Edited Transcript of VAKR.NS earnings conference call or presentation 31-Jul-20 1:00pm GMT

At the same time, health of our franchisee and customers is important to us. And all our Vakrangee Kendras are maintaining complete safety protocols, and also maintaining proper hygiene at the outlets. We believe our brand awareness and store awareness has increased significantly during this period of COVID-19 pandemic as our Kendras have been open and are providing key essential services in their neighborhoods, due to which we believe we shall emerge as the store of choice for our customers for all their essential needs.

Further now, as the situation improves and Unlock 1.0 has begun since 8th June, we expect our services to normalize over the next few months and business growth momentum to improve and be better giving forward. Due to our enhanced visibility during this lockdown period and an aggressive marketing campaign done over the last 6 months, the company has received an overwhelming response on the same and has received huge number of new inquiries for Nextgen Vakrangee — Nextgen franchisee models.

Further under Pradhan Mantri Mudra Yojana, the banks have started to extend finance to the micro enterprises, which are in the business of manufacturing, trading and service sector in rural, urban and metro areas. I’m pleased to share that our company has entered into a partnership agreement with Union Bank of India to provide the loan facility for pan-India Nextgen Vakrangee Kendra franchisees. The bank is now offering us a special product for our franchisee under Union Mudra scheme. Union Bank of India has an overall planned outlay of INR 2,000 crores and sanctioned the outlay of INR 800 crores first tranche under the Union Mudra Scheme for Nextgen Vakrangee Kendra franchisees.

The loan covered under Mudra Schemes are collateral-free loans. This is a huge boost to our potential franchisee, thereby easing the on-boarding process for our potential franchisee.

Further with respect to future visibility of number of Nextgen outlets, I would like to say that we have received 1,20,000-plus inquiries. Out of this, around 24,000-plus have been currently under on-boarding process. These exclude the 10,000-plus outlets, which are already operational. Of these 24,000-plus outlets, around 15,000 outlets are under advanced process and would become operational over the next 3 to 6 months. These 15,000 Nextgen outlets are expected to be operational in the current calendar year itself in 2020, but balance outlets are expected to be operational by March to June next year. So overall, we expect around 35,000 Nextgen outlets to be operational by the June next year.

Due to COVID-19 pandemic situation, there has been disruption in the supply chain and few challenges in the procurement of the hardware equipments for the Kendra outlets. Most of these equipments are imported and are assembled in India. In the current environment, we expect at least 25% to 30% price hike in the case of hardware equipments.

We have leveraged our strong balance sheet to support our vendors financially in this moment of crisis to meet our projected requirements as well as — as we have successfully ensured an uninterrupted supply of software and hardware equipment without any material price impact. It gives me immense pleasure to say that we have the software and hardware procurement well in place for another batch of 25,000 Kendras. This would give us a huge advantage in our industry segment as our franchisee viability would be much better as well as the initiation process would be quick and unaffected due to any supply chain constraints in the near future.

Commenting on the operational performance, Vakrangee Kendra network throughput has crossed USD 1 billion during quarter 4 financial year 2020. As well as, we have locked more than USD 1 billion in the June quarter, which was impacted due to COVID situation. Currently, we are at annualized run rate of USD 4 billion throughput. Our total number of transitions crossed 30 million transactions on a quarterly basis. It is very heartening to see this performance as these outlets are still maturing and growing. With more and more outlets becoming operational and mature, this would significantly increase our — over a period of time, and we will witness a benefit of strong operating leverage as our cost would remain at the same level until we reach 35,000 fully operational outlets.

Commenting on the financial performance during the March quarter, robust growth is seen in financial across all parameters due to clear focus on store profitability and service activation across the network. Actually, in March quarter, we actually lost 50 — 15 days of business as the stores were closed in initial days of lockdown. Our revenue from operations stood at INR 207.39 crores, registering an year-on-year growth of 104%. Our profit after tax has grown by 383% to INR 31.16 crores. Revenue from operations increased primarily due to increase in number of operational outlets and maturity of existing outlets.

During the June quarter, revenue and profitability has been materially impacted due to COVID-19 pandemic and nationwide lockdown situation. Outlets were closed between 15th March till first week of April due to nationwide lockdown.

Between second week of April till first week of June, only our key essential services like banking, ATM and mobile recharge and telemedicine services have been operational. However, other key services like assisted online shopping, online pharmacy, travel services and logistics have been completely closed because of the on-ground field-level delivery challenges and travel services being closed due to the lockdown situation.

Post 8th June, as the Unlock 1.0 exercise has begun, although there are still field-level and delivery challenges, we are striving our best efforts to keep these essential services available across our network of stores. We expect stores to normalize over the next 3 to 6 months.

Going forward, once the environment normalizes, we expect the financials to keep improving as more and more Nextgen outlets become operational and as the stores get more and more mature. Also, we have been able to maintain the robust balance sheet with debt-free status and entire CapEx has been funded through internal accruals.

During the year, in recognition of our superior environmental, social and government — governance model, our company, Vakrangee Limited, has been globally ranked #1 in the Sustainalytics ESG Risk rating ranking out of the 668 companies assessed in the software and service industry across worldwide. We are honored and excited to receive this rating from Sustainalytics. This rating is a validation of our belief and commitment to our business model of National Vakrangee Kendras.

Also, our company has been also accepted as a signatory of the United Nations Global Compact. We are now part of global network of over 9,500 companies and 3,000 non-business participants that are committed to building a sustainable future.

Going forward, we shall witness growth on 3-part, which is an increase in number of outlets, activation of all services across outlets and then maturity of the services over the period of time.

Also, I would like to welcome Mr. H. C. Mittal, our newly appointed Independent Director, which will further strength our Board independence and enhance our corporate governance standards. Mr. Mittal has a rich experience of over the 37 years in the field of banking and financial inclusion, where he has held several positions and headed several projects in — at Union Bank of India. He would add value and be guiding mentor for us in the field of banking and financial inclusion.

Further, we have also announced a dividend of INR 0.25 per share, which translates into a dividend payout ratio of 37%. I would like to take this opportunity to thank our shareholders for their support.

We can now open the floor for Q&A session. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of [Rahul Gupta], individual investor.

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Unidentified Participant, [2]

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Yes. Can you explain me the reason for the revenue de-growth in June quarter? And what is your guidance for next 6 to 9 months?

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Dinesh Nandwana, Vakrangee Limited – MD, Group CEO & Executive Director [3]

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Thank you, Mr. Rahul. So if you see specifically with respect to the June quarter, as we have highlighted in our presentation also, that it was primarily impacted because of this COVID pandemic and lockdown situation. Because our stores, when the lockdown started, it started somewhere between 15th to 20th of March is where the initial things started coming in, in India. So the initial 10 to 15 days till the first week of April, almost all the stores were completely shut, and we had to do a lot of paperwork in order to get the permissions and the approvals for — as we were providing the essential services.

Post the second week of April till the entire June quarter, our 10,000 stores have been operational, but providing only essential services. So services such as banking services, ATM services, mobile recharges and some part is telemedicine, which is primarily the tele consultation services. However, our all other services at the store, which is entire online shopping, online pharmacy, logistics, travel services, they were completely shut because of the field-level delivery challenges as most of our — 80% of our outlets are in — below Tier 4, so in Tier 4 to Tier 6 locations. So there is huge logistics and delivery challenges as well as the entire travel services were banned during this period. So if you see prima facie because of that, we — our revenues and profitability, both have been impacted because of this.

Now as the — your second part of the question, which is how — what is your outlook for the next 6 to 9 months. So if you see what we are saying is, even today, the lockdown has not opened up completely, and it has not got normalized. Still, there are travel services, which are almost as good as negligible. Still, if you see online shopping, in the rural segment, specifically, there are a huge amount of logistic and delivery challenges. So as the things are getting normalized, so as the lockdown — Unlock 1.0 opened up in second week of June, we have started seeing some improvement, but we feel that it will take 3 to 6 months in order to get to proper normalized situation. But it should be — we should be glad to see that almost all our stores are operational and providing the essential services, and we have been a big beneficiary because of this as our brand awareness, store awareness, consumer awareness has increased substantially. So even if you see in terms of — in June quarter, actually, we did more number of transactions as compared to our earlier quarter. So that is a very positive sign that we see, because in banking services, specifically because of this government subsidy schemes and also since we were the only store operational in that neighborhood, we’ve got a lot of — the number of transactions as well as the GMV for our banking services increased materially. So we are seeing that benefit. And I think so that will, in the long term, over the next after 6 to 9 months, once the situation is normalized, we will get that benefit in all other services also. And those consumers, those customers, which have now become aware of our outlets, they will also be utilizing our other services. So I think so from a long-term perspective, it has been a huge positive in terms of our image building as well as brand awareness. And currently, I think so the situation has to normalize. It will take, I think so, 3 to 6 months for things to get completely normalized. Thank you.

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Operator [4]

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The next question is from the line of Raunak Chandravanshi, individual investor.

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Unidentified Participant, [5]

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Yes. My question is, I would like to know your guidance on the number of outlets for the current financial year?

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Dinesh Nandwana, Vakrangee Limited – MD, Group CEO & Executive Director [6]

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Sure. Mr. Raunak, so as — what we have guided is that we already have 10,000 stores, which are already in operation. We have overall on-boarded almost 24,200-plus outlets, out of which almost 15,000 outlets are in advanced stage of completion. So there — because of this COVID, there was a logistic challenge to deliver them the hardware kit and other things. But I think so these franchisees were already on-boarded. They are now in the advanced stage of getting their store completed. So we expect these 15,000 additional incremental outlets to become operational in this calendar year itself. So before December, we expect around 25,000 operational stores. And because of the good response that we have got through our marketing campaign, we are having another almost 9,000 to 10,000 outlets, which are currently got additionally on-boarded. So we believe that those will get completely operational maybe by March, or at max, June of next year. So if you ask me in this calendar year, we are seeing 25,000 operational stores. We will revamp from 10,000 to 25,000 operational stores. And maybe by mid of next year, we will be at 35,000 operational stores. So that is where we stand as on day today.

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Operator [7]

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The next question is from the line of [Abhishek Bhushan] from Venture Capital.

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Unidentified Analyst, [8]

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Sir, we have seen the reduction in the cash balance, and there has been increase in the advances. Can you please explain the reason for the same?

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Unidentified Company Representative, [9]

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So Abhishek, as what Dinesh also highlighted in his initial speech, that because of this COVID pandemic and lockdown situation as well as what we are seeing in terms of Indo-China relationships and everything, there are a lot of disruptions we are witnessing in terms of hardware availability, because most of the hardware that we buy is typically imported and it gets assembled here in India. So that supply chain has been impacted, has been disrupted. Because of which, we were facing some challenges in terms of availability of the material as well as we are witnessing right now the prices being increased anywhere between 20% to 30% to 40%.

So we were one of the few players in the market where we had a good strong balance sheet in place, where we had a good cash balance in place. We have utilized that in order to — in the business so that we can get the benefit of that. So we have got some trade discount as well as, more important than that, we have gotten assurance of the availability of the material without any material price impact.

So if you see from a business perspective, it is beneficial to us. We have utilized that capital. As the funds come in from the franchisees over a period of the next 6 to 9 to 12 months, it will get — it will increase further. So from that perspective, I think so, we have taken the benefit of this situation. And we have ensured that there is no problem from a supply chain perspective in our growth plans. Because our growth plans are fairly aggressive where we are ramping up from 10,000 to almost 35,000. So we have that hardware availability, software availability now completely in place, and there has been no price impact for us. And more than that, material availability is in place for us.

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Operator [10]

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The next question is from the line of [Ashutosh Varma from Luthra Investments].

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Unidentified Analyst, [11]

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Good evening, Mr. Nandwana. So my question is, your throughput numbers are very encouraging. And where do you see these numbers in the next 12 months? Number one. And what would be the impact on profitability in the next 12 months?

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Dinesh Nandwana, Vakrangee Limited – MD, Group CEO & Executive Director [12]

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So if you see, as you rightly said, so that is what we have also highlighted that our throughput numbers are very, very encouraging because in this — even in this lockdown period, we have locked almost $1 billion of throughput in terms of our BFSI services. Our e-commerce services were impacted. And our onetime services, which is typically account opening or insurance services or loan products, those have been impacted, which are more fee based.

But in terms of throughput, which is our transaction value for the banking services, for the ATM services, overall, we have seen very encouraging response, what we have seen. So the number of transactions have also increased. So we actually did more number of transactions during the June quarter as compared to March quarter. This is also because the ticket sizes were low, but number of transactions were higher. One of the also reason for this is there was a government subsidy scheme, which is the Garib Kalyan Yojana, where government has been distributing INR 500 per person per month due to which we got the benefit of the number of transactions. And overall banking throughput has increased because we were the only store which was operational in that neighborhood. So there were other alternatives which might have been shut during this lockdown and — as well as even the bank branches were not fully operational. So — and we also came out with very innovative strategies. So we came out with an initiative, which was the doorstep banking. So instead of people traveling to our outlets, we actually had on particular days, such as weekends where our franchisees are traveling to the main rural villages or to the senior citizens and providing them doorstep banking services, so which has also given us a lot of credibility in terms of our brand awareness, in terms of our store awareness.

And if you see, currently, we are at a run rate of almost $4 billion of throughput. So just to give you some examples, if we take just publicly available information, company like Flipkart, which has a throughput of almost $8 billion to $9 billion, when they got acquired by Walmart at $20 billion. Or even if we take some news articles, then Paytm is somewhere around $6 billion to $7 billion. They get valued at around $15 billion to $16 billion. We are already doing a run rate of almost around $4 billion with our current number of stores, and we are ramping up the stores 3x. So from 10,000 stores, we go to around 35,000 stores over the next 12 months. So we expect this throughput to improve significantly because even our stores are not completely mature, they are still growing. So we are still in the growth phase. So I think so, this number will improve substantially over the next 12 months. And automatically, the benefit will come to the top line and the bottom line because your revenues and profitability are nothing but a calculation based on the GMV. So I think so, as our GMV improves, our transaction number improves. Our profitability and revenue will get positively impacted because of this.

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Operator [13]

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Ladies and gentlemen, we’ll take the last 2 questions. The next question is from the line of [Vishal Solanki from Ocean Enterprises].

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Unidentified Analyst, [14]

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Is there any update on the debtors? And when is the same expected?

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Dinesh Nandwana, Vakrangee Limited – MD, Group CEO & Executive Director [15]

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So if you see, basically, the debtors are completely 100% recoverable. We don’t have any challenges oversee. But yes, because of the current environment, because of this COVID, there has been slowdown. We expect these receivables to start coming in within tranches over the next 6 to 9 months. We’ll start witnessing some coming off — some of this receivable coming in. Overall, over the next 12 months, we should see a material improvement in this receivable period. But if you see, it has been properly audited, it has been checked. So there are no receivables, which we feel are not recoverable. All these receivables are very much in place and very much recoverable. It’s just because of the current environment, there is a little bit of slowdown in this.

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Operator [16]

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Ladies and gentlemen, we’ll take the last question from the line of [Manish Nair], individual investor.

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Unidentified Participant, [17]

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Congratulations, sir, for your first ranking in ESG rating. And it is good to see your company is serving the citizens by providing essential services. So what is your long-term road map and vision for the company?

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Dinesh Nandwana, Vakrangee Limited – MD, Group CEO & Executive Director [18]

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So if you see, basically, we have always been very responsible and socially conscious company. So our company’s business model has always been driven by financial inclusion, social inclusion and digital inclusion. So whatever businesses we are doing, so whether it is business correspondent, banking services or whether it is a white-label ATM services or it is assisted e-commerce in rural locations, so our model was always revolving around this drive to do financial inclusion, social inclusion and digital inclusion.

And somewhere, we thought that we are not able to project ourselves or make it more measurable in terms of the parameters, which we are delivering. And that is the exercise which we took up last year where we started focusing on measuring these parameters. And I think so, it’s last 1 year journey where we have revamped the entire organization structure in that manner where all our policies, all our things are properly disclosed on our website. So if you go to our website, it is a completely revamped website, where all our policies, everything is disclosed completely in public nature.

And even all our things, whether from an environmental perspective, so where we became innovative in terms of doing biometric-enabled banking, which is paperless banking; or even our ATM initiative, where it is a paperless ATM, so it’s a green initiative; or even in our corporate office, we have almost now 15% of our energy consumption is through a renewable source. So we are — our company is taking a lot of efforts and the impact which we are making on the local communities, so if you see 10,000 outlets operational in rural India, it’s 10,000 entrepreneurs. They are generating jobs, at least 1 to 2 jobs per store. We are ramping up to 35,000 stores. So it is 35,000 entrepreneurs, plus we are creating almost another 50,000 to 70,000 jobs. And plus, we are giving access to basic financial inclusion, which is your bank account as well as a RuPay card as well as social inclusion. So we are acting as a biggest equalizer, providing the same product to the audience, whether it is urban or whether it is deep rural at the same price and more competitive in nature and genuine products.

So it’s a kind of financial, social and digital inclusion. And where we are ramping up, and we have structured the entire company in such a way where we should be seen as a role model in the ESG framework. And a validation from a global renowned firm such as Sustainalytics is very encouraging for us. And we are also — I’m happy to share that even our this year annual report is an integrated annual report, and we have appointed Grant Thornton for an assurance review of the same. So even our integrated annual report will get an assurance audit review from Grant Thornton. So we are taking all best possible initiative from our side in order to showcase us — all our initiatives from an ESG framework.

And with respect to what is our long-term vision? So long-term vision, as we have always said that we want to be in each and every postal code of the country. So our long-term target is to reach around 300,000 stores over the next 5 to 6 years. And we want to be the last mile reach touch point for every citizen in rural India. So that is where we want to be, where we provide them access to all the products and services and give them access to basic financial, social and digital inclusion.

Is that a right answer? Anything else from my side?

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Unidentified Participant, [19]

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No, no. Sounds great. Sounds great.

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Operator [20]

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Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Ammeet Sabarwal from Vakrangee Limited for closing comments.

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Ammeet Sabarwal, Vakrangee Limited – Chief Corporate Communication Officer & Strategy [21]

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Thank you, everyone, for participating in our results conference call. Feel free to get in touch with us. We have shared all the details on our website also, all the presentation, press releases are available. If you require any further queries or anything, please feel free to write to us at [email protected], and we will reply to it. Thank you.

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Operator [22]

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Thank you.