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

Ladies and gentlemen, good day, and welcome to the Radiant Cash Management Services Q1 FY '25 Earnings Conference Call hosted by Antique Stockbroking Ltd. [Operator Instructions] Please note that this conference is being recorded. And I'll now hand the conference over to Mr. Sarvesh Mutha from Antique Stockbroking Ltd. Thank you, and over to you, sir.

Yes. Thank you, Neha. Good morning, all. We welcome you all to Q1 FY '25 Earnings Call of Radiant Cash Management Services. We have with us today the entire management team. So Colonel David Devasahayam, CMD, sir; Mr. TV Venkataramanan, CFO; Colonel Benz, COO; Mr. Alexander David, GM Operations; and Mr. Muthuraman, Director, Adviser, Strategy and Investor Relations. Without further delay, let me hand over the call to David, sir, for his opening remarks, post which we can start the Q&A. Over to you, sir.

Thank you very much. Good morning, ladies and gentlemen. Thank you for joining us today for Radiant's investor call. Radiant continued on its path of consolidation in Q1 FY '25 with greater focus on cost optimization and improvement in profitability, which has resulted in a 24% improvement in profit after tax in Q1 FY '25 over the previous quarter. I would like to give a quick update on the 5 key strategic initiatives taken by the company during the previous year. Kochi-based fintech firm, Acemoney, which we acquired last year, has been rapidly expanding its footprint with twin focus of onboarding merchants across the country on its digital payment infrastructure and improving transaction volumes through its network. Acemoney is also complementing Radiant in its core business of retail cash management with a state-of-the-art digital solutions and a strong network of over 8,000-plus merchants as on date. Diamond, bullion and jewelry segment, which we entered into last July, is on a path of consolidation and profitable growth. Greater focus on profitable niche segments, drawing on synergy benefits of the core retail cash management segment and steady client additions have helped this segment to improve its profitability. As indicated in our last call, we are well on course to achieve breakeven in this segment in the current and next quarter. The third strategic initiative of increased focus on direct clients has shown very good results. From less than 2% at the time of our listing, today, this segment accounts for 9% of our revenues. The market potential for this segment is enormous and holds strong promise for continued growth of our core business in the medium to long term. Our deployment of 220 cash vans acquired using the IPO proceeds have been completed. These are fully deployed both in our core business of retail cash management as well as in cash van operations segment, which continues to exhibit healthy growth and profitability. Lastly, Radiant Insta Credit that we launched last year has been well received by the market. This product has enabled us to target a much wider market, which was easy to untap, providing significant opportunities for growth in the medium to long term. While each of these strategic initiatives have matured well and are poised for a healthy growth, the core business continues to face certain small headwinds. However, most of it has abated now, as can be seen from sequential revenue growth in Q1 over Q4 last year, despite this being a seasonally low quarter and cash throughputs being impacted by a prolonged national election. Several corrective actions taken by the company, including strident cost control measures, has resulted in improvement in profitability for this quarter over Q4 last year. EBITDA margins have improved from 15.4% in Q4 FY '24 to 18% in Q1 FY '25. Our widest network covering 14,500-plus PIN codes, our strong risk management practices as reflected in the lowest cash losses in the industry by a wide margin and strong technological backbone covering every aspect of our operations, continue to remain a core strength. We continue to maintain the highest return on capital and return on equity in the industry. I would like to reiterate our priorities to restore the revenue growth to historical trend levels in the current year through these 5 strategic initiatives and offering a wider range of technological solutions to our clients. We are excited about the journey ahead. As always, we remain committed to providing transparent updates on our progress and answering any questions you may have. I would now request Mr. Alexander David to speak about the progress achieved in Acemoney, followed by Mr. Venkataramanan, our CFO, to speak about the financial performance and the key performance indicators. It's over to you, Alex.

Thank you, sir. Good morning, everyone. I would be presenting the update on Radiant Acemoney, our fintech subsidiary. I'm happy to inform you that Radiant Acemoney has rapidly scaled up its operations and has achieved positive EBITDA for this quarter within 8 months of our acquisition. I would like to present a few numbers to put our scale of growth in perspective. We have onboarded over 13,619 merchants as on date as against 3,287 at the time of our acquisition. Our transaction volumes this quarter were at INR 75.43 crores compared to INR 57.76 crores in the last quarter. We have a presence in 14 states now against 3 at the time of our acquisition. We clocked revenues of INR 21 million for this quarter as against INR 35 million for the full year last year. But we are still in a very nascent phase of growth. We have large ambition to increase our footmen of POS machines across the hinterland, covering 100,000 merchants over the next 7 to 8 quarters. We also offer a wide rate of transactions and services to these retail outlets that were hitherto not part of the fast-growing digital economy of India. Radiant and Acemoney are working closely together to achieve the intended synergy benefits of this acquisition. As mentioned in our last call, the synergy benefits has started occurring to both as we capitalize on Radiant's vast network of C's and Acemoney's rich experience in fintech. FY '25 appears to be a very promising year for both revenue growth and profitability of Acemoney. We will continue to provide regular updates on the progress of Acemoney to our investors as we scale greater heights in the coming months. I would now request our CFO, Mr. Venkataramanan, to present our financial performance.

Thank you, Alex. Good morning, everyone. Thanks for joining us on this investor call today. I will present the company's key performance indicators and financial performance for the quarter ended 30 June 2024. Business performance. During the quarter, we added 13 new clients, 180 new end customers and 2,179 new retail touch points. In this quarter, we handled INR 0.41 trillion of cash in line with our recent past quarters. Today, we service over 72,000 touch points, covering 14,500-plus PIN codes across 8,000 locations, and continue to have the widest network in the industry. In this quarter, the overall volume growth was muted on account of extended election season, which impacted cash performance. Despite this, we witnessed good growth of 11% in BFSI sector over same quarter last year and 9.5% growth in petroleum sector. We also witnessed healthy growth of 44% in the cash management operations segment. However, E-com Logistics business continuous negative growth. As mentioned in our earlier earnings calls, which has muted our revenue growth to 4.4% in this quarter over same quarter last year. We have witnessed strong growth in our direct client segment, which has more than doubled in revenues in this quarter over the same quarter last year. Our recent launch of Insta Credit is also being received very well in the market and will help improve the revenue growth in the coming quarters. Coming to the financial performance. Total standalone revenues for Q1 of FY '25 were INR 993.1 million, representing a growth of 4.4% over the same period last year. EBITDA margins for the quarter stood at 18.04%, an improvement of 260 basis points over the previous quarter. The sharp movement in EBITDA margins were achieved on account of: one, strong focus on cost control across all cost states, particularly with respect to van operations; two, consolidation of routes in RVL, resulting in much lower losses in this quarter over the previous one. The management is confident of further improvement in margins in the remaining quarters of the current year as well. The return on capital employed for the quarter was 21.1% annualized. Investment in cash funds to the tune of INR 240 million last year and the drop in EBITDA margins, as discussed earlier, have contributed to a reduction in ROCE. Return on equity for the quarter was 17.1% annualized. I would like to highlight that the ROCE and ROE for Radiant continues to be among the highest in the industry because of our strong and clean balance sheet, very low cash loss levels, high fixed turnover ratio and strong working capital management. In summary, the quarter has been a healthy improvement in EBITDA margins over the previous quarter despite a muted growth due to extended election cycle. With the new initiatives bearing fruits, as highlighted by our CMD in his opening remarks, the focus of the management is now on building new long-term levers for growth with a more diversified revenue profile and robust profitability. I now hand over the floor to Sarvesh for the Q&A session.

[Operator Instructions] The first question is from the line of Sohail Halai from Antique Stockbroking Ltd.

Sir, 2 or 3 questions from my side. One is in terms of the core business that is the cash pickup and the delivery. If you could just help us understand, if I look at the last 6, 7 quarters, because of various challenges, the revenue is flat. When can we expect this business to actually start growing on a quarter-to-quarter basis, sir? That is one.

You can complete the questions, Sohail. We'll answer all of them together.

Second, it would be basically, sir, mentioned in terms of the DBJ business that probably we are reaching a breakeven. If you could just give some more color in terms of what is the kind of growth that we are expecting for the full year and some quantitative data around it? And third would be around cash van operations where post-deployment of new vans, we have seen improvements in terms of the revenue there. And how sustainable it is? And probably, what are your expectations from the cash van operation business for the full year?

Thanks, Sohail, for the questions. I'll address one by one. The first one is the revenue growth from the core business. As I said, like -- sorry, as Colonel mentioned in the earlier opening remarks, this particular quarter has been particularly affected because of this extended election cycle. Despite that, there has been a growth in revenues over the same quarter last year. And we -- the specific segments of direct clients have shown remarkable growth. And we believe that longer term -- medium to long-term growth will continue from our direct clients. So we are taking significant measures on that. And actually, if you see the number of point addition also, this quarter has been -- has seen 2,100-plus ads. That's about 700 points per month. So it had gone down to as low as 400, 450. It has recovered. So we are on our path to trend line growth. And we believe, over the next few quarters, we should be able to restore to the long-term guidance of 18% to 20% growth per annum, not just only from the core business, but from each of these new initiatives that we are taking. The second question on DBJ. So DBJ, unfortunately, we have not put out any quantitative metrics as yet. It's still a very small business. And we've had a -- we had gone through a certain consolidation, as CMD mentioned, in routes and to focus more on profitability -- profitable growth rather than just the top line growth numbers. Once it reaches certain critical volume, we will put out -- we will put out the quantitative metrics for that as well. But as we speak now, as in the or -- the DBJ business is not likely to account for more than 3%, 4% of our revenues for the full year. The third question is on cash-run operations. This segment has been growing fairly healthy. And you said that whether this growth is sustainable or not, we are -- as I mentioned in the earlier calls, we are a very small player in this segment. So the market is fairly large, and we are very particular about selecting only profitable routes. And we are -- I mean we are confident that this will -- this segment will report more than average growth for the next several quarters to come to -- compared to the -- which will help us meet the overall revenue growth targets. Hope this answers your questions. Thanks.

Yes. Just a follow-up on this in terms of the cash pickup and delivery. Is it the market has stabilized in terms of the pricing? Or we are still seeing that there are competitive pressures? And how is the pricing behaving in this segment?

No, no. There is -- I think the worst is behind us. As you can see, our improvement in profitability is on account of both stable pricing and our cost control measures. But there is no significant. Of course, there could be specific mandates where we may be haggling. But otherwise, overall, it is healthy scenario at this point of time.

So in general, one can assume that the volume growth and the revenue growth would be in sync because the pricing would more or less be stable now?

Absolutely. Yes.

[Operator Instructions] The next question is from the line of [ Sudip Samanta ], an individual investor.

Actually, I have a very basic question. Last conference call, you guys told us like our EBITDA margin at about 25%. So we stick on that or no? Here, at least we make near about 20% to 25% EBITDA margin. That would be my first question.

Okay. And your subsequent question?

Sir, actually, I just concerned about our growth because I just follow this company more than 2 years after listing. So growth is totally moderate, sir. It would be near about 10%. You always commit 18% to 20%. That's why. I'm just a little bit worried. We can achieve that much of growth or not? These are the 2 questions we have, sir. Please explain a little bit.

Now just to answer your question, I had -- in my presentation, I had covered the 5 areas that we are now targeting and moving strongly ahead in. And we are focusing on growth in the medium to long term. And if you find that like our EBITDA was at a certain level and it has come down, it is because of the additional expenses that we are incurring to make these initiatives possible. So one of my key thought processes was that post listing, we should invest into these additional initiatives over the last year so that these for us translate into suitable growth areas in the coming time. So we have spoken about -- if you remember my earlier listing, which I had spoken, this year, we are looking at somewhere in the range of growing -- in the range of 15% to about 18% is what we spoke about. So we'll continue to aspire for that and move in that direction during the course of this year. I personally am extremely confident that these are very important measures that we have taken, and that they will achieve the requisite outcome that we are hoping for.

What about our margin, sir? Could you please explain a little bit about margin? That is the main concern, sir.

Yes. So as you could see, sir, we have already shown a decent improvement in EBITDA margins between last quarter and this quarter, about 24% growth impact. The margins are on its way to improve further. As we had mentioned earlier, medium term, we should be able to restore our margins to the historical levels over the next 3 to 6 quarters.

[Operator Instructions] The next question is from the line of [ Rohit ] from Samatva Investments.

I have just one question on the direct client part. So I just wanted to know in terms of pricing, in terms of profitability margins, how are they compared to our traditional mode of business through banks?

No. Actually, there is no -- not much difference on the pricing. As I said, profitability cannot be measured at individual client levels of fixed cost and operating leverage model. So -- but the pricing is fairly similar across both direct clients as well as bank. In fact, we prefer more business to come from banks, but huge growth opportunities exists in direct clients as well. That's why it is one of the key strategic initiatives for us now.

So are banks, how -- so are banks actually decreasing the services that they provide to many of their customers? So how is the de-growth from the bank side? So are you seeing a major de-growth happening from the bank side or it's stabilized?

No. Just to further add on to what Mr. Venkataramanan said, 67% of the banking sector is in a nationalized banking sector. And in that, only 1 bank as of now is providing retail cash management services. So all these customers and clients who are dependent on the rest of the banks and cooperative bank, they require these services as much. So therefore, our target when we are going for direct clients is with these customers who require the services. And that's -- it's a huge opportunity by itself. But converting them, we are finding is taking time because it's a new orientation for them. So that is how we are moving into this segment. And there has been a growth of from 2% to 9% in this. And I personally feel that there is going to be far greater gains from the time ahead. [Technical Difficulty]

It seems like we have lost our current participants. So we'll take next questions from the line of Raju Barnawal from Antique Stockbroking Ltd.

So my question is on E-com Logistics shares. So if you look at the segment pie breakup that E-com Logistics shares has come down from 6.2% in the last quarter to 3.7% in the current quarter. So can you throw some color on that? Are we still seeing competitive pressure in that segment?

The challenge or the impact in E-com Logistics, we had mentioned in our earlier calls as well. It is restricted to only remote locations with low cash volumes where alternate modes of cash pickup are being explored. So we have geared up our technology solution to address this issue. We firmly believe the worst is behind us on this, and we expect this segment to start showing positive growth in the coming quarters.

[Operator Instructions] The next question is from the line of Rushil Dedhia from Antique Stockbroking Ltd.

I had 2 questions, sir. CMS has also started doing collection efficiency for banks, collection of the EMIs and everything because of the great network. So we also have a similar amount of network. So do we also plan to start on doing this?

We do have some initial conversations on these clients. We will explore that and update the shareholders in the coming quarters.

Okay, sir. And sir, my second question is in regards to the gold, bullion, jewelry business. So how is that doing as of today?

Yes, we are -- as Chairman mentioned, we are on a consolidation path there, profitable -- consolidation and profitable growth. We do expect it to achieve breakeven in the current quarter and the next quarter.

And sir, what about the fintech business that we have?

Yes, it's growing. It's still at a nascent stage, but we have improved considerably over the last quarter, and it's on path. Still at a very nascent level, but it's growing steadily.

[Operator Instructions] The next follow-up question is from the line of Sohail Halai from Antique Stockbroking Ltd.

So just wanted to actually understand from you in terms of your vision, the various initiatives that you have taken in terms of adding the strategic businesses. Right now, the contribution of those businesses are small. But having you invested in that, how do you think that the revenue mix would shape up probably 2 to 3 years down the line? Any ballpark color that you could give that the Acemoney or the digital business would be contributing in [ vast ] percentage of the business and probably gold, bullion and jewelry would move to that? And probably some sense in terms of EBITDA margin over a period of 2, 3 years. Not asking from a quarter-to-quarter basis.

Yes. Thank you, Sohail. I just like to say that we -- our target is that year-on-year, our growth should be in the range of between 15% to 18% to 19%. And the -- each of these individual initiatives has got the potential of exponential growth. So without unnecessarily adding to the speculation of anything, I'd like to say that I feel very confident that this kind of sustained growth year-on-year will be very achievable as we achieve traction in each of these individual initiatives, which I have outlined.

Okay, sir. And sir, in terms of from the trajectory perspective, as you mentioned that a DBJ business would be achieving the breakeven. And second, in terms of the Acemoney is also contributing right now and the pricing pressure in terms of the core business has actually stabilized now. So in terms of -- incrementally, the growth that will come, should we see an EBITDA margin expansion along with that growth?

Yes, Sohail, both the -- as you said, our core business is a high operating leverage business, and each of these probably except some small part of Acemoney, each of these have the very similar characteristic of fixed cost and a significant incremental gross margin business. So as the revenue grows, we are -- our aim is to restore the EBITDA margins to the previous levels.

And if I look at probably the expenses breakup in terms of employee expenses and other expenses, I look at it that probably in terms of employee expenses have stabilized around INR 19 crores per quarter. And in terms of other expenses, INR 62 crores, INR 63 crores. So employee expenses perhaps would not go up significantly and would be slightly lower than the volume growth. And so is other expenses? Is that the way to look at it in terms of future? So in other words, have you fully invested and there would be no incremental addition and probably expenses curtailment that we have seen this quarter would continue leading to the margin expansion?

Absolutely. Absolutely. Whatever is the -- so to say, the P&L-based investment that has to happen or most of them have happened. Acemoney has achieved breakeven EBITDA positive already. And DBJ were expecting EBITDA positive in this and next quarter. So the investment phase is already over. So as the revenue grows from here, we are expecting a steady improvement in EBITDA margins.

Okay. And sir, in terms of the linkage in the other 2 businesses, I understand the core business, but the linkage in the other businesses as compared to the expense and the volumes, how is that? So for example, in terms of DBJ business, if it grows from 1x to 1.2x, in what proportion will the cost grow? And similarly, in Acemoney, any indication there?

So DBJ is too small to make an overall impact on the entire company at this point of time. But even that business has a high fixed cost and a high incremental margin business. So direct costs in a steady state could be less than [ 60% ] of the revenues. Acemoney has more the components. Acemoney also has a fairly similar profitability metric on a combined basis for both expansion of network and transaction volumes.

And sir, just one more thing from the core business perspective, we were actually looking in terms of moving from fixed to -- fixed and variable in some of the cases. So whether -- how much proportion of the business would be fixed? And are we shifting anything into variable? What will be your broader mix there?

The exact details of that is competitive information, Sohail. But the shift has already happened and we are seeing the effect of it already in the quarter. We don't expect any further changes in that mix from here on.

[Operator Instructions] The next question is from the line of [ Sudip Samanta ], an individual investor.

Actually, already, we invest in DBJ business, right? Next 2, 3 years, what would be our like sales top line? Next 2, 3 years, not for this year or next 2 months. So there -- we have some aim, right?

Yes. So there has been -- as I said, we've changed our strategy and focus on more profitable growth. So this segment is not likely to account for more than 3%, 4% of our revenues over the medium term.

The next 2, 3 years, our DBJ business, then should be near about 2%, 3% overall top line?

3% to 4%, yes.

Okay. And what is Acemoney, sir? Could you please explain a little bit?

Acemoney is growing at a much faster pace, already achieved EBITDA breakeven. So we have not put out long-term forecast for Acemoney as yet because it's just 8 months since we acquired, but it is growing at a pretty healthy pace. Hopefully, it will be a substantial portion. We'll give more disclosures on Acemoney once it reaches a critical size.

So at least we hope like next 2, 3 years, it would be near about 3% our overall sales?

Sorry?

Acemoney sales, it's near about [ 3% ] overall sales, next 2, 3 years, prospect?

We've not put a number as yet. But anyway, this is -- that's in a separate legal entity. So you will get the information on that on a quarterly basis as well. Even this quarter, we can compare between stand-alone and consolidated to check the share. This quarter was about INR 21 million.

INR 21 million?

INR 21 million is the revenue out of the overall revenue of INR 100 million. So it is roughly about 2%.

Acemoney, the whole of last year, they made only INR 34 million sales. But this year, in the first quarter, so they have made INR 21 million. That indicates that they are turning around very quickly.

Sir, what about the...

Roughly about 2%. It will be substantially higher. We are not able to put a number to that as yet on what is the number in the medium term.

Sir, what about our DBJ business margin? Our normal margin like 25% to 27% or it's more than that or less than that?

Sorry, we didn't follow your question.

DBJ business margin, I'm talking about EBITDA margin. So it's a...

DBJ business is just about -- we are expecting it to break even in the current or next quarter.

The next question is from the line of [ Rasagya Gandhi ] from Arihant Capital Markets Limited.

I just had one question. I just wanted to know about the retail opportunity and what kind of market share are you looking from here to capture?

Retail opportunity, is it? Can you just repeat the question?

Yes, sir. I just wanted to know about the retail opportunity that your company is seeking from here.

See, the market for the number of retail outlets in India is far higher compared to the total industry that is being serviced by retail cash management players. So today, we cater to about 72,000 points. But I mean India has, I think, close to [ 2 crore ] retail outlets. And roughly street estimate is that roughly about 25% of that will be eligible to use the service of this nature like retail cash management. So that is INR 50 lakhs. And we are at 72,000. So the entire industry, it will be catering to hardly 2%, 3% of the overall market. So we have a huge potential for growth in the retail segment. Retail, as in retail cash management, the core business. And each of these strategic initiatives are to capture part of this market. So market share is too -- other in a sense, it is not meaningful at this point of time because the penetration levels of the industry itself is very low.

Ladies and gentlemen, we'll take this as a last question. I would now like to hand the conference over to the management for closing comments.

Thank you so much. Well, coming on to my concluding remarks, this quarter has shown a positive reversal in trend and profitability. I'm confident of continuing this trend and improving our profitability with the help of strong revenue growth and continued focus on cost optimization. The opportunities for growth are tremendous, and our key strategic initiatives are clearly focused on capitalizing on these untapped market segments for a long-term sustained growth. I want to express my gratitude for your continued support and belief in Radiant. We are confident that our focused approach and strong performance will yield promising results for all stakeholders. Thank you for your time and your abiding interest in our company. Thank you very much.

Yes. On behalf of Antique Stockbroking, we would like to thank the management for giving us this opportunity. Operator, you can conclude now.

Yes, sir. Thank you. On behalf of Antique Stockbroking Ltd., that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.