Radiant Cash Management Services Limited (RADIANTCMS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Radiant Cash Management Services 3Q FY '23 Earnings Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sohail Halai from Antique Stock Broking. Thank you, and over to you, sir.

Thank you, Aman. Good morning, everyone. We welcome you all to 3Q FY '23 Earnings Call of Radiant Cash Management Services. The company is represented by Colonel David Devasahayam, CMD; Mr. Venkataramanan, CFO; and Mr. Muthuraman, Director, Advisor, Strategy and Investor Relations. I would like to take this opportunity to congratulate David sir for his new listing and also a good set of earnings. And without further delay, I would like to hand over the call to David sir for his opening remarks. Over to you, sir.

Good morning, everybody. Thank you, Sohail, for the introduction. I'd like to introduce myself. I'm Colonel David Devasahayam, the Chairman and Managing Director of the Radiant Cash Management Services Limited. And along with me are my senior management team members. I have with me the CFO, Mr. T. Venkataramanan and also the Director for Strategy and Investor Relations, Mr. N. Muthuraman. I'd like to thank all the investors, particularly anchor investors, institutional investors, HNIs and retail investors who have participated in large numbers to make our IPO a success. I thank the investors who have joined the first analyst call of the company this morning. Let me begin by a factual readout of the 3-month performance and 9-month performance of the company. Revenues for the quarter ended December 31, 2022, grew by 19.4% to INR 93.2 crores. The PAT for the quarter ended December 31, 2022, grew by 53% to INR 70.67 crores. Revenues for the 9 months ended December 31, 2022, grew by 27.6% to INR 266.1 crores and the PAT for the 9 months ended December 31, 2022, has grown by 73.3% to INR 47.19 crores. It's been a satisfying performance, and we were very happy to upload it on the exchanges on Saturday, the 28th. During the first analyst call, I would like to briefly explain the business of our company. Radiant is in the business of retail cash management, an important segment of cash logistics industry. We are the market leader with over 40% market share in retail cash management, and we are present across the country. We work primarily with banks who are our clients. On behalf of banks, we pick up cash from various outlets and deposit the cash in the bank branches. We get paid by the bank for a fixed charge per outlet per month. This is the core of our business and account for over 65% of our revenues. Our second business vertical is network cash management. This is a premium value-added service we offer to the banks. Here, we deposit cash in our own bank account and then electronically transfer this to our client bank. This is acquired in places where a client bank does not have a branch. Here, we charge the banks based on the volume of cash that we deposit in our account. This segment accounts for about 20% of our revenues. We also give cash vans on hire to banks for a bulk movement of cash between their vaults and branches. This segment accounts for 6% of our revenues. Other value-added services such as cash processing, vaulting, van behind counter, et cetera, account for the rest. So what are the key drivers of our business? We are present in approximately 60,000 outlets today. As per industry estimates, the entire industry is picking up from less than 1.5 lakh outlets. But the potential market is huge with over 30 lakh outlets eligible to use this service. This could provide us a significant growth opportunity for many years to come. We have been adding 1,000 to 1,200 outlets per month, which is spurring our growth. These points come from both existing end customers as they expand their operations as well as new end customers to whom our client banks start offering these services. While these outlets are currently serviced by us through banks, we're also making conscious efforts to reach out to more and more outlets directly, where their banks, particularly this observe in the nationalized banking sector where our services are still not very -- have not been fully taken up and they don't offer these value-added services. Direct clients account for about 2% to 3% of our revenues currently, but this is likely to increase in the future. So what is so unique about us? I was from the armed forces and so our 21% of our workforce, and this includes the top leadership team. We run the operations with military discipline, the great deal of integrity and more importantly, frugality and take pride in handling such a large volume of public money without any adverse incidents. This is the reason our cash losses are the lowest in the industry. We work with several marquee banks across private sector, foreign and public sector banks. Our relationship with banks are long term in nature, and we strive to continuously improve quality of our service. This is the reason we have hardly lost any bank client in our 17.5 years in operations. We are also very proud of our technological adoption and innovation. We have API integration with the core banking solution of banks and modules, especially developed for our key end customers. This makes our business with them very sticky. So therefore, what does the future hold for us? Now that we are a public company with several small shareholders, it's our responsibility to strive hard to grow the business faster and continuously, generate healthy profits. The entire Radiant team has taken this responsibility very seriously, and you all would see the results of this in the coming quarters. As I mentioned earlier, the opportunity is humongous in retail cash management as it is a nascent industry in our country. This will provide significant growth, scope for growth for us in the medium term. We're also looking to expand our business from very clients and towards this and have today hired a Senior Resource, chief banking -- Chief Business Officer with relevant experience, to head this initiative. I would now like to request Muthuraman, our Director of Strategy and Investor Relations, to talk about the operational KPIs we have achieved and its impact on our financial results. It's over to you, Muthu.

Thank you, Colonel. Good morning, everyone. Thanks once again for joining our first analyst call post IPO. I'll present the update on operational KPIs, and we'll try to link the same with our various business verticals that Colonel just explained about. We are present in 13,300 plus pin codes across 5,500 locations in India. In fact, we are present in every district in the country, except Lakshadweep. This has been our strongest USP as a wide network helps in servicing maximum number of clients that by improving our route density and hence our profitability. In the 9 months ended December 31, we handled 1.17 trillion of cash. This reflects a growth of 20% over FY '22 on an annualized basis. We operate at 59,750-plus touch points as on December 31, 2022. Again, a growth of 20% over the March number of 49,980. That's close to 10,000 points added in 9 months or about 1,100 points per month. We have been adding such numbers every month for the last several quarters, and this is a growth driver for our first business vertical that Colonel spoke about. That is cash, pickup and delivery accounts for 68% of our revenues and the number of touch points is a direct growth driver for this vertical, as we charge our banks a fixed amount per point per month. 68% of our revenues for the 9 months ended December 31 came from Tier 3 plus locations. This is a key growth driver for our second vertical that is the network cash management, which accounted for 18% of our revenues in this period. Tier 3 plus locations have very limited branch presence. So as against 61 bank branches per lack population in urban areas, India has only 6 branches per lakh population in rural areas. So in such areas, our value-added product of network cash management helps our bank clients to offer this service to end customers even where they do not have a branch presence. As on December 31, 2022, we had 840 cash vans and a staff strength of 9,200 including 2,100 employees and 7,100 contractual workers. Of this 21% are from armed forces, again, a USP for Radiant is a help to keep our cash losses to the minimum. For the 9 months ended -- for this 9-month period, our gross cash losses, that is before the insurance claim was about INR 4 crores. Obviously, the impact on the P&L is much lower than that. We added about 13 clients in this 9-month period, all of whom are direct clients. This has helped increase the share of direct clients in our revenues to 2.4% in this 9-month period as against 1.5% in FY '22. We serviced 3,200 odd end customers in this period, which is up from INR 2,675 in FY '22. All of these has helped generate a very healthy ROCE of 33.3% and a return on equity of 27.4% for this period on an annualized basis. More importantly, we generated free cash flow from operations after working capital changes of INR 42.5 crores in the 9-month period ended December 31, as against INR 31.1 crores in FY '22, representing a growth of over 35%. I now request Colonel to share his concluding remarks.

Well, quite a bit has been already said by both of us. And I would like to say that in the medium term, that's till FY '25, I do not foresee any challenge to the growth that we are currently predicting of 22% to 24% year-on-year, and that will be our endeavor, and I think we are on track as of now, particularly for the fourth quarter. With that, I would like to now open this communication for any questions from any of you. And we will -- it'll be our endeavor to answer them. It's over to Sohail and you all.

[Operator Instructions] The first question is from the line of Aejas Lakhani from Unifi Capital.

Congratulations on the listing and good set of numbers. Sir my first question is on the pickup points, which is a crux of the business. So if you look at the growth you've added in terms of touch points, is there a difference in the revenues for Tier 1, Tier 2, Tier 3 Plus because there's been heavy growth in Tier 1 and Tier 2 versus a Tier 3 per se. So is there a revenue differentiation, which is like skewed in favor of Tier 1, Tier 2?

Yes. Thanks, Aejas. Our contract is -- our pricing is common across all the tiers. We enter into long-term contracts with banks and the pricing is just purely based on the particular points location. It is whether within city limits, beyond city limits or far off locations. It is -- it could be in Tier 1, Tier 2 or Tier 3, the pricing is the same.

Got it. So sir, you mentioned in your opening remarks that in the rural places, the connectivity is much lower from an ATM perspective. But what is visible is that the number of touch point splits have gone up significantly in Tier 1, so it used to be in the 6,000 ranges, but that's moved to 10,000 now. So could you explain what has caused the jump in the Tier 1 cities for more points?

And again, quickly just put a number to it and give you a specific answer. The answer is that organized retail is growing rapidly. There's also e-com, e-com and e-com logistics is growing pretty rapidly. And they are initially concentrating. It's not going to be for a long time. It is going to cascade into Tier 3 and Tier 4 locations. But as of now, the growth that we are initially registering is very, very concentrated in Tier 1 and Tier 2 locations. And that's the reason why you see these additional numbers.

Got it. And sir, is there a seasonality with the fourth quarter being, from a seasonality perspective, the best quarter for us?

Usually, third and fourth quarter are the best quarters for us. So typically, as you can see our last year, I think we have given our quarterly numbers as well. Q4 and Q3 revenues more or less matched last year.

Got it. And sir, could you call out that except for the new touch points that you keep adding, you've mentioned the number of 1,100 points per month, which you are expecting to continue, right? So this is one lever of growth. Second, you have mentioned on call that you've added new direct clients, but do direct clients account for a better revenue than going through intermediaries like a bank?

No. Our pricing is fairly standard across direct clients as well as for banks.

Okay. And sir, could you call out some of the other group levers except for the addition in touch points?

Yes. So the -- for the first segment, it is additional touch points, which has a direct correlation, one-on-one correlation. Obviously, the volume of cash handled also has an impact. As I said, the pricing is dependent on 2 variables. The -- what is the daily cash limit, not the really cash handle, daily cash limit? And what is the -- where is it located? So these are the 2 variables based on which our pricing is determined. So volume of cash handle, like I said, it is INR 1.17 trillion in this 9-month period that represented about a 20% growth over -- on an annualized basis over last year. So the second lever could be the first segment that is the pick up and delivery is also the volume of cash handle. Though the correlation is not strictly one-on-one, a stronger correlation will be based on the number of points. For the second segment, correlation will be based on 3 aspects. One is the share of foreign banks and private sector banks in our Rural. Foreign banks, in particular, because the network cash management as I said is more relevant where the banks don't have their own branch presence. Foreign banks have limited branch presence, so almost a substantial portion of their revenues go through our account as well. So we get to charge the network cash management. So the share of foreign banks will be one of the levers. Second is the share of Tier 3 plus revenues because there the branch presence is low. And third, obviously, is the volume of cash because that is priced volumetric, directly ad valorem pricing. The amount of cash that we deposit in our account is directly correlated there.

Got it. And sir what is the percentage of revenue that is coming from foreign banks versus private and public?

We have given that in the analyst presentation that we uploaded. It's about 25%. Slide 10.

25%. Got it, sir. Is there any other growth lever that you feel that investors should know about?

Group?

Any growth levers?

Growth levers, I think this covers about 90% of our revenues. The cash processing, cash van operations are fairly standard, ancillary revenues that we make. I think we have covered it.

cash van operations, as you know, in the fresh issue, we are purchasing another 200 cash vans. The consolidation that has happened in the industry, we're looking at new contracts. Some of the early contracts, thanks to the COVID, were being extended to players who do not have the RBI criteria, meet the RBI criteria. Now that, that is behind us, I think new contracts have come up, we'll also be competing that. And that's one of the reasons we have gone in for 200 additional vehicles. I'm not putting a number to it, but it's -- we're looking at it as another growth segment that we can have. New clients that we have, I mean, a direct clients that we are looking at, I think that's going to also substantially have an impact on our future revenue. These are additional aspects that we're looking at.

Got it. And sir, the cash vans, you placed the orders for them, when are they expected to start being revenue accretive or generative?

Would you like to answer that?

When are we placing the orders...

We have placed the order of about 40 vehicles. We've already placed the order over 200. Another about 160 vehicles, we are likely to place an order in the coming financial year.

Okay. So it's going to be spread out over next quarter to the next year, the revenues from these vans?

40 vehicles will be getting it before the end of this financial year. Another 160 to 180 vehicles in the next financial year...

The next question is from the line of Prashant Kutty from Sundaram Mutual Fund.

Congrats for your listing, sir. Just a few bookkeeping questions in the first half and then probably a couple of other things. Sir firstly, if you -- just a clarification, you said that the cash pickup and delivery was about 68% of revenue, right?

That's right. Yes.

And network cash management was about 18%.

Yes. That's right. it is 68.8% and 18.3%.

And did you mention what was the network cash management would it on an annual basis as of 9 months?

Yes. Sorry. Can you repeat the question?

Sir, I am saying did you mention -- because I couldn't see in the presentation, the amount of network cash managed. We have the cash movement annual number, but we didn't have the network cash managed number. If you could share that.

I'll just tell you, we...

Well, compared to the, about 40% of the total cash that is moved is under network cash management. Do you have exact numbers?

INR 41,147 crores.

Okay. That's roughly about 40% of the number, 35% of the number.

Yes, slightly less than that.

Just on this point itself, sir, typically, now when you speak about network currency management and all, you always mentioned that typically about 40% of the number, but if I look at this quarter has kind of come down. Just want to also understand, usually, the third quarter, you said in a strong quarter because of festive season and all. However, if you look at the numbers, is it something which you have probably expected it to be on a Q-o-Q basis, this number or we probably were expecting a higher number? Purely because if I look at the last 2 quarters, we've done about INR 85 crores to INR 88-odd crore number. But on a sequential basis, the jump doesn't seem to be high, given that our third quarter and fourth quarter are usually -- is there any spillover effect, which is there...

No, not a spillover effect. There was a temporary setback in one particular sector, if you could see our sector-wise revenues also we have given. The petroleum sector, we did have some small headwinds because we handle largely with the private sector petrol bunks, not the public sector ones. And there, the pump price between private and public are slightly widened. Because of that, their own volumes had some -- faced some challenge. We believe it's a temporary phenomenon and should come back to steady state quickly.

Okay. And is there -- can you quantify in terms of what is the impact of that or something on this sir? Or was there -- is there any quantification on that?

That will be conjecture, right, as in what would have been versus what is actual. And then you have the data on the -- what was the last year full year and what is the current -- that data I can update in the presentation and share.

But apart from that, you just spoke about the petrol pump side, but in general, if you look at it, the other parts of the business should have actually been growing faster. So is that on track when we talk about the organized retail part of the business and all because even ex of that, the growth rate should have been higher. Because in terms of touch points, we've seen a good number growing up. That's the reason I'm checking on that.

Yes, we are seeing robust growth in e-commerce and e-commerce logistics, robust growth in organized retail and decent growth in BFSI. These are the 3 largest segments, in the total.

Understood. So just to that point itself sir, when you say that, that's like a temporary thing, you just spoke about the petrol pump thing, have you seen that kind of coming back on track? I mean, has it kind of been -- issued been resolved right now?

Yes, I personally feel it's a temporary situation. I think it should get restored. I'm unable to put a time line to it, but I think it should happen in the near future.

Understood. Understood. And on the question in terms of the Tier 1 seeing an improvement in the numbers. Typically, while you did say that the pricing is the same, but typically in terms of cash handling and all the number will be much higher for Tier 1, right? And we've always seen higher number from a Tier 3 perspective, and we've been suddenly seeing an increase in the Tier 2 and Tier 1 numbers at least. So I presume -- one should assume that the flagship starts driving us leverage as well as the scale of Tier 1 and Tier 2 keeps rising. Is that a fair assumption to make in terms of our margins and all?

No. Actually, if you see our percentage of Tier 1, Tier 2, 3 points and revenue percentage, it will more or less match a percentage here and there. So that is reflective of our long-term pricing as well, long-term pricing that we have with the banks as well. There are multiple factors. Yes, the individual points will handle higher volumes. So to that extent, per point volume could be slightly higher. But -- and the route density also typically tend to be higher in Tier 1. But at the same time, the cost of operations tend to be slightly higher as well in Tier 1. So in terms of the overall contribution to the bottom line as well, we don't see a sharp difference in contribution from Tier 1 versus Tier 2 versus Tier 3.

And the Tier 1 increase that you're all observing and commenting upon is largely driven by the retail. Retail is -- organized retail is growing very rapidly in our country and we are seeing -- as a consequence, we are seeing the growth which is happening in that.

Understood. So otherwise, there is no such change in terms of the pricing and all. The pricing largely is being maintained as far as cash pickup and delivery is concerned and even network cash management is concerned. The pricing as such is being largely maintained, right?

Pricing has been sustained and maintained like this, and there's no impact on pricing in any way.

Understood. Understood. Lastly sir on my end, in terms of our guidance, like you just highlighted that you should see -- I presume that probably there'll be some spillover effect going on to the next quarter and typically the fourth quarter is the best quarter. What is the revenue and our margin guidance, if you could just throw some light on that part for the next question?

I like to remain conservative. I mean, I'm hopeful for better numbers. But at the same time, as the existing trajectory and track that we are currently maintaining, I think it will be sustained. And it will definitely continue into the fourth quarter, which you'll see in the next numbers, it will be uploaded sometime in May.

Understood. Understood. But the reason I'm asking this specifically sir, is while you did touch up on the chart that you have seen about close to 20 -- you can probably say about 20%, 25% kind of a growth number, this quarter, obviously, was slightly lower, and we presume you said about the petrol pump issue. But on an average, you should assume that this number should be growing at about 20% to 25%. That's a fair assumption to make. Given the fact that we are adding almost about 12,000 to 14,000 touch points per annum?

Well, I would just like to look at this. Let's look at the PAT itself. PAT last year was INR 38 crores. Currently, we are at INR 47.2 crores at the end of the third quarter in 9 months, itself, we achieved this. And 9-month on 9-month comparison, it's nearly a 73% growth. So it's a very strong indication by any standards, and we hope to sustain this.

Sure. And one last bit, sir, you've also seen -- since you also touched upon the fact that you've seen a good amount of PAT number, it's also driven by a very strong EBITDA margin number. Are you saying that you are probably sustaining this number? Or can we actually better this number going forward?

Currently, I'd like to say like to sustain these numbers close to 26%. I think it's a good number to target, but we hope to improve upon it in the midterm.

What could be the lever for margin? Is it just leverage? Or is there any other legs in terms of cost or something which you can probably cut on. If you say margin has to improve? Or is it just purely leverage, I presume?

Yes. See, the operating leverage is clearly at play. You could see that in the third -- in the 3 months...

Yes, that's what I asked, yes.

19.4% is a growth, whereas EBITDA growth was 42% and PAT growth was 53%. So the operating leverage is a play that will continue to demonstrate not only in Q4, we are hoping that, that it'll continue in the next year as well.

[Operator Instructions] The next question is from the line of Aditya Sharma from Aditya Birla AMC.

A few questions from my end. Sir, we were expecting somewhere around flattish growth in the employee cost, while in this quarter, there has been -- the cost of employees has increased much ahead of even revenues. So can you just point out what has led to that?

See, there are 2 reasons for that. One is there has been an increase in the cash executive expenses during the second quarter and third quarter, the slight increase in that. We hired them considering that the volume will pick up in the third quarter. Second reason is we have given some increases to our existing staff during the second and third quarter. These 2 reasons -- these 2 are the reasons for the slightly higher cost in employee costs. The second and third.

Can you please repeat the second argument. What is the reason?

First reason is the increase in the cash executives cost. Second is the annual increases to our own stock during the second and third quarter.

Annual increase in the...

For our staff...

Annual increment. From first of...

Okay. Okay. And so according to you, the volume pickup wasn't as commensurate as expected and you hired a higher number of executives than was required?

I would not put it like that. We are building in capacity because we are expecting a fairly robust growth in the current quarter as well, Aditya.

Right. So sir, just coming back on the growth front, as we would understand the Tier 3, Tier 2 in smaller towns, the marriage season and the festival season is quite big. And did you see the weakness in the demand, which led to this or our fixed pricing doesn't actually -- there is actually no impact from the weakness in the rural demand. So how should one understand this situation?

See, our Tier 3 revenues have continued to remain as a percentage. So overall, the -- like Colonel mentioned, only one place where we did experience some weakness was in the petroleum sector. E-commerce, organized retail has shown the highest growth followed by e-commerce sector. BFSI growth has been steady and Petroleum was a little lower. In fact, there is no growth, has small degrowth.

Got it, sir. I'm just trying to understand does a weak rural demand actually have an impact on your revenues?

No.

A hypothetical question, if I would say that.

No, no, no, because our share of rural revenues have continued to remain at 67%. So the company overall has grown at 19.4% and the share of rural -- Tier 3 revenues also have grown at the same pace.

And also, we are showing higher growth in Tier 1 cities in terms of outlets. So I just wanted to understand 2 things. In terms of pricing, as you said, there are 2 levers. One is the amount of cash that is funded and the second is the distance. So in -- my understanding would be the distance traveled in these cities would be much lower than Tier 3. And I would assume -- presume actually that the relation -- the dependence on the distance would be more in terms of pricing compared to the amount of cash handled. So is this understanding correct?

No, Aditya.