Vakrangee Limited

NSE:VAKRANGEE

Earnings Call Transcript

[Operator]

Ladies and gentlemen, good day, and welcome to Vakrangee Limited Q4 and FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

Ladies and gentlemen, please note the duration for this conference call will be for 30 minutes. I now hand the conference over to Mr. Dinesh Nandwana, Managing Director and Group CEO. Thank you, and over to you, sir.

[Dinesh Nandwana, executive]

Thank you. Good day dear, ladies and gentlemen. It is pleasure to greet you all once again on behalf of our Board of Directors and senior management. We begin by thanking all of you for having the spare time in joining us here today to discuss our fourth quarter and full year ending for the financial year 2023. I would take this opportunity to update you all in -- with regard to our demerger.

The Hon'ble National Company Law Tribunal, NCLT has given the final approval for the demerger of Vakrangee's e-governance and IT solutions business. NCLT has paved the way towards creation of two separate listed entities, that is, Vakrangee Limited and VL E-Governance & IT Solutions Limited.

Vakrangee Limited is already a listed entity and VL E-Governance & IT Solutions Limited to be listed a separate entity.

Our current quarter and full year results have been reported on post-demerger basis. On current listed entity, Vakrangee Limited now consists of existing business of Vakrangee Kendra physical outlets as well as digital platform of BharatEasy app -- Mobile Super App. Vakrangee Kendra business is now pure retail-centric consumer facing and assets light franchisee like business model. Today we announced that go-to-market platform for the rural India for our various business verticals, including the new edge fintech and digital platform. We are building India's largest last-mile distribution platform and emerging as the physical plus digital ecosystem with pan-India presence.

Today we have move -- more than 20,399 active transacting and newly onboarded outlets is spread across 29 states, union territories, 566 districts and 5,159 postal codes. Our 79% outlets are present in deep [ layer ] tier 4, tier 6 locations. This kind of the presence makes us the partner of choice for any new business partners who wish to make their products and services available in rural India.

We have a clear focus on market expansion and extending our first mover advantage. We are planning to cover entire 764 districts, which is 100% of district coverage across the country through appointing district-level master franchisees. We have successfully appointed master franchisees in 234 districts across 27 states across the country. These master franchisees will provide on-ground operational support to our existing franchisees as well as drive new franchisee acquisition which will lead to help us scale at a faster pace and expand on a pan-India basis. We believe this master-franchisee initiative is a game changer and is still in our local [ store ] presence and operational control at the ground level.

We plan to achieve 100% district coverage by end of this financial year. These new initiatives would help us scale much at a faster pace whereby achieve our long-term targets, well above targeted timelines. With the development of the digital economy, India is faster moving towards digital payment mechanism and emerging as cash-less society. With the fast pace of digital payment penetration cash transactions such as ATM and banking transaction are expected to witness slowdown. That was -- there would be profitability and viability challenge for the stand-alone business model such as only white-label ATM, only banking AEPS provider, only money transfer providers, which are dependent on cash transactions.

Vakrangee is future ready with a clear focus on building long-term sustainable and profitable business model with focus on non-cashback banking offerings such as account opening, loan products, insurance solutions, fixed deposit, NPA recovery. Further, we are not dependent on single line of products or services and have a wide portfolio of products and services such as online shopping, total health care services, bill payment, online travel services, mobile recharge, CIBIL score services, Pan Card services, online opening of Demat & Trading Account, opening services and many more.

Further, we have a strong support and branch presence in rural India and our customer trusts us with their day-to-day banking needs. During Financial Year 2023, we opened 1,700,000 bank accounts, 1,100,000 plus insurance pension policies and did more than INR 7.1 crore banking transaction with a gross transaction value of INR 38,730 crores. There is a huge under-penetrated rural market with huge retail and MSME customer there. Further, there is a lack of trust within the current real customer base, therefore, physical presence and assistance is a key differentiator.

Going forward, we are well structured to ambition into a neo bank as we plan to launch neo banking services through our BhrartEasy Mobile Super App platform. Through this, we are focused to evolve into a unique online-to-offline platform whereby there will be assistance available through the physical chain network along with digital neo banking services. Further we have strong existing retail customer base in rural India and we are focused on affordable pricing in unique online-to-offline consumer expense.

Commenting on the quarterly and full year results post demerger, our total income stood at INR 51.80 crores in quarter 4 financial year '22-'23, increased by 5.50% on a quarter-on-quarter basis. Our profit after tax, it stood at INR 0.68 crores in quarter 4, '22-'23, increased by 423% on quarter-on-quarter basis. For the full year, our total income stood at INR 198.70 crore in '22-'23, [indiscernible] INR 197.35 crores for the corresponding last year. Our PAT exclude at INR 1 crore in financial year '22-'23 as against nil for the corresponding last year. For full year, our gross transaction value -- for the full year, gross transaction value in crores, INR 51,164 crores and total number of transactions in crores, 12.23 crores.

We appointed exclusive district-level master franchisee partners in 234 districts across 27 states across the country. These master franchisees shall provide on-ground operational support to the existing franchisee outlets as well as drive new franchisee acquisitions. We plan to achieve 100% district coverage, pan-India presence by March '24.

Our profitability has been impacted as we are in -- reinvesting our operational cash flow for enhancing franchisee incentives as well as building a pan-India district level master franchisee network.

Vakrangee Digital Venture Limited is a 100% subsidiary company of Vakrangee Limited. The company has launched a mobile super app, best feature platform primarily targeting rural India. BhrartEasy app, India Ka Super App. We have made live and activated some of the key services like online shopping, online agriculture products, total healthcare services, online Demat account opening, CIBIL score rating services as well as online Pan Card application services.

A unique differentiator and sustainable competitive advantage is whereby our digital super app platform would be able to emigrate the Vakrangee on ground ecosystem, a vast well-diversified pan-India physical store network of Vakrangee as a point of physical existence specifically to customers to semi-urban and rural remote locations.

Vakrangee Digital Venture shall embrace the Vakrangee ecosystem. The strong brand we call Vakrangee Kendra India has good positive NPS among our US -- our NPS score is 68% as per RedSeer research. Access to existing Vakrangee customers base and exchange to existing network 20,000 plus outlets for physical assistance and consumer awareness. The unique proposition of digital along with physical, that is, physical would help the digital channel is still a fast and would significantly reduce the cost related to acquiring customer physical assistance, order fulfilling and retail management of online orders. Further leveraging physical presence would result into better customer interaction, strong brand recall and better services experience and trust for the customers.

Our current focus has been on expanding our presence through building master franchisee network and pursuing our first-mover advantage. We are currently building a pan-India district level master franchisee network, which will result in a strong on-ground operational management as well as a high [indiscernible] in future. We plan to achieve 100% district-level master franchisee coverage by March '24.

By 2030 -- by 2040, we plan to have 100% pan-India coverage through our physical Vakrangee Kendra outlet network, along with BharatEasy digital mobile app, our target is to reach 300,000 plus outlets along with a minimum 15,000 plus ATMs. With this, our plan is to achieve a revenue target of USD 1 billion by 2030, along with a gross transaction value of more than USD 75 billion.

Our company has also been globally ranked #1 in the Sustainalytics ESG risk rating -- ranking assessed in the software and service industry segment. Overall, Vakrangee has been recognized by Sustainalytics as the ESG global 50 top rated company, Vakrangee Limited has been identified as a top ESG performer out of the more than 4,000 comprehensive companies that Sustainalytics covers in the global universe.

Vakrangee has been also recognized by S&P Global and has a score of 78 ESG score in the Corporate Sustainability Assessment survey. Vakrangee has been accepted as a signatory of the United Nations Global Compact and we have met our sustainability initiatives with the United Nations sustainable development goals. Further, we have appointed Grant Thornton as our assurance auditor for our -- assurance of our integrated annual report.

Global recognition reflects company's commitment to further enhance its corporate governance and transparency standards. Company has achieved global recognition across various platforms for its superior ESG performance and long-term business sustainability. I believe with this demerger, Vakrangee Kendra business is now a pure retail centric facing business, it is an asset-light franchisee-led business model and thereby, we will get the proper representation post the demerger. The demerger has now [ positioned ] our company to enhance our business operation by streamlining operations, more efficient management control and outline long-term result and growth strategy. We are now well poised with a clear focus to achieve greater heights in the coming years.

I would like now -- I would now like to take this opportunity to thank our shareholders for their support. We can now open the floor for question and answer session. Thank you very much.

[Operator]

[Operator Instructions] First question is from the line of Jignesh Kumar, individual investor.

[Unknown Attendee]

My question is that post demerger, which business have been transferred to VL E-Governance companies? What impact you there on the service of revenue of Kendra business post demerger, can you please explain?

[Dinesh Nandwana, executive]

So if you see basically, the demerger has happened primarily into 2 parts, one is basically the Kendra business, which remains in the listed companies, which is a pure retail consumer-centric business, it is outlet-based business. And also services, which are primarily the IT, ITES, equipment trading business, the e-governance business as well as some part of the B2B trading business, that has been shifted to the VL E-Governance [indiscernible]. So post demerger now, under the Vakrangee Limited, we have a pure mobile app which is BharatEasy as well as the physical store, which is the Vakrangee Kendra services. Thank you.

[Operator]

Next question is from the line of Rajiv Kulkarni, individual investor.

[Unknown Attendee]

My question is that last year, the company was debt free and now in post demerger, there has been loan for the year 2022 as well for '23. Can you explain this deal?

[Dinesh Nandwana, executive]

Yes. So basically, as you'll see we have also given a footnote in our result presentation on the same. So primarily with INR 27 crores of the debt, which you are seeing in the FY '22 balance sheet because earlier, we have seen as a debt-free company. This is primarily the intercompany loan. Basically, now since the demerger has happened, basically VL E-Governance is a separate company versus Vakrangee Limited. And therefore, once the accounts are getting restated between the two companies also, therefore, this amount of -- you're seeing, and that is what we have also mentioned under the footnotes in our result presentation.

And [ where for ] in current year, if you see basically that there is a debt also available of around INR 45 crores, that is primarily for the smooth business operations of the Kendra business, which is primarily for the ATM settlement and for the ATM CapEx, which we typically to do a little bit ahead of time. In order to manage both the things, we have the small amount. But if you see in the overall scenario, the amount is not very big.

[Operator]

Next question is from the line of Jai Tripathy, individual investor.

[Unknown Attendee]

So last quarter, the reported numbers of the outlets were more than...

[Operator]

Sorry to interrupt you, there's a lot of echoing.

[Unknown Attendee]

Just a minute, I'm switching back to headset. Yes, now I'm audible?

[Operator]

Yes.

[Unknown Attendee]

So in the last quarter, the reported number of outlets were more than 24,000. However, the current number has been reduced to 20,000. Why there has been reduced in the outlet numbers? And you have said that you are appointing master franchisee, and it is their responsibility for new acquisition and day-to-day monitoring of outlets. However, it is helping in -- how it is helping in the business opportunity? And why post appointment of master franchisees, we are seeing the numbers are getting reduced. Can you please answer that?

[Dinesh Nandwana, executive]

Sure. So if you see basically, what we have done, we have done a complete exercise where we have gone through our each and every franchisee. So in the last few quarters also when we said that we are upgrading all our existing outlets to the next gen Kendra 2.0 format. And we had focused on basically whether my franchisee is an exclusive store with a proper active franchisee being there when they are doing all kind of transactions in place.

So what we have done is, if you see, we have not -- we have changed the designation where we are seeing active transacting outlets. So even although they're -- my number of franchisee or my number of [ VK ID ], what we say, can be more. But what we are communicating is that these are my active transacting franchisees. So almost 20,000 plus are my active transacting stores and that is where we wanted to be more transparent, in terms of that -- finally how many outlets are the ones who are actually doing the transactions with us. And that is where in terms of more -- bringing more transparency and getting more clarity to all our shareholders. What we have done is we have changed the designation in what also, if you see in our results presentation, we have clearly mentioned that we are now reporting on how many are my active transacting Kendra outlets.

So that is where the number is being seen from 24,887 what it was in the last quarter to around 20,399. So these are typically active transacting stores or newly opened, newly onboarded stores which are yet to transact. So we have changed the designation and accordingly that number has been updated accordingly.

Now if you see basically in terms of our business strategy, for the last 6 months, we have been emphasizing more on this exclusive district-level master franchisee thing because what we have realized is that we need to have a local level control and master franchisee is a best solution, what we have felt. We have tried multiple things over the last couple of years actually post-COVID because when COVID happened -- pre-COVID, we were having almost a huge employee base. But what we felt that we need an entrepreneurial mindset at the local district level because only then -- if the interests are aligned, and that is where we tried and tested on a pilot basis, this district-level master franchisee thing and where we felt a lot of success was that the response has been very great because some district-level master franchisee is also an entrepreneur and these are person with a background of managing distribution businesses. So his background either he was managing a SMPG distribution, whether he was managing a financial services distribution, whether it is insurance distribution or money transfer distribution business.

So they know the nerve of the business. They are there at the local level with a dedicated office with a dedicated manpower in place. And secondly, it's a variable cost model to us. So there is -- the interests are completely aligned. So they make a cut out of the earnings that the franchisees are earning within that particular district for the existing store wages on the incremental business and for the new business that bring they get a commission.

So in that way, it's a win-win situation for the entire ecosystem because my franchisee is also getting a local-level guidance, local-level operational support because that master franchisee is not a simple employee, but he is a high net worth individual with a lot of experience in the similar kind of business and he has his own set of relationships at the local level, where he can help and guide my franchisees in that particular district. At the same time, it's a variable cost model for us. So there is no major burden on the company's financials. And third thing, it brings a lot of scalability because I'm working with, for example, 234 district-level master franchisee we have appointed. So currently, we are in a phase where we are going and selecting the right kind of person for that particular district.

So we feel that this is the investment which we are doing and the fruit of this investment is what we are going to get because we are already experiencing. So I will just give you some anecdotal example. In some of the districts, where we appointed master franchisee 6 months back, we are already witnessing a 15% to 20% kind of growth in my existing store output. So that is the kind of output that I'm getting from appointing a district-level master franchisee.

So before appointing master franchisee, I was getting a flat or a 3% to 4% kind of growth. Post district level master franchisee, this has improved to positive territory with a 20%, 25% kind of growth thing. So I think that this is something which is taking a little bit of time. So as we have already guided that before March '24, we will have a pan-India presence with entire 764 districts to be covered under the district level master franchisees. Post with the scalability of business you are going to witness, should have definitely a huge impact because just imagine 764 district master franchisee, even if we are appointing 10 new franchisees on a monthly or even on a quarterly basis, I'm talking about adding 7,500 stores on every quarter basis. So that makes almost 30,000 stores in a year. Whereas from a master franchisee's individual perspective, in his particular district he is just adding 10 new franchises in an entire quarter. So that is what it brings the kind of scalability.

So therefore, if you see we have also kind of released our vision 2030 and what we are envisaging here is since we will be setting up, the first step is to have a local district-level master franchisee in place, which we complete in this financial year.

The second is basically how when we increase our number of stores using this network of master franchisee. So therefore, I'll just gave you a small example that even if they are still expanding the network by 10 stores per master franchisee in a quarter, I'm able to add 30,000 stores in a year, which is the bare minimum. So the scalability of my network can grow exponentially with this network in place due to which my revenue as well as my GPV is also going to see a multifold rise in the coming future years. Therefore, what we are saying is that this year is our consolidation and investment phase where we are investing in building this network of district-level master franchisee network and you will see the results from the -- over the next few quarters, primarily from the next year onward, where you're going to see an exponential increase in terms of our network, in terms of number of stores as well as in terms of overall gross transaction value and the revenue and those things.

So I think so the strategy is very clear. So we have completed the demerger. Now the entire focus of the entire management bandwidth is purely on building this business. And we have the right strategy in place because we have done a pilot, we have done it so it's tried and tested. We have done it successfully in few districts. Now we are just extrapolating it on a pan-India basis. And I think so over the next few quarters or the next few years, we are going to see the results of this particular strategy coming into place.

[Operator]

Ladies and gentlemen due to time constraints we'll take the last question from the line of Ankita Sharma, individual investor.

[Unknown Attendee]

My question is now the demerger is completed. So when the Vakrangee Limited E-Governance company will be listed and by when can we expect the shares of another company? And what will be the record date?

[Dinesh Nandwana, executive]

So if you see basically, as per the process, the demerger entity basically which is VL E-Governance should will get listed within 45 days. So I think so with respect to the record date, I will get back to you -- put it on the exchanges as a disclosure. But in terms of the timeline, it's around 45 days -- typically within 45 days, we should have this process completed.

[Operator]

Thank you. I now hand the conference over to Mr. Ammeet Sabarwal from Vakrangee for closing comments.

[Ammeet Sabarwal, executive]

Thank you, everyone, for taking time out and attending our Q4 and full year FY '23 con call. In case of any other queries, which are still left unanswered, I would request everyone to -- if you can please e-mail it us. You can e-mail it us [email protected], this is my e-mail ID. So you can send an e-mail to this, and we will be obliged to reply on this. And if you have any further queries or any doubts, please feel free to write to us. Thank you, and good evening to all of you. Thank you.

[Operator]

Thank you very much. On behalf of Vakrangee Limited, that concludes this conference. Thank you for joining us you may now disconnect your lines. Thank you.