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

Good evening, everyone. Welcome to the Q1 FY '26 Earnings Conference Call of One MobiKwik Systems Limited to discuss MobiKwik's financial performance and address your queries. We have with us today Mr. Bipin Preet Singh, Co-Founder, MD and CEO; Ms. Upasana Taku, Co-Founder, Chairperson, ED and CFO; Ms. Komal Sharan, Head, Finance, Corporate Development and IR; Mr. Anand Kumar, myself, VP, Corporate Development and Investor Relations. I would like to hand over the call to Ms. Upasana for opening comments. Over to you, Upasana.

Hello, everyone. Good afternoon. It's a rainy day here in Delhi. It's our pleasure to host -- this is the third quarter after getting listed. Very happy to inform that the business has grown nicely. Our main and core business, payments, continues to grow nice and strong on all metrics, GMV, gross margin, all lifetime best numbers. And while it is a strong growth in terms of revenue year-on-year, we also believe that more revenue streams will follow. Our lending business, which was doing very well last financial year, after Q2, we had a downturn in line with the sentiment in the market. And as you know, we've been reporting last 2 quarters that we are trying to recover that business. This quarter, we have shown 30% growth in the disbursal there, which is on top of a 30% growth in disbursal that we also reported last quarter. So we are trying hard, and we expect the recovery to be even stronger in the coming quarters. Overall, we are trying to grow our payments business, wallet, UPI. We are trying to recover our lending business. We have optimized on all costs. You can see the contribution margin has improved. EBITDA has also improved in contrast to the last quarter. And we are well poised on delivering a strong year in terms of growth and achieving breakeven EBITDA in the last 2 quarters of this financial year.

[Operator Instructions] Rahul?

Yes, I hope my line is okay?

Yes. Yes. We can hear you clearly.

Firstly, the take rate question on the payments business. I believe the take rate has been coming off, which would be a function of UPI contribution in terms of total GMV going up. So it would be good if you could share that -- any insight on that part? And if yes, what is the UPI as a percentage of total GMV in this quarter and last fiscal?

Rahul, this is Komal. So like you rightly say, the percentage of UPI contribution -- Rahul, can you hear us?

I could not listen to your response. You began, but then I could not...

It dropped off. I think there was some technical glitch my apologies for that. So like you were rightly saying, Rahul, the contribution of UPI in our overall GMV has been going on -- going up every quarter. This quarter, UPI as a percentage of GMV is about 35%. The same number last year back was just shy of 30%. So this has been growing. In fact, we have seen almost an 85% growth in UPI in our network over the last year. In fact, we are the fastest-growing UPI player in the country. And to that extent, the take rate is getting impacted. But I think as a company, what we focus on is the net margin that we're able to earn on every rupee that transacts through our network. And there, through a combination of reduction of both bank costs as well as incentives, we have ensured that our processing margins are about 15 basis points, which is actually industry-leading. Our contribution margin percentage is also 28% or so, which is a lifetime high. And our intent as a company would be to stay in that 22%, 23%, 25% range as far as margin is concerned. So that is sort of the immediate pit stop. Secondly, I think there are a few things like interchange and pocket UPI, which is also a very large and growing segment for us, which are not yet baked in into our financials. And we do know that regulatory clearance and that should come anytime soon. So when that comes through, that will be an additional upside lever both to take rates and overall revenues.

Would it be possible to understand the revenue potential from this basis the current GMV?

So Rahul, unable to give a guidance on the call, but I think suffice it to say that at the rate at which UPI and within that pocket UPI is growing, it would be a significant number by the time it comes through and with the pace that we are growing.

And is it -- will it be retrospective or it will be from the day when it could get announced?

Rahul, this is Upasana. So as you know, it is not possible to do it retrospectively, right? Once the transactions are done, they're done. So we expect that as and when the notification or circular will come, which we are expecting should come soon, it will have a date, a launch date. And then from that day onwards, the revenue will start accruing.

Understood. That's clear. Also another question on the lending business. What is the potential for the take rates to go higher here? And I'm assuming part of the uptick is because of we're not doing the ZIP product. So -- and what could be the DLG element at this point and the investment that has gone into the DLG part? Any color on those aspects would help.

Sure, Rahul. So in terms of lending, I think if you see, we've reported take rates of about 8.5%. I think in general, what we have seen is in the past, gross take rates for this business can be as high as about 10%, 10.5%. And we are currently in the FLDG sort of model where 5% DLG is given to us as a fintech partner. We do expect that, that will continue. Again, just given the fact that we have raised IPO proceeds for DLG. And at the end of the day, the unit economics or the cash that we earn from a loan does not change whether you're on DLG or whether that risk profile is adjusted into the NIM, it is the same, right? So therefore, from that extent, I think, yes, there is potential for the take rates to improve. We'll obviously get offset by DLG kind of cost. And net that we will earn on lending is a 40% margin -- 40%, 45% margin. And that we have demonstrated in the past also. We used to earn 45% plus margins as far as lending is concerned.

And Komal, additionally, on the lending operational expenses, if you could give some color, we have seen sharp moderation possibly due to the cost related to the ZIP product. So is it safer to assume the current run rate is the recurring run rate? Or there will be some more cost, which was there in Q1, but may not happen in Q2?

No, Rahul. So that is -- like you're rightly saying, it is a function of, I think, one, the portfolio seasoning and normalizing and therefore, the upfront DLG-related impact, et cetera, getting more evened out. And secondly, us driving a lot of efficiency. Our collection efficiencies are improving, our underwriting capabilities, our risk models. And that has meant the direct lending-related expenses have gone down by 6% quarter-on-quarter. Now if you see historically, for us as a company, this expense used to be in the 5.5%, 6%, 6.5% range. So our aspiration definitely is to drive towards that. But also bear in mind, that is a function of accounting, the regulatory policies like FLDG and the overall macro. But longer term, that is where the business has to be.

Actually, just to recharacterize my question, I was talking about what we call as lending operational expense, which does not include the guarantee part of it. So any specific thoughts there?

No, no. What actually comes, Rahul, in the lending operational expense is the guarantee part only.

So I think, Rahul, you should look at lending-related expense, right, which you can track historical also, right? What Komal was saying in the previous quarters and years, if you see that number has been in the range of 3% to 4%, right? So that includes everything. That includes my credit cost, underwriting cost, collection costs, et cetera, et cetera. So if you even look at the overall number, that have been in the range of 3% to 3.5%, 4%.

Right. But there is a specific item called financial guarantee expense. I thought that would be more related to DLG nature or you think it could be in both?

So Rahul, 2 things. We are reporting in all our earnings collateral something called lending-related expenses, which is directly a mathematical addition of lending operational expenses plus financial guarantee expenses. Both of these expenses are on the face of the P&L, and we add these to show lending-related expense, which is the only direct cost in the lending business.

Okay. Okay. Probably I'll take this offline. And lastly, from my side, if I may. If I see the schedule which we have given on the utilization of the IPO proceeds, I could see that there is a significant allocation towards the devices business, which still remain kind of an untouched. So any plan here to scale this part? What is the right strategy? How we should see the revenue potential from the next 12 months in this business?

Sure, Rahul. So I think the sort of devices and the offline merchant business for us, it is a small part of our business. But that business has also grown 7x, 8x over the last 2 years, right? And we do feel this is a very large market. There's opportunity for many players to play across different stratas, regions, products. And we remain excited about this market, which is why the IPO proceeds were earmarked towards devices. I think what we have seen is Q1 is, in general, a little bit sort of seasonally softer and slower, but we expect this trend in terms of both adding new merchants, devices, et cetera, to increase as we go along the year. And we are confident armed with the IPO proceeds to be able to accelerate this business.

Right, right. And lastly, finance cost for us has not been coming off despite the still -- there's an IPO proceed part which is unutilized. So is there -- is this likely to go down or there won't be any change in that because we are getting the other income, but finance cost may remain as is.

So, look Rahul, finance cost is a function of our debt, which actually is, again, more working capital or transient debt to take care of the T+1 sort of settlement cycles. I would expect that as GMV grows, while we will try to operationalize and synergize costs there, in terms of the absolute finance cost, it is a function of the overall rate environment, much more than us actually trying to bring it down. And as we, of course, grow our business, we could look for opportunities to reduce it. But I think for the immediate few quarters, I would actually model it to be in the similar range.

Just to give you one data point on this, like if you see our debt at the end of Q4 FY '25, it was around INR 46 crores, and that has literally gone down to INR 32 crores now, right? So the finance cost, which Komal was also talking about is more like a working capital line that we use for our payment business. Shubhranshu, can you hear us?

Yes. Shubhranshu here from PhillipCapital. So 2 questions. One is, what is the total percentage of FLDG that we have invoked and that is across how many lending partners? The second is that we had a product or an arrangement called Lendbox. So what happened to the money we obtained from investors under the Lendbox arrangement?

Sure. So in terms of FLDG, as per the regulatory guidelines, we have to -- the default loss guarantee that is permissible to be given by the fintech partner is up to 5%. And in most cases, we have -- in most of our contracts, we have 3% to 5% kind of FLDG that we have given. So it's a pretty simple math. I mean we report the credit AUA, which is the assets under management in a way or the POS, if you like, of the loan book that we have. And roughly, you can say about 5% of that has been given as FLDG.

And this is across all lending partners? How many lending partners have invoked up?

So again, in terms of lending, we have 2 models. One is the risk model where we share the risk and we get a portion of the NIM. We give FLDG and we also do collection. So across those lending partners, which is really larger part of our book today, we have given FLDG. Then there is also a distribution business, which is purely a risk-free distribution, where it is just a lead gen model where a customer on our app gets redirected to the lending partner and completes the journey there. There, there is obviously no FLDG.

Right. And what -- how many partners have invoked it this quarter is what I was getting at?

So usually, what happens is there is -- it's very hard to sort of triangulate that from the financials. But in general, as a combination of the FLDG and the hurdle rates, et cetera, in general, the credit quality has been coming down. So therefore, the invocation is minimal.

Right. And the second question around the Lendbox arrangement?

Shubhranshu, this is Upasana. I'll take that. So on the Lendbox arrangement, as you know, Lendbox is a P2P NBFC that we had partnered with for a product called Xtra, and that is available on the app and all the investors who had invested in that product, they are getting the proceeds of the collections back as they are coming. So every day, there is collection happening on that and the money is going back to the respective investors in line with the new P2P guidelines laid out by the Reserve Bank of India.

Right. At a point in time, we were guaranteeing the IRR there, right, under Lendbox arrangement before the P2P guidelines?

Well, actually, there is no way to actually guarantee a number, but one can give a range or up to some sort of a commitment, and that was in line with what were the market practices. So whatever Lendbox was able to promise was in line with what the other P2P NBFCs were promising in the market. I think something ranging between 9% to 11% and those were the kind of returns being given back to the user. But as and when RBI said that things have to change. So I think they've changed across the sector. And we are just a distributor. Just like we are a distributor of a loan given by a large regular NBFC, Similarly, we were a distributor even in the P2P NBFC model.

Vishal, can you hear me?

Yes, am I audible?

Yes, loud and clear.

So I have 3 questions. First, on the lending take rate, which is -- which comes to around 8.4% in this quarter. So can you just highlight which are the key components in this as in how much of this is contributed by upfront commission or sourcing fee? How much is collection bonus, et cetera? That's the first part. Second question is, are we working on merchant advances? I think we are planning that this should go live sometime. So has it gone live? And if not, then what are your plans regarding that? Third question would be if you can just mention the net cash number that we have, current cash that we have on books?

Sure, sure. So I'll take the first question. So see, last quarter, that entire disbursement happened on ZIP EMI, right, where the unit economics, we make net 4% to 5% is the net we make. And how the economics is basically there's a revenue sources, interest -- net interest margin plus processing fees, right? And then we deduct credit cost, underwriting cost, collection costs, et cetera, we make net 4% to 5% on the ZIP EMI product. On the -- on your second question on MCA, MCA is still very nascent. We recently started. We are building the infrastructure. But currently, it's live, but it is too small to report separately. On your third question, how much cash that we have on the balance sheet? As on 30th June, the number is around INR 475 crores.

Okay. So this INR 475 crores doesn't include any guarantee-related FD that we would have kept aside, right?

That does not include, correct.

Yes, right. So just one thing, you mentioned net of 4% to 5%. So that balance, 8.4%, how does that add up to that, 8.4% on the margins?

So 8.4% that we show, this is a revenue as a percentage of disbursement, right? So the revenue basically in this quarter, that is in last quarter, Q1 FY '26 divided by the disbursement in that quarter. So that's the take rate, the financial services take rate.

No, no, I think he's trying to understand the unit economics that if you made 8%, then you're making net 4 [Foreign Language]...

So I'll give you that split by revenue and cost. So our gross revenue, which is NIM plus processing fees is roughly 10% to 12%, right? And that includes my processing fees and NIM. Processing fees will be roughly 4% to 5%. And the rest, basically, it's a NIM in that 10% to 12% gross revenue. And post that, there is a 7% credit cost, 6% to 7% is the credit cost and then 2% underwriting cost, collection costs, et cetera. So the net, we make 4% to 5%...

Okay. I think I'll connect with you later. I'm still not very clear.

Vishal, are you there?

I'm done with my questions.

Siddharth, can you hear me? Fawaz, please go ahead.

So I have a 2-part question for this. My first question being, you mentioned in your gross take rate is around 9.5% to 10.5% in your distribution model. Would you be able to explain how you make those revenues in quarter 1 when you source? What is the percentage of revenue recognize, quarter 2, quarter 3 and at the end of collection, how do you recognize? I'm just asking you your recognition patterns over a year. That's my first question. And my second question is, so do we do lending to both merchants and customers, consumers? If so, what is your lending disbursement to both of them? And what is your guidance for both of the sectors?

Sure. Fawaz, this is Komal here. Maybe I'll take your second question first and then dovetail into your first question. So we do lending to both customers as well as merchants. But like we mentioned earlier, the merchant loan part of our business is much smaller. And therefore, we feel it's too small to disclose right now. Largely, the number that you see in terms of credit disbursals is the sort of loans to consumers via our app. And again, mostly done in the risk-sharing model, where we have to give DLG and we get NIM against that. Now coming to your first question, the way we recognize revenue when a loan is given, there is an upfront processing fee that we get, which is booked fully upfront, right, which is to the tune of 4.5%, 5%. And thereafter, we keep earning a NIM over the life of the loan, right, which actually translates into the balance 3%, 3.5%, rendering our overall take rate to be 8%. There is also small elements of P&L charges, late fees, et cetera. I mean that's too small in the overall context, but that is a general way in which we recognize and earn revenue on lending.

So in this case, you only added up to 8%. So if it was 12%, would the NIMs be higher?

So what we meant was that the 12% number, which Anand spoke about earlier, was on the overall book. What I mentioned is the way we recognize revenue on the POS or the outstanding of the loan.

All right. Got you. And another question on the same one out here, which is this you had said for a NIM sharing model. What if you're just a distributor? When you're not getting a portion of NIMs?

So if we are just a distributor, we typically make 3.5% or so, and then there is no financial guarantee expense also against it. So it's just a onetime revenue, which is booked upfront. And it is in a way for generating that lead and just distributing the loan to that customer.

Okay. And one last question from my side, which is what do we think about the whole FLDG situation? Are lending partners willing to contribute to FLDG.

So we -- I mean, we, as a fintech partner have to sort of provide the FLDG. I know there's been a little bit of regulatory sort of changes and the industry and the sector is representing to the RBI on that. But like I mentioned earlier, at the end of the day, whether it is FLDG or whether that risk number is baked into the NIM, the unit economics of the loan does not change, right? The credit profile, the return that you make on a cash basis, that does not change. Of course, what happens is when you're in an FLDG model, a larger part of your cost knocks off in your P&L upfront because you've given that guarantee. So that goes upfront. But the revenue that you're recognizing is over the life of the loan. So in a way, both of these models equal out through the life of the loan. In the other model, where you're not giving FLDG, your NIMs are lower because this risk number is adjusted in the NIM itself. So frankly, over the life of the loan, it's the same. Accounting-wise, FLDG model gives you a hit first. But we feel as a company that we have raised IPO proceeds for providing FLDG guarantee. It was also regulatory directive, and it is also prudent. So I think we are right now on that model only with most of our lenders, and we expect that to broadly continue.

I totally get that. But my question was as to are banks and NBFCs still continuing to go the FLDG model or they want to get back to the normal model because it's a whole regulatory situation out there? That was my question. And also, are they seeing any turbulence in the whole consumer segment? Or are you facing any turbulence in the consumer segment in terms of lending disbursement?

Yes. I'll take that, Fawaz. This is Upasana. So I don't believe that there is any problem with banks or NBFCs willing to work in the DLG/FLDG model with fintechs. In fact, that is the predominant model, and that is a model that RBI has also very nicely documented now in the guidelines. As you can see, we have grown almost 31% in terms of disbursal this quarter. And last year -- last quarter, we did 32% growth in disbursals under the same model. So we are not facing any challenges in disbursing under the DLG model. While at the same time, we are also -- because we cannot cater to all of our users under the DLG model based on underwriting principles, so we are also doing the lead gen model on cards as well as personal loans, where there are certain users where we may not be able to give them loan under the DLG model, but some other lender is willing to take that lead and give them the loan. And we are very happy to book the lead gen fee in that case.

So there are a few questions on chat as well. So we will take first question from Urvashi Mishra. Your payment GMV has hit an all-time high of INR 384 billion, up 53% year-on-year, but net margins is still at 15 bps. What is the road map to improving monetization here, especially in the 0 MDR environment?

Urvashi, I think we spoke about this briefly at the top of the call. We do believe that at 15 basis points, the payments margin is quite healthy. It is probably amongst the highest, if not the highest in the industry. And while UPI contribution is increasing, we are trying to optimize the other costs and ensure that this margin that we're able to earn for ourselves continues to stay. I think as we go forward, the other drivers of take rate being higher will continue to, of course, be revenue growth, more wallet growth, which we feel is a differentiated and strong use case, more devices growth, which we also spoke about saying that we're coming off a low base. And also sort of regulatory interventions like interchange on pocket UPI, which could have an additional revenue upside for us.

The second question is gross margin for payments rose to 78%. Could you break down the drivers behind this jump?

So payments business, I mean, it is -- the gross margin is a function of the net margin or the net take rate of 15 basis points that we just discussed, and it has increased from sub-25% to 28% this quarter. We do expect it to remain in this 22% to 25% range. It is a function of the traffic mix, optimization of costs, et cetera. But broadly, it will stay in this range.

Yes. So if you see -- Urvashi, if you see quarter-on-quarter expenses, that's a direct expense on the payment side. There are 2 direct expenses that we have. One is the payment gateway cost and the other is user incentives. So both the costs were optimized in the last quarter, that is in Q1. Our user incentive actually improved, that has reduced by 57%, while the payment gateway costs reduced by 27%. So that's the main drivers for better gross margin in the payment business. The third question is fixed costs have remained steady for 5 quarters. But with users and merchants growth, what are the cost pressures you are anticipating over the next 2 quarters?

So Urvashi, I mean, appreciably, so I think the fixed cost, like you're rightly saying, has stayed same. But in terms of pressures, be it user or merchant growth, I don't think we are expecting any great increase in fixed cost. I think this is a business which has significant amount of operating leverage. As revenues grow, upside of revenues come through your direct costs like bank costs, et cetera, are controlled. There is not a significant need to expand the fixed cost base. And therefore, we feel incrementally, the operating leverage in this model is quite high. And we are well invested for growth, right, in terms of be it customer acquisition, merchant acquisition, I think the existing machinery is there. From a capital perspective, also the IPO proceeds are there. So we do not anticipate a significant amount of pressure on fixed cost. And any of that growth will also be revenue accretive and margin accretive. So therefore, it would stay in the same range for the next couple of quarters.

Okay. There is one more question we will take. So there is a question from Deepak Ajmera. Question is, how do you see your expenses in upcoming quarters for lending business also give the reason for the same?

So lending business, I think like we are saying, quarter-on-quarter, we are seeing improvement in disbursal. Plus there was also an accounting change, which basically meant that a large part of the credit cost was booked upfront and revenues were actually rear-ended. Now we are expecting that by September, which is when the 1-year impact of the lending-related accounting changes get seasoned, we will get back to the 40% margin as far as the lending business is concerned. So what you see today in terms of the lending gross margin at 14% or so, we expect that to secularly improve and reach 40% by H2 of this year. And that will also have an impact on the overall company EBITDA, and we do expect that basis that recovery, the overall company will become breakeven at an EBITDA level. And of course, profitability from thereon is inevitable as a function of the fact that this business has significant operating leverage.

Siddharth, can you hear us?

Yes, can you hear me?

Yes, loud and clear. Please go ahead.

Okay. Apologies for earlier. I just had maybe some clarification questions. Is volumes under pocket UPI, are they counted in this 35% UPI number that was mentioned? Or is that separate?

Yes, it's under this 35% number that we mentioned.

Got it. And I think as your UPI volumes went 30% to 35%, but it seems the take rate, just looking at it, reduced a lot more from 68 bps to about 55. Was there anything else impacting that?

No, look, at the end of the day, Siddharth, the take rate is a combination of the various products that we have, right? Like BBPS is a product which has lower take rates, et cetera. So it is just a mathematical outcome. And I wouldn't worry too much about quarter-on-quarter trends, but more in terms of the longer duration trends. And I think more importantly, the net payments margin, which is actually, in fact, slightly improved this quarter to a little bit over 15 basis points.

Yes. No, fair. And my last question, I think you had spoken about it just previously on the 40% margins in lending coming back. But just to clarify, that's not dependent on the ZIP product coming back or the shorter tenure products coming back and disbursals happening under that.

No, Siddharth, that's not dependent. And like I also mentioned that, that's actually more dependent on the book seasoning and the accounting changes in a way becoming more normalized because till now, what had happened is consequent to the changes in September '24, what -- given that the book size is smaller because the macro had become weaker, a large part of the cost was hitting upfront, but the revenue was not kicking in. Now with macro also recovering versus increasing and that cost getting more stable, that is what is going to cause the 40% margins to come back in.

I think there are no further questions.

Let's see the chat box.

There is one question from Harsh Mehta. Why has the gross margin in Financial Services gone up from 4% to 13%? I think we have already addressed this. The primary reason is the lending-related expenses as a percentage of disbursement has gone down and the take rate has improved from 7.4% to 8.3%. We are just going through the chat. We're just making sure that we don't miss anything. Okay. So there is one question. When do you expect to be breakeven?

This is Upasana. So I think we mentioned this at the beginning of the call, but I'm very happy to reiterate. So what is happening in the business is that the business is growing nicely, and we are doing very well in payments every quarter. We have done exceptionally well in Q1 last year and Q2 last year on both payments and lending business. But subsequently, in Q3 and Q4, the lending business had taken a huge beating because of the slowdown in the market itself. And we are working hard towards recovering that, and we are seeing recovery in quarter-over-quarter. Today, where we stand in the current quarter, we've reported a 30% plus improvement in EBITDA. And overall EBITDA is also negative INR 31 crores with a swing of INR 15 crores from Q4 to Q1. So mathematically, if we are able to achieve a similar swing of INR 15 crores, then in about 2 quarters, we should breakeven. On a conservative basis, let's say, we are not able to achieve that, let's say, we are able to do, let's say, INR 10 crores of swing in the next few quarters, then also we should breakeven. So we are quite confident that in this financial year, either in Q3 or Q4, we should be able to breakeven and then work towards building a far more profitable growth engine in the next financial year.

Thank you all. We have covered all the questions. We have gone through the chat as well. So thank you, everyone, for joining the call. Have a great evening.