Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Management is committed to achieving a profitable quarter within the current fiscal year.
- Focus on core business areas such as payments and cross-selling financial services is expected to drive growth.
- Employee costs have been reduced by 10% quarter-on-quarter, with further reductions expected.
- Marketing expenses are expected to be lower in the coming quarters, contributing to cost savings.
- The company is seeing good signs in early buckets for Merchant Cash Advance business, indicating strong performance.
Negative Points
- Consumer payments revenue has significantly declined due to the discontinuation of highly profitable products like wallets and rent payments.
- There are ongoing challenges with new user acquisitions for UPI, impacting growth in this segment.
- Indirect expenses have increased from INR1,200 crores to INR1,300 crores, partly due to one-off provisions and migration-related costs.
- The company is facing a conservative lending environment, which may limit aggressive growth in credit disbursement.
- There is uncertainty around the timeline for the return of wallet services and approvals from NPCI for adding new consumers.
Q & A Highlights
Q: Vijay, just alluding to your opening remarks, when you said you're aiming to deliver on a profitable quarter this fiscal year. Just wanted to understand if you're referring to operating breakeven or PAT level breakeven. And is the target to achieve that inclusive of UPI incentives?
A: Thanks, Vijit. We are looking at EBITDA breakeven before the ESOP costs and before adding UPI incentive. We are aiming for a profitable quarter without relying on extraordinary one-time items.
Q: In terms of the new user acquisitions for UPI, which you've not started since. Are there any specific targets or roadmaps that have been set for you from NPCI before you can resume that?
A: We are in the process of completing technology and consumer migration. Once the migration is complete, we will request NPCI to add new incremental customers.
Q: From the last earnings call, the April 2024 run rate for consumer and merchant loans was INR20 billion a month. The full quarter number seems to suggest there's a moderation from April into May and June. Can you talk about the most recent consumer and merchant loan trends?
A: On merchant loans, there was a pent-up demand initially, but we are now seeing a more disciplined approach from our lending partners. We expect the numbers to get better in the current and next quarter, but not dramatically.
Q: The question is on first in expenses. You all have called out that there has been some one-off expenses in the indirect cost, except employees, everything is up. What were the one-offs and what's the likely outcome as you ramp up some of the other businesses?
A: There were one-off expenses related to marketing, technology migration, and conservative provisioning for device merchants. We expect these costs to come down meaningfully starting next quarter.
Q: On the lending side, what is your outlook for the gradual scale-up between merchants and personal loans?
A: Both have different trajectories. Merchant Cash Advance has been rock solid, and we are seeing good signs in terms of early buckets. For personal loans, we are focusing on distribution and adding more partners.
Q: On the devices, your commentary says you get back to adding a lot of devices that you used to in '24. Is that the run rate that you're talking about once you get into the second half?
A: We are seeing that we could pick inactive devices and redeploy them, which will lower our CapEx. A healthy number would be more like one million a quarter.
Q: Just a couple of questions from my end. One is on the technology. Now that the payment system is being powered by four different banks, do you see any impact on the uptime?
A: We are adding our technology to the partner banks, powering them with our technology.
Q: The second question was on the divestment of the entertainment business. Should we expect a fall in software and cloud and data center costs?
A: The biggest cost in software and data center is from payment processing. The divestment will not materially impact these costs.
Q: The first is on your payments margin, just the processing margin. There's obviously a sharp decline versus the December quarter. What are the biggest drivers apart from the loss of certain products?
A: Most of the decline is due to the higher profitability from discontinued products like the wallet. Our commercials with third-party banks are slightly different, bearing more payment costs but getting a higher share of UPI incentives.
Q: Since that March specific guidance for Q2. How are we trending in recent months versus, let's say, quarterly average, maybe in terms of ARPU, in devices?
A: ARPUs are in the same range, and we are able to increase ARPU per customer through better cross-sell. Expect ARPU to remain stable and increase in the next few quarters.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
