Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue grew by 27% year-on-year, driven by both mutual fund (MF) and non-MF segments.
- EBITDA increased by 36.6%, showcasing strong operational efficiency.
- PAT (Profit After Tax) surged by nearly 42%, reflecting robust profitability.
- Non-MF revenue grew by 31%, indicating successful diversification efforts.
- Strategic partnership with Google Cloud to rebuild the RTA platform, promising future efficiency and scalability.
Negative Points
- Employee costs increased significantly due to annual appraisals and new talent acquisition.
- Operating expenses have risen, partly due to variable costs associated with cloud-based services.
- The alternatives segment showed subdued growth, with only mid-teens percentage increase.
- Account aggregator market faces pricing pressure, with prices dropping significantly.
- Think360 segment experienced a decline in revenue, impacted by market preference shifts and reduced focus on US sales.
Q & A Highlights
Q: Congrats on great set of numbers. Sir, firstly, on this, the cloud thing that you are implementing, what are the kind of costs that will be involved? What will be the time line period and -- so this is basically the entire RTA platform that you are moving to cloud. So what -- so are the customers on board with this?
A: (S. Ramcharan, CFO) The cloud is a multiyear project. It's a reengineering of the entire platform to make it future ready. The entire project would get completed in 4 to 5 years. However, there's a module-based approach that we are taking, which means that we will not wait for the entire 5 years to go live with the entire platform. It will be a staggered phase-wise implementation. From a cost perspective, we do not expect a significant impact on margins, at most 0.5% in the initial years.
Q: With the markets correcting the way they are today, possibly and if there is further correction, your yields move back, right? The telescopic structure, if the AUMs correct below the threshold levels, you get a higher reset, right?
A: (Anuj Kumar, Managing Director) That's correct. Although it gives us no joy that the fees going up. But yes, on lower assets, we charge higher just like on higher assets, we charge slightly lower.
Q: From an expense perspective, how do we see this year panning out, so employee cost that has come -- should we maintain that kind of run rate? And also on the OpEx, if I look, the run rate has gone up significantly from -- as compared to last three or four quarters, it's been moving higher. How should we look at this? And where is the bulk of it going the incremental OpEx where is it going?
A: (S. Ramcharan, CFO) From an employee cost perspective, the current base cost will hold good. There could be an increment of probably a couple of crores in the current quarter. On operating expenses, the increase is largely driven by variable costs such as data entry costs, cloud-based models, and other operational expenses. We do not expect a disproportionate increase in the coming months.
Q: Anuj you mentioned about your excitement around the new business opportunities this new platform can create. So if you can elaborate on that, please? And a related question is that, generally, we viewed the RTA business as a business model, which has fairly stable fixed cost but with Google coming onboard, does it significantly variabilize your cost? And how does that -- what does that mean in terms of what you charge to your clients and how clients also look at your profit margins?
A: (Anuj Kumar, Managing Director) The new platform will bring in components of taxation, charges, currency, data management, querying the data, insights, and reporting, making it significantly superior. The cloud offers scalability and efficiency. From a cost perspective, it will transition from a CapEx-heavy model to an OpEx model, but it will not materially alter the charging capability on the start.
Q: Just wanted to dwell a little bit more on the non-MF business and continuing with the alternate question. So as you also acknowledged that this quarter, the growth was slightly subdued. So just wanted to understand, are there any onetime implementation fee that we generally have and that can lead to quarter-on-quarter volatility? That is one. Second is basis your revenue model where you said it will be on the number of investors. Do you get any benefit if additional capital is drawn from the existing set of clients? And lastly, what is the expected growth for this particular segment that you think you can achieve?
A: (S. Ramcharan, CFO) The nature of the industry means that funds have a life and will be liquidated and replenished, leading to some period of lag. We aim to maximize growth to 15-20%. The pricing is generally based on the number of customers, not AUM. We do not see significant volatility due to onetime implementation fees.
Q: On account aggregator. All those very heartening to see on a sequential basis, we are gaining market share. But in terms of volumes and revenues, your expectation, say, for the year FY '26, some sense if you can give us on that?
A: (Anuj Kumar, Managing Director) Quarterly revenue is still in the INR 1 crore to INR 1.5 crore range. We will be lucky to close the year at about INR 7 crores to INR 8 crores. In FY '26, we will certainly target to be double digit, aiming for INR 11 crores to INR 12 crores. At that level, we will be at a breakeven.
Q: On the non-MF side, you said this will be like a 20% of your top line by FY '27. So just wanted to know, given the strong growth that we are seeing on the domestic MF side, one, is there any rethink on this number? And secondly, how important would be the inorganic opportunity to achieve this number?
A: (Anuj Kumar, Managing Director) We aim for non-MF to grow by 2% each year. While MF growth at 26% makes it challenging, we still aim for non-MF to reach 20% by FY '27. Inorganic opportunities will help but are not the primary driver.
Q: My first question was on this transition to cloud. Just wanted to understand what could happen to the data centers that you currently owned and operate? So is there a thought process that these data centers will be done away with and hence, there will be some capital that will be speeded up. And what would happen with that capital in that case?
A: (Anuj Kumar, Managing Director) Gradually, we will slow down investments in data centers and migrate payloads to the cloud. We will still need to retain one data center for statutory requirements. The space in our premises will be repurposed, and any salvage value from hardware will be minimal.
Q: If I look at our KRA business, the number of KYC records seems to have not grown in last week quarter, it's been stagnating at 1.8 crore accounts. So I just wanted to understand, do you see this number going up or you continue to mine these number of records to deliver the revenue growth going ahead?
A: (Anuj Kumar, Managing Director) There was a onetime cleanup across the industry. Now we have a constant base, and you should see growth on top of it. We are actively
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
