will start contributing to MobiKwik overall.

Sure. Perfect. Just last question. We have seen one of the major wallet players not be operational for a while, and they have spoken about some partnership on the verge, maybe another few months. How are we positioned to say any sort of rise in competition on the wallet side?

This is Upasana. So I think that it's excellent if there is more competition in the wallet space. We do want wallet as a sector within all the larger payments sector to also grow. Currently, we are the dominating player in this sector, but there are other players also that have a play. But we expect that with more entrants coming in and building on the wallet side, the overall pie will increase, and we will continue to gain rapidly from that growth.

The next question is from the line of Nidhesh Jain.

Just one question is, how should we think about the indirect costs going forward? Currently, we are at a run rate of around INR 120 crores per quarter. How should we think about going into FY '26?

So indirect cost, if you see on a quarter-on-quarter basis, we've optimized. We've, in fact, come down from about INR 119 crores to about INR 110 crores this quarter. And I think going forward, we will continue to optimize on these costs. We are also using AI to reimagine a lot of customer journeys, a lot of cost line items and ensure we strip out costs wherever possible. And secondly, I would also say that through last year, you did see some investment in fixed costs as the company was getting up for higher growth and to really function as a listed entity. I think going forward, we will only continue to synergize and optimize on this cost. So this would remain at this level, if not lower.

As there are no further questions, I would now like to hand the conference over to the management for closing comments.

This is Upasana. Thank you very much to all the participants in today's earnings call. We do believe that we have given you a view of our overall business where payments continues to be the foundation and is the hero in terms of driving growth for the company in terms of users, GMV as well as revenue. And the cross-sell of financial products is sort of the cream on top. We do believe that with payments doing really well, the overall contribution margins have slightly gone down in the last couple of quarters. But with the distribution of credit products coming back, we are already seeing some early signs of strong momentum there. We do expect that overall margins for the company will come back upwards of 30%, and that will allow us to cover our fixed costs and therefore, drive profitability back into the results. Thank you so much.

Thank you. On behalf of Investec Capital Services Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.