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Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY 2023 Earnings Conference Call of Affle (India) Limited, hosted by Anand Rathi Share and Stock Brokers. [Operator Instructions] I now hand the conference over to Mr. Shobit Singhal from Anand Rathi Share and Stock Brokers. Thank you, and over to you.
Thank you, Rituja. Good morning, everyone. On behalf of Anand Rathi, we welcome you all to the Q2 and first half FY '23 conference call of Affle (India) Limited. I take this opportunity to welcome the management of Affle (India) Limited represented by Mr. Anuj Khanna Sohum, who is the Managing Director and Chief Executive Officer of the company; and Mr. Kapil Bhutani, who is Chief Financial and Operations Officer of the company. Before we begin with the discussion, I would like to remind you that some of the statements made in today's conference call maybe forward-looking in nature and may involve some risks and uncertainties. Kindly refer to Slide 26 of the company's Q2 earnings presentation for a detailed disclaimer. I will now hand over the call to Mr. Anuj Khanna Sohum for his opening remarks. Thank you, and over to you, sir.
Thank you. Good morning, everyone, and thank you for joining the call today. I trust that all of you are keeping in good health. We achieved robust organic growth in the first half of this financial year, despite the ongoing global headwinds that have impacted businesses globally. We closed this quarter with our highest quarterly revenue run rate, highest conversions and highest EBITDA anchored on our Affle 2.0 growth strategy, tech innovation and sustainable long-term value creation. Affle delivered year-on-year organic growth revenue, with revenue growth of 29.1% and PAT growth of 39.6% in Q2 and revenue CAGR of 61.2% in Q2 over the last 3-year period, much ahead of the industry growth trends. Our CPCU business noted a strong momentum, delivering 64.7 million user conversions during the quarter, an increase of 32.7% year-on-year at an INR 51 CPCU rate. In terms of H1 FY '23, we achieved year-on-year revenue growth of 64.4% and PAT growth of 61.4%, and this was well supported with balanced organic growth over the first 2 quarters. Our sequential growth was approximately 10% higher on revenue in India and similar trends in other emerging markets and 2% higher on revenue overall in Q2 and a clear path, a clear trend of bottom line margin expansion on both quarter-on-quarter and year-on-year basis. Our resilient performance in these testing times is a testament to our ROI-linked CPCU business model, the broad-based balanced growth and strong on-ground teamwork across global emerging markets. However, we did see a negative impact of the global headwinds in developed markets, U.S. and Europe. If not for the negative impact in developed markets, we would have potentially earned around USD3 million to USD4 million of revenue more in the first 2 quarters of this financial year. To mitigate the short-term impact, we have also realigned our execution strategies and operating resources to focus on improving our platform level pricing and profitability as well as maximizing our strategic partnerships and overall productivity with even greater emphasis on bottom line margin expansion and cash flow growth. Now as per our understanding of the trends in the industry forum discussions, the near-term industry growth outlook across global markets expect that approximately 10% sequential growth in H2 versus H1 as more advertiser budgets are getting unlocked and balanced over the festive quarter and Q4 of this financial year. Affle's strong organic growth momentum in H1 should enable us to beat any short-term industry trends in H2. And we can realistically aim to end FY 2023 with year-on-year organic growth percentage aligned with the long-term industry growth of 25% CAGR over the next few years. Given our asset-light platform-based business model, it is reasonable to expect margin expansion and thus, our overall growth percentage on EBITDA and PAT in H2 will be significantly higher than our growth on revenue. In view of our long-term optimistic growth outlook of 25% ADR, we are continuing to invest in our organic growth operations and we are also actively evaluating inorganic growth opportunities in line with our Affle 2.0 growth strategy and execution track record. We are placing even greater emphasis on value-driven strategic investments based on bottom line financial fundamentals and cash flow returns and we remain optimistic about our bottom line growth for this financial year. Our focused execution on Affle 2.0 strategy anchored on the 2Vs and the 2Os level partnerships have enabled us to drive deeper verticalization for our advertisers. This has further strengthened our moat and our direct customer contribution has continued to be stable at 74% of our revenue in H1 FY '23. We further established our industry path leadership position by winning the prestigious Enabling Technology Company of the Year Award for the fourth consecutive year at the MMA Smarties India 2022 and several other campaign awards at industry events. To reflect upon our platform strength, we have also included 3 case studies in our earnings presentation focused on omnichannel solutions for our customers in retail, entertainment, food tech sectors and emerging markets. With that, I'll now hand over the discussion to our CFO, Kapil Bhutani, to discuss the financials. Thank you, and over to you, Kapil.
Thank you, Anuj. Wishing everyone a good day. In quarter 2 financial year 2023, the company reported revenue from operations of INR 3,545 million, a growth of 29.1% year-on-year. Sequentially, we have -- while our overall revenue has increased by 2%, we have a significant revenue growth of 10% in India and similar growth trends in other emerging markets on a quarter-on-quarter basis. Except for the developed markets, which anyway has much lower contribution for us on a consolidated basis, our business across emerging markets remains resilient and strong bottom line growth momentum and margin expansion. Our EBITDA for the quarter stood at INR 723 million, an increase of 38.8% Y-o-Y and 5.3% growth on overall quarter-on-quarter basis. EBITDA margin stood at 20.3% in this quarter versus 19% in quarter 2 and 19.8% in quarter 1 sequentially. We are focused on higher profitability, margin expansion. This quarter, our EBITDA margin crossed 20% plus after a fourth quarter period with the profit after-tax also slightly launched up. In terms of OpEx inventory and data costs, stood at 62% of our revenue from operations witnessing improvement of -- improvement over our last few quarters trend. Our employee benefit expense for the quarter increased sequentially due to investment in human resource -- focused investment in human resource focused on business development expertise and some currency adjustments. Further, we also rolled out our platform in other regions, including LatAm region. Our normalized PAT for the quarter was INR 587 million, an increase of 39.6% Y-o-Y. Normalized PAT margin increased to 16% versus 14.9% in Q2 last year and 15.6% in previous quarter sequentially. We remain focused on working capital management, our cash flow from operations and collection efforts have been robust. We are not seeing any increase in [indiscernible]. In regards to our balance sheet, you would have noticed a significant increase in the line item as other financial assets. This increase is on account of fixed deposits having a longer tenure of more than 12 months and thus classified as noncurrent. As an update on our investments on Talent Unlimited Online Talent Unlimited i.e., Bobble. This investment continues to be classified as held-for-sale by the Board of the company while we continue to maintain 6.24% stake in Bobble. Looking ahead, we remain confident of long-term growth prospects and we'll continue to invest in our organic growth as well as evaluate inorganic opportunities with well celebrated focus on higher bottom line growth for the financial year 2023 and beyond. With this, I end my presentation. Let us please open the floor for questions.
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Shobit Singhal from Anand Rathi Share and Stock Brokers.
Sir, I have few questions. So given the macroeconomic risk globally and especially in U.S. and Europe, so have you seen any ad budget cut from our clients? And what are their sentiments? And how do you see the second half of this fiscal? And second question is how much Jampp contributed this quarter as compared to last quarter?
Thanks for your questions. I think in my commentary, I had already provided actually quite a lot of detail on what the impact of developed markets per se. Now the way we should look at it is that Affle's business is in a very privileged position because of our deep focus on India as well as other global emerging markets. And because of that, we are continuing to see a very clear growth pattern in India as well as in other emerging markets on a sequential basis. When we compare Q1 to Q2, we see a very clear sequential growth pattern in India and that pattern is also similar in other emerging markets. Now in developed markets and what -- and because of that, a lot of the investors are saying, oh, how come Affle is so immune to what's happening though we keep on growing. And I think we have a differentiated business model, emphasized on emerging markets, and that keeps us reasonably insulated and privileged on what's happening. But there is definitely a negative impact in the global developed markets, [indiscernible] U.S. and Europe, and we have also in this commentary quantified that. We said that, look, it's not for the macroeconomic global headwinds, we believe we would have earned USD3 million to 4 million additional revenue in the first 2 quarters in H1 this year. Now even without that, I think our performance is very resilient. But in case the budget cuts or the impact of the global headwinds was to be not there, we would have actually earned $3 million to $4 million more in H1, and that would have been even more phenomenal in terms of results. Now then that comes to your second part of the question, like what's happening in H2, right? What should we expect in H2? And we have also given a very clear direction there that overall, in H2, we expect to see that the industry growth outlook based on our assessment of the discussions in the industry forums and we have plugged into so many industry forums. We're listening to our competitors. We're listening to what's happening across all markets. And we understand that the industry growth outlook expects that around 10% sequential growth in H2 versus H1. So even with the macroeconomic risk factors, we will still continue to be growth oriented. And as far as Affle is concerned, I mean, obviously, our growth momentum in H1 year-on-year basis was quite substantial. And on a sequential basis also, we have seen that Q1 to Q2, we have been able to keep a good growth momentum overall, at least on the global emerging markets. And with the fact of the festive season, the festive quarter as well as the balanced budgets that the advertisers are looking to increase over the festive quarter as well as Q4, it is reasonable to look at 10% sequential growth. And even with that, we are already emphasizing that our focus on bottom line margin expansion profitability would absolutely ensure that our EBITDA and PAT is -- growth is better than the revenue growth because of the bottom line sensibility and focus on the asset-light business, so every incremental growth is obviously leading to better margins and profitability. So with that, I think I would like to answer the question at that. Now with respect to Jampp, I think we are already looking at the situation where last year, Q2, we also had Jampp, this year, Q2, we also have Jampp. And the balance is very clear that it's 100% organic to organic comparison, there is no need to split and slice and dice into Jampp versus non-Jampp. But qualitatively speaking, Jampp is more calibrated on developed markets and rest of Affle's business. So there is impact and we have quantified that. But overall, as a group, now as an integrated proposition, we are seeing clear advantages because we're also launching our other products and use cases in Latin American markets and so on and so forth. So there is a lot of positive synergy in the year 2 of Jampp in terms of business expansion and bottom line performance. So we are quite satisfied with that. Shall we take the next question, please.
The next question is from the line of Abhishek Bhandari from Nomura.
Anuj, I have 2 questions. First is, your investment in...
I'm sorry to interrupt you, Mr. Bhandari. May we request you to speak a bit louder? We cannot hear you.
Is it audible now?
Yes, Please go ahead, sir.
Okay. Sorry for that. So Anuj, my first question is on your investment in CashKaro. If you could explain the rationale for that investment? And how do you think that investment adds to your business moat from a medium- to long-term perspective? That's one. Secondly, on the Bobble, I think you mentioned in the opening comment, it has been classified as a financial investment. And I think there was a press release that suggests that the deal with Krafton possibly has not yet concluded. So maybe you could update on what's happening on that particular one?
All right. I think both of these questions will be answered slightly differently. The first one is actually not an investment of Affle (India) Limited. It's not part of the Listco. It is an investment. It's a financial minority investment made by the holding company from Singapore. And since the holding company has no other operating business other than its investments in the Affle India Limited as a promoter as well as any other investment that is doing, which are financial in nature. So that is to the extent I can speak with respect to Pouring Pounds, which is the entity which is a U.K.-based entity that owns the business of CashKaro India. And with respect to any strategic advantages or so on with respect to CashKaro's business in India that our teams are actively exploring. And everything else being equal, I think there will be natural inflammation for CashKaro and Affle India to work together since they have a common shareholder in the holding company. So I think that's to that extent. I think the second one is a more relevant question because it is linked to Affle India's investment in Bobble or rather Talent Unlimited, which owns and operates under the brand of Bobble in India. And yes, it is an investment that's held-for-sale for certain reasons. I mean, but at the same time, the Krafton deal hasn't happened because Krafton is a Korean company. And as a Korean company, they have their own shareholders, they're a public listed company in Korea. And there are certain complications with respect to the transaction. Therefore, the closing didn't happen as per the time. In fact, we extended the closing one and the closing still did not happen. And therefore, at the moment, we are not pursuing any further discussions with respect to Krafton, as a potential buyer of that equity. We are going to explore further possibilities as the time unfolds. We are happy to maintain the 26.24% ownership until we find a non-variable buyer who would actually close the transaction. So that's pretty much it. And I think from a strategic point of view, Bobble continues to be an important partner and a vernacular keyboard focused on innovative youth related use cases. And then we are actively working with them to see how to grow that business.
The next question is from the line of Rahul Jain from Dolat Capital.
I hope my line is audible. I have 1 question on the outlook side. So you were mentioning Anuj something about the realigned strategy, could you speak a little bit more on that? And to your comment of H2 growth of 10% over H1 would imply 18%, 19% growth on a Y-o-Y basis for H2. So I understand that delivering this will be incredible given the kind of macros you are following. But in that light, is it fair to assume that FY '24 growth should be slightly lower organically while the CAGR [indiscernible] maybe even over a 4- to 5-year period.
All right. I think on your first question on realigned strategy, I think the core strategy is the same. When we talk about realigning the operating resources, I think we are essentially talking about deeper focus on pricing and profitability. So I did comment on that. Right? I said like what does that mean. Right? And how do you decode that. Right? So whenever there is a recessionary conversation or backdrops, there is intuitively pressure on pricing. And I think one of the things that we're doing is very strongly defending pricing. If we look at in Q2, I think we delivered our highest volume of conversions, but we held our pricing at INR 51 CPCU, which is actually quite a commendable effort by our team. And similarly, focus more on profitability, right, not just picking any business, but big business that is going to deliver profitability, big business that is going to deliver cash flow and credit risk managed business, right? So I think we are looking at the quality of business being made even more resilient in these times and therefore, delivering a better impact on the bottom line. Same thing applies to -- this is a great time actually to look at any better optimization where we can maximize the profitability of the company. So same applies to all the assets that we are integrating, whether it is Jampp or any specific organic or inorganic activity that the company is doing. The emphasis is disproportionately higher on bottom line focus. We have always been a bottom-line-centric company, unlike many other fast-growing tech companies. I think that's one thing that differentiates Affle and that is what our investors also value and take pride in. So that is what we are emphasizing here in terms of even deeper realignment on bottom line focus, while the timing. Second part of your question is about growth. Now what I said is about 10% is the industry growth outlook that we have understood based on the industry forum discussions. We would love to beat it. We have always love to beat industry average growth and whatever the times be. And from a bottom line perspective, we think that we will do even much better than that, significantly better than that. So overall, we will end this year, hopefully, at a honorable -- very honorable level, meeting or exceeding expectations from a bottom line perspective by any standard. Now like H1, we have already grown quite nicely, right? And next year, H1, I believe that you should follow a similar trend and we will continue to be optimistic because of the emerging markets focus. I think there is reason to be optimistic. And in H2, if it is as per what you said, the growth is going to be valued. I think on a lower base, it's actually easier to grow much faster. So I think I would still maintain that FY '24 or '25, the outlook for the company -- I mean, as long as I'm leading the company, we will continue to want to beat industry average growth comprehensively on the top line and even more so on the bottom line. So without giving any more detailed guidance on it, I think you can understand the mindset with which we are leading the company. It's growth oriented. It's profitability-oriented. And we will want to beat industry average growth trends even this year. If you combine H1 and H2, our goal would be to not miss on the 25% organic growth, long-term trend that we have. So yes, markets are turbulent, but can we be stronger? Can we be more resilient? Can we find those quarters of growth? And the answer is yes, and we're pushing our teams for that. So until the last day of the year and so on we'll be fighting for every single dollar of revenue and every single incremental dollar of profit. So let's see how Q2 and as H2 unfolds and for next financial year, we have 2 more conversations to go. But at the moment, I would not look at it with any further clouds or pessimism or anything like that. I think the industry growth outlook with consumers going more and more digital, emerging market trends where even when there is recessionary pressure, let that pressure be on traditional media. I mean if advertising budget has to sink, let it sink on traditional media, the digital should stay, even if digital has pressure, at least CPCU should try it. So I think we should be more and more insulated and we should find those pockets of growth is my piece and that's how we are executing.
Just a small question on the margin comment that you made. Is it led by a better growth in H2 and giving us better margin in H2 or it's also basing some potential acquisition from Bobble, sorry, Jampp?
I think we are seeing Jampp. Year 1 was about integrating together. I think we have done that. We have done that phenomenally well. So when I speak Affle now, I speak with the full embrace of Jampp. And when we are talking about expanding the margin of the company, I think it's -- one is linked to volume. As our business is growing, I said, we are asset-light business. Our expenses will grow slower than our revenue growth, right? So therefore, there will be natural margin expansion trend. But as a strategic emphasis, we're also focusing on pricing and profitability, which means that we are picking business or picking only the volume of business that can support the profitability metrics and not give any volume-based discount because that is where the pressure comes. I mean people are looking for, hey, give me something cheaper because there's a recession here. There is a need for our product. There is a need for driving conversion with consumers for all our customers. What they are sometimes looking for is can they get it cheaper in this time, which means it impacts pricing, it impacts profitability. So how do we aim for growth but also play a very strong defense play, right? So I think -- so being offensive and growth-oriented is one, while making sure that we are even more strong on our defense than our offense in the strategy. And I hope that is understood well. And that applies to Jampp. It applies to every single part of Affle's business.
The next question is from the line of Anmol Garg from DAM Capital.
Actually, I just had a couple of questions. Firstly, just wanted to ask Anuj that we are implying a 25% type of -- so we are talking about a 25% growth for FY '23. Now we have already in the first half, we have done around 35% organic growth. So would this mean that seasonality of 3Q would not play out in this year? That is first. And secondly, I wanted to ask a bookkeeping question from Kapil that in this particular quarter, we have seen forex gain into our cash flow statement by the tune of around INR 37 crores. So if you can highlight what was in regard, what does it regards to? And how does it come out in the P&L statement?
All right. Thanks, Anmol for your question and very insightful. Let me, first of all, clarify that when I talk about growth or any growth percentage of the industry, I'm only talking organic growth. Now H1 versus last year's H1, this year's H1 was last year H1 had one difference. In last year, Q1, we did not have Jampp. In this year, Q1, we had Jampp. And Q2 to Q2 comparison is absolutely clear because in both the quarter 2s, we had Jampp. So when we talk about growth, right, as an industry, we say that the industry will grow at an average 25%, we're talking about organic growth, right, incremental organic growth. In our case, we have given you 2 commentaries. 1, for the full financial year, our goal is to attain organic growth of 25%, which is the industry average CAGR growth trend that we are looking at. And we are always long term trying to keep pace with that or beat that, right? That excludes the Q1 with respect to Jampp. Then I've also given you some industry outlook with respect to Q3, Q4 seasonality. And whenever there is seasonality, there is obviously incremental budgets. But the customers are also hedging and they are careful. So while the budget is incremental, they may not spend all of that in the same Q3 festive season, but they will spread it over Q3 and Q4. So therefore, what we are looking at is H1 versus H2, not -- and the seasonality, incremental budget will have a spillover effect in both Q3 and Q4 and we expect that the industry would on an average deliver 10% higher sequential growth from H1 to H2, and we hope to meet that or beat that, right? That's on the revenue side. But then on the profitability side, we hope to beat that more comprehensively. And that's exactly what I said. So the outlook on that, I hope the math is more clear and it is not that, hey, we've already grown quite well in H1 overall over 35%. And then will we see a muted seasonality, but I think we have given very clear commentary anchored on industry outlook as per our understanding. In terms of your second question, which is forex statement. Kapil, I think you can take this up because it's directed to you.
Yes. Thanks for asking this question. This pertains largely to active getting revalued to foreign assets on the -- and it has been offsetted mostly from the reserve -- opening reserves and it is -- it does not have an impact on the P&L per se, right? So it is an investment of each line item as the current noncurrent assets or current and noncurrent liabilities getting flowed into the balance sheet and getting offsetted in the revolver subscribes and OCI, right? And it is not rooted through P&L.
Just a follow-up on that. Anuj, you can also highlight that what are the margin levers that we can think about in -- for the second half of this year?
I think the -- sorry, can you hear me?
Yes, yes.
The margin levers are anchored on a few things. One, ensure that our pricing is resilient; second, ensure that there's enough volume and growth to meet or exceed the industry trends. And in combination of keeping a tighter balance with respect to that every incremental revenue that has come at healthy pricing should not -- the OpEx increase has to have productivity and efficiency, which means that even though we are consistently investing in our own growth and you can see even in Q1 to Q2, you would see that our OpEx is increasing. And a lot of people say, hey, hold on a second, isn't the recession time, why are you increasing your OpEx because we believe in the long-term industry growth trend. So we'll keep investing to ensure that we can capitalize on that growth trend and we are well resourced for that. So therefore, when we look at it with this balance, pricing first, second is the enough growth in volume with respect to incremental budgets for H2 versus H1. Third, the asset-light business and scale on bottom line expansion will also come in because our OpEx is not going to increase and keep pace with the growth in revenue. So this is exactly what we saw in Q2 this year, whether you see it sequentially or you see it on a year-on-year basis. And the same trend, I think, will continue in H2 as well and beyond. And all the investors who had earlier got confused, Affle is growing fast. It's an asset-light company, how come we don't see margin expansion. The only -- there was always organic margin expansion. But because we were also acquisitive and we were acquiring companies that are less profitable. In the previous year period, it was averaging itself downwards because the organic growth and the inorganic growth was being blended together. Now when you see Q2 to Q2, there is no inorganic in Q2. Q2 compared with Q2 last year or versus Q1 and you can clearly see the pattern of EBITDA and PAT margin expansion. So those are the levers and it's a very natural expectation. Whatever I'm just saying it is something that should be a common understanding with all our shareholders.
The next question is from the line of Bharat Shah from ASK Investment Managers.
2 questions. 1, to an earlier question by a participant, you made a remark that in '24 and '25, you are looking at a organic growth of 25% plus, and you aim to meet the industry so long as you are in leadership of the firm. So was that just an off the cuff remark? Or is it anything a change in leadership is in contemplation?
There's no change in leadership contemplated. As long as I'm healthy, fit and fine, I expect to hope to lead the organization for debit to come. I think the nature of that comment is to be interpreted that I'm giving you a peek into my mindset. How do I set targets for this company? How do I tell my leadership team? How do I convince them that, hey, many times, we have a very strong leadership team. And this is not just a one-man thing that Anuj says something and everybody has to follow. I think we have a very vocal leadership here including, Kapil, many times, we are challenged and debate ourselves. And this is my mindset, when I say we're growth oriented. We have to beat the industry average growth rate -- you said, line of questioning is, are we better than the rest of the players in the industry? Are we competitively stronger? The answer is yes. Is our business model unique differentiated? The answer is yes. Emerging markets is their growth? The answer is yes. So why won't we beat the industry average growth rate. Like that's how I set the targets for the team. And therefore, the emphasis that -- because a lot of times, this conviction has to be delivered top down and we have to live by that example. And therefore, that comment. I don't see any leadership change that would be dramatic. Our company has been led consistently for the last 17 years, and I'm still a very young man. I'm only 44. So we have a long way to go, sir.
Sure. And just wanted to be clear about that remark was supposed to mean. The second, while it's understood that Affle [indiscernible] focused on emerging markets. India and other emerging markets included. And if the market is a smaller percentage and yet that smaller percentage rather quickly faced some setbacks. The question that begets you the developed market, the pace, the speed and the way that market seems to be getting muddled. Why -- what are the structural reasons why you believe and remain confident that the emerging markets and the developing markets will continue to provide not only resilience but a strong long-term secular growth?
Well, look, I'm very confident about 2 things: 1, the consumer adoption curve on digital. And these are fundamentals to our industry. These are the fundamental drivers of our industry. And I believe that all of us on the call today can reasonably safely say that none of us is leading the mobile device or our connectivity on the mobile device anytime soon for the next 3 years or 4 years. And the next generations in our home, the younger generation in our home is spending even more disproportionately connected time online. And therefore, the adoption curve of connectivity in India, in Africa, in Indonesia, in Vietnam, in Thailand, Malaysia, Philippines, Middle Eastern geos, LatAm. All of these places, we will see massive consumer adoption over the next 3 years or 4 years if they continue to happen. And the propensity for transacting higher value, higher volumes of transactions on mobile or connected devices will actually go up. So that is one of the main anchors that I see for emerging markets to have resilience and growth for many years to come. The second trend that makes me very sure about this is that the advertisers in emerging markets are still under calibrated on digital versus developed markets. In developed markets, digital is decisively more than 50% of the total ad spend, whereas in emerging markets, it's depending upon which market we look at, it's either in the 20-odd percent or the early 30-odd percent, but it is nowhere close to being above 50%. So the advertisers will need to also face the reality and shift budgets to the more efficient digital connected mediums and where the consumer is. If the consumer is spending disproportionate time on digital and transactions are happening there, why should the money continue to not follow. So the advertisers would shift the budgets. And both of these anchoring megatrends, which I think none of us can debate against, provide me the clarity that, look, these markets will continue to grow. What's the difference between developed markets, developed digital adoption has already reached a certain level of maturity. And digital advertising as a percentage of total ad spend is already more than 50%. So one could see a clear difference between developed market adoption curve on board because if you look at the advertiser side as well as the emerging market, there is a big difference. Therefore, I'm very confident that the industry outlook. And then within that, I'm wanting to assure myself that our team, our platforms, our business model is competitive versus other players and therefore, maybe grow faster than the industry average growth. So this is my only piece, it's grounded in reality.
But would you not experience a surprise here the speed with which the developed market seems to be kind of getting muddled? It's one thing about maturity of the market in the developed markets and relatively higher penetration of digital. But the speed at which the whole space seems to become chaotic, is that a source of supply? Or do you think it is quite in the nature of things?
I think -- look, first of all, I don't know the objectives muddled and chaotic. I mean to me, I can see a sense in what is happening in developed markets. I think the customers are feeling wary of inflation, of employment, the cost and efficiency. There's so many factors moving there right from currencies to -- I mean, in Europe, we already know there's all kinds of geopolitical factors and so on. So I think the -- there is conservative. But that does not mean that digital advertising will not deliver growth. Now, if you're looking at some examples, let's say, I don't know, the big tech. The big tech, if you see -- if your question is coming from how quickly Meta or Facebook has gone from where they were to where they are. If your question is born out of that. And I think you have to just look at -- start from looking at our own homes, which teenagers are spending time on Facebook. I mean I don't see that happening as much. And it is still the older people who were once on Facebook and as a habit and inertia continue on Facebook. I think the consumer pool of that has gone and that's why there was a need for Facebook to shift from Facebook to Meta to something else and that something else hasn't materialized as per the expectations that they set. And therefore, they are seeing a massive hit in terms of confidence levels and otherwise. And of course, Affle has done certain changes, which is impacting them. Looking at them as an isolated case is not shaking my thesis and belief of digital advertising as a clear trend even in developed markets. That -- I think the overall industry on -- first of all, advertising is resilient. Digital advertising will be resilient. And if there is a recessionary uncertainty, of course, some budgets will sink and I think that is something to be expected. Now we are fortunate that we are focused on emerging markets where such recessionary backdrops are weaker. And they're not -- we are not seeing as much impact in emerging markets, and therefore, Affle is in a good place. But is it making me nervous looking at U.S. and Europe that oh my God, what is happening there, the speed or muddled or no, not at all, sir. I can understand what is happening there, and I can understand what is happening at Meta, and I'm still bullish. In fact, I think that if this kind of fear of recession continues, it should strengthen Affle's ability to find value-driven strategic M&A consolidation opportunities in developed markets also and we will keep an eye out for that. I will be very careful and realistic about what we execute on, but I see an opportunity for us that when markets are down, we should go ahead and look at strategic acquisitions and look at value-driven deals because we will find them cheaper in this time. So we need to look at our execution strategy, so where there's turbulence, how do we navigate, where there is -- so in emerging markets, we need to grow. In developed markets, we need to navigate into that turbulence carefully and find opportunities to become stronger. So that's how I see it. And I wouldn't necessarily agree that the speed and the space is all muddled and become -- it's not so dire a situation at all. Meta is just one example, and we can decode that we can understand that.
The next question is from the line of Ashwin Mehta from Ambit Capital.
Anuj, in terms of employee cost this quarter you saw an increase, so what were the areas of investments there? And does this increase continue near term or most of it will start to give us leverage as we go forward? And the second question was to Kapil terms of the levels of intangible capitalization in this quarter? And any outlook on the D&A going forward which saw some increase this quarter?
Right. I think the employee cost wise, we are basically following our growth plan and organic growth plan and investing into the areas, whether it is sales and on-ground presence in emerging markets and other emerging markets as well as going for deeper verticalization and therefore, focusing on things which are verticalizing our platform even further to unlock a, more strategic value so we can be giving more ROI to the advertisers and drive more profitability from those verticals. So I think this is in line with our approach and the strengthening of our own moat and backing it up. And I think what I want my investors and the analysts look at is that if the company is capable of backing its strategy and delivering resilient results, it's a sign of confidence. If you had seen that Affle is delivering better bottom line margin expansion at the back of OpEx reduction, I would not be celebrating that. The only reason to celebrate this Q2 result is to say 20% plus EBITDA while OpEx was being increased and investing in areas of growth. So clearly, the company is bullish. It is doing the right things and it is seeing financial fundamentals in its unit economics that when it grows, it delivers margin expansion. I think that is what I want to emphasize upon. And I think the employee cost is broad-based backing our strategy or verticalization emerging markets and having on-ground presence. For the second part of your question, I'll pass it over to Kapil.
Ashwin, so our capitalization on tangible for our -- the new product lines or the models is almost similar to Q1 and around $2.2 million to $2.3 million. There's no major shift from Q1 to Q2.
And does the increase in terms of amortization largely happen because of a translation for us?
So if you see the amortization comparison from last year to this year, you would have seen a significant change as we go forward because it catches up, right? So there is -- in the PBT, you will see about INR 4 crores to INR 5 crores potential on the amortization from the previous -- previous on Y-o-Y basis. So you can see that backing up effect in this quarter itself on a year-on-year basis.
Anuj, if I could squeeze one more in -- so we saw your data and inventory costs come off this quarter, so is it largely because of the Jampp efficiency starting to play out? Any perspectives on where are we in the journey of Jampp profitability approaching our own profitability?
I think it is -- our emphasis is on profitability and productivity and the strengthening of partnerships. And I think the -- we are looking at multiple legs of it. We're looking at profitability per employee per team member. People call productivity, sorry, we look at it from lens of profitability, profitability of each region, profitability of each vertical and so on and so forth. With respect to Jampp, I think the emphasis even was always there because year 2 and year 3 is about maximizing profitability. And some of the rationalization of revenue, which we talked about the $3 million to $4 million in H1 that we would have made incrementally more had it not been for the headwinds, right? I think that is bringing a deeper urgency across the organization to ensure that, hey, if there is anything left to be done, can I please do it, right? I mean, can I make sure that pricing is better, the margin is better. What else can I integrate within the core tech stack of the company to leverage that. What's happening in, let's say, Southeast Asia or in India that can be implemented even better in Latin America or in Africa. So there is a lot of internal huddle towards that. And I think that is a positive thing. Will I want to quantify Jampp's profitability percentage for you at this call, perhaps not because we are still finding that balance because in developed markets, some of the revenues are not there and so on. So let us look at it on a more broad basis by the end of this year. And Jampp, qualitatively speaking, I think one of the investors asked me, it is a hypothetical question, and he said, if you had to pay more for Jampp now with the hindsight of having owned it for a year, 1 year ago, would you do that? And the answer is yes. I think it's a strong asset and it's worked well for us.
The next question is from the line of Arun Prasath from Spark Capital. Mr. Arun, sorry to interrupt, we cannot hear you sir.
Hopefully, now it is better.
Yes. Please go ahead.
My first question to Anuj, so we are -- I take your point that the emerging market is strong and developed markets, we are facing some macro headwinds. But if you see our own numbers, if you see the India segment top line, sequentially, it has grown at 10 percentage, but year-on-year, it is more like a 20 percentage. We are used to see this number at a much higher, say, 30 percentage, 35 percentage. So are we really seeing any growth slowdown on India as well at the category level? Or is it like more like some base, high base issue in the best quarter issues?
I think the way to look at India right now is certainly on a sequential basis. And the reason why I emphasize that is because the headwinds and related issues are primarily sort of common across H1 and Q1 and Q2. And when we look at emerging markets doing better versus developed markets that thesis can only be analyzed on a sequential basis, not on a year-on-year basis. Now in terms of year-on-year basis, when you start looking at it and you say, oh, how come India is only growing in the 20-odd percent and not 30-odd percent or 40-odd percent. I think there is -- there are also India or emerging market-specific issues, which I think we are quite resilient against any which ways and I've talked about this before as well. If one of the verticals, let's say, ed-tech or crypto or fintech is down, I think Affle is able to still get enough conversion sold and delivered to other industry verticals in our ecosystem. And because we have broad-based growth, we are able to capture that. In 1 particular quarter, in some particular quarter, if 1 vertical is impacted, 1 area there is suddenly a negative trend, like during COVID times, there's travel and transport, hospitality was down, retail was down. Now that is coming back up, like with a vengeance. And on the other hand, we have education tech and fintech, the crypto side of fintech and so on, there was -- these issues will happen. And in a fast-growing company, in some quarter, you'll see 30% in 1 area and then suddenly, you cannot expect every quarter, you get 30%, it could be 26% and another and so on and so forth. So I think we have to see longer-term trends and averages. I wouldn't read into that as oh, India is growing slower and there's a problem. I would read into that as whatever India was at 6 months ago and where India is at today, look at the sequential trend quarter-on-quarter, this is moving nicely, okay? And that's how we should see it. We should also keep in mind that this is at the back of a lot of startups not getting funding. There's all kinds of issues and yet Affle is able to be resilient because our base of advertisers is wide. And there's always this emphasis within Affle to have broad-based growth across advertisers across verticals. Whenever there is any customer concentration that's building up, that's a risk that I want to cure as soon as possible, right? So I think that's another peek into our mindset. And therefore, please analyze India in that light. And if you're looking at forward-looking modeling, then I would -- my guidance has always been clear pre-IPO, post-IPO, every other the call that I expect 25% CAGR growth for the industry, and therefore, I want to bet against that.
My second question is related to the forex, the kind of fluctuations of [indiscernible] or depreciation we have seen in this quarter. Generally speaking, keeping aside the accounting for a moment, I mean, where we are looking in which line item, generally, for a business, is rupee depreciation is good for you or bad for you? And as a follow-up to that, I would also like to understand what would be the constant currency growth that you had for Q2 in say, in revenue as well as at the bottom line level? If you can share that, that will also be very helpful.
Anuj, I'll take this?
Yes, Please go ahead, yes.
So Arun, we -- you said you have to understand the business of Affle is very diverse in emerging markets where everything happens in the local currency, right? To give you a statement that the currency movement is advantages or disadvantages, it depends on which currency movement is happening, right? So there is that where we have this advantage on currency movements because of the dollar getting stronger and there is some advantage on the dollar side. So largely, at the moment, the -- if I take on an average basis, we would be mostly neutral to it. There are -- the costs are generally in dollars. So we -- there is a pressure on the cost on the dollars. But it gets neutralized on the other side. So if you see at bottom line, we expect will be more muted on the currency movements, as we are quite hedged with a lot of currency billing we have within the emerging market as well as in India, right? So -- and on the question of constant currency, we are not -- we have historically not presented a constant currency on an [indiscernible] basis. So we are not maintaining that and commenting on that. Because if I comment on, I will be asked to comment on last 3 quarters also.
No, no, but I think the way to look at our business, I think I've always maintained that, that we have been -- I mean -- and I'm not taking any credit for it, by the way, we are naturally hedged on the currency risk. When we see INR versus USD or across the board, the currencies that we are -- in some markets, we see a negative impact, in some markets, we see a positive impact. And that balance is thankfully quite held up. I mean, in the sense that neither do we see a positive fluctuation nor do we see a negative fluctuation with respect to currency. And we have seen INR move from 70 all the way to 82 and so on and many times up and down. And I think in this entire journey, both as a public company and even when we are privately held, not because we are doing some massive currency management thing, naturally based on where all we are doing business, what percentage of business is where, what cost and so on, we have been naturally blessed and hedged on that. Internally, yes, it's something to be also seen that what else should we do beyond the natural balance that we seem to be enjoying, but there isn't a huge currency management function that we do within our finance or operations teams at the moment. And the reason for that is because we see that balance. We have seen it consistently that we are naturally hedged, and it doesn't impact us dramatically.
Just as a follow-up to this.
Sorry, to interrupt you Mr. Arun, may I request you to please rejoin the queue. We have participants waiting for their turn.
This is a follow-up question with the currency.
Maybe request you please rejoin the queue, sir. The next question is from the line of Mayank Bhavla from Enam Asset Management.
Am I audible?
Yes, you are.
Congratulations on a good set of numbers. Just wanted a clarification on what was the reason for the inventory and data costs to come off significantly? And can we expect this to be the new normal or the trajectory going ahead?
So I think the -- to me, the data and inventory didn't really come down, it just stayed flat. In fact, it's not really moved up a little better. But as a percentage of revenue, while the revenue was also overall only 2% increase, while emerging markets is better. So I think there's no dramatic trend to take out of it. But I do think that there are levers within our hands to make sure that the inventory and data cost can be optimized, which means we can buy cheaper, right? Because the inventory data cost is that we are going out there, we're buying the programmatic inventory or we're paying for the impressions and clicks and so on. And I think as we get more volume, the commodity pricing, I think we can pressure that down. And if we play it smartly, like we can commit more volumes to certain sources and so on. And I think those kind of levers are there and we're working on those efficiencies with our team and we started to do that in the last 6 months a lot more because we've always maintained a very neutral stance that we will let our algorithm decide where we buy from, right, because we're looking for conversions on the probabilities of conversions and so on and so forth. However, there is some optimization there to see hey, we are spending some amount with some particular platform or supply source or a publisher, can we go and do some negotiation there and see what we can optimize. So there are certain levers that are being used, but I wouldn't really call out any trend there at the moment, yes? So I think let's -- to call it a trend, we may need to assess it for a bit longer. But I think it should be in that range bound in some cases, the percentage here or there, but I think it should be range bound in an expected zone.
[Operator Instructions] The next question is from the line of Vinayak Mohta from Stallion Asset.
Sir, am I audible?
Yes you are.
Sir, I just had one question regarding the CPCU. So we've seen that the CPCUs have been on an upward trajectory for a while now. And like given the business models you have, it's augurs well for you as well. But overall, in the developed market with Meta, with Snapchat, we've been seeing that they've been losing on the price per ad for a while now been the developed markets or the rest of the world markets as well for them. So how do you see this trend going ahead for you? Do you see that there's some risk to the upside from here? Or do you -- like what are the risks that you see? And how do you see that CPCUs moving going forward considering that the larger players are moving out on the price per ad for a few quarters now?
See, I think the fundamental aspect about our company, and you can check the history of our company, we always have identified ourselves as a consumer platform company, even though we are a B2B company, we are not direct to consumer, but we still call our tech stack, the consumer platform stack, we call ourselves as a consumer platform company. And in essence, what I'm trying to tell you is that our revenue is coming from the actions that the consumers are taking and delivering almost an assured ROI linkage with respect to performance to our advertisers. And when you say price per ad is coming down, that should mean that I should see efficiency in my inventory and data cost because inventory for me is the price of ad that we pay because we are a buyer of ads. We are buying the ads and we are delivering conversions to the advertisers, right? So when we deliver conversions to the advertisers, the question then becomes that as long as the end consumer is increasing their average wallet percentage spend online and if the consumers are doing more conversions with higher-value products online, over time, you should be able to see a higher CPCU rate because CPCU stands for cost per conversion, right? It's a cost per converted -- conversion per user, right? So I think that cost per conversion that is going up or is being maintained, there is actually opportunity to push that up. And when we say that we will be resilient on our pricing, we are saying let's go for volume without discounting the price. But at some point in time, it appears to say let's go for volume while increasing the price. I am not in the business of selling commodity where on volume, we'll give discount, while most of the buyers may still ask for it, but we try to defend it and we explain to them, it's an ROI-linked business model justification of CPCU. So your observation is right. Price per ad, which in other words, you're saying is price per impression, price per click is coming down. And ROI-linked CPCU cost per conversion is -- we can do it more profitably. So one of the ways the advertisers can ask for a CPCU adjustment is, hey, you are buying the impression and click much cheaper. And therefore, your cost and your ability to earn that conversion at a lower cost has gone up, share some benefit with me. We should always focus on margin expansion. If it means that if at INR 50, I can get a higher volume with my margin expansion at the lower data in inventory cost, I will take that business, right? So I think our focus on margin expansion profitability is linked to pricing. It's linked to top -- right at the top is pricing, right at the bottom is profitability. And we're looking at optimizing for that in a very strong manner across all our business units. So I hope that answers the question. But the main fundamental difference is, please don't put just a blanket label of ad tech on Affle. And therefore, on CPCU, don't please see it as a cost per impression, cost per click and therefore, simply cost per conversion. The conversion is ROI-linked based event, whereas impression and click are the raw material, the commodity within the digital advertising, yes. So I hope that makes sense. If not, I think I'll give it a long enough answer and I believe we still have a queue to go. Thank you for the question, though.
The next question is from the line of Raj Mohan Venkatraman, an individual investor.
Congratulations on the margin improvement. My question was in the light of you indicating to hypothetically being positively disposed to inorganic opportunities in developed markets under current recessionary environment would happen, even be looking at organizations like say, a Digital Turbine, whose market caps has crashed 80%, 90% to nearly half of -- though the revenues may be 4x, 5x happens, generally looking at it from a client addition perspective, have discussions at the Board level happened at acquiring bigger companies than asset?
See, I can tell you 2 things about our psyche there. Yes, discussions happen because we are intellectually sharp and alert. And we -- just as you are seeing possibilities in the math of -- we see all possibilities as well. But we are also very mindful of 2 things. 1, when we are executing on a very solid track and when I say that, I mean that to an external light, it might seem risky that they have operations in so many countries in the world, across some many currencies. I can tell you from where I see it, it's just a very predictable path of execution that we are on. Now any acquisition that we do add a certain element of risk to it, risk of integration, risk of things going well or not. And that is why all our investors are deeply watching it for at least 4, 5 quarters and saying, how is it without this, with this? And how is it going with everybody has nervousness in this unknown factor of what has come. So if you look at our M&A strategy, and one of the things that has worked really well for us is that we have been very conservative on the value that we are paying and the size of that M&A. So let's see the last 3, okay? Mediasmart, less than $10 million, Appnext $25 million, Jampp, $40 million. Now compared to our own market cap, compared to our own revenues, bottom line cash and bank balance, whichever indicator I look at I always see worst case scenario, if this were to go bad, can we still be a very strong, resilient company and deliver value to our shareholders. And when my answer is I'd say, okay, we have covered all the risks. We think it is the right decision. Let's take it. But if ever we are wrong, may that not consume us. So when your question is on, let's go and get married or merged with or blend with or acquire, you also acquire a lot of baggage of those. And there is a reason why those companies are losing value. There's a reason why those companies are not doing well. And as industry insiders, we know those reasons many times and we know where to go and where not to go. So there are certain acquisitions that Digital Turbine has done that Affle had deep insights into. We had the first right to do them or the opportunity to do them in terms of timing when we start looking at it and I won't name them, but we certainly were not feeling a loss that Digital Turbine acquired those companies, I said, all the best. We wouldn't have done that acquisition. So I think Raj, we are looking at all opportunities and respecting all possibilities, though we know a lot more in terms of what's inside going on. And therefore, we are extremely carefully calibrated and our execution strategy on inorganic has been flawless so far, and I hope to keep that track record, no unfold errors. Affle is doing a good job of its execution. If we keep doing what we are doing, M&A should be seen as for strategic reasons, opportunistic value in terms of pricing at which we transact in terms of timing. It will be, let's say, last year, if we've done a particular M&A, it would have been more expensive versus this year. So I think those kind of optimizations we will do, but we would never just go and do it for size. I think there is no reason for us to just go and because something is cheap and is looking big, let's do it. I don't want to get tempted into that. So we'll be very careful.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you very much, everyone, for very insightful questions and a good dialogue and I certainly enjoyed it. I hope it was valuable for you and you have a deeper insight into Affle's mindset. And clearly, for a majority or a significant majority part of our business, we are insulated from the headwinds of the macroeconomic factors. And the good news is we still have tailwinds in those emerging markets. And as far as the economic factors are concerned, I think there is actually some impact is limited, and it's quantified so that you can all assess it. But there is also opportunity in there for us because a lot of the competitors were fundamentally not as strong on their balance sheet, was fundamentally not as profitable. So if they lose $3 million to $4 million of revenue, they are deeply hurt whereas for us, we can still deliver a resilient outcome. And so in that sense, we are in a very strong and privileged position to navigate through H2. And as we go along, we'll continue to give you a transparent commentary on our expectations so that you know what to expect. And then we'll talk about next financial year and beyond after that. Thank you again, and stay well. Bye-bye.
Thank you.
Thank you.
On behalf of Anand Rathi Share and Stock Brokers that concludes this conference. Thank you for joining us and you may now disconnect your lines.