Release Date: October 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- One97 Communications Ltd (BOM:543396, Financial) reported a significant improvement in net payment margin due to better monetization of merchants and control over payment gateway costs.
- The company is focusing on increased monetization of devices, particularly through subscription revenues, which have been inching upwards.
- The DLG model is expected to generate higher collection revenue over the life of the loan, with a net take rate north of 5%.
- One97 Communications Ltd (BOM:543396) has successfully added new lending partners, which is expected to scale the personal loan distribution business.
- The company has achieved a material reduction in costs, particularly in employee expenses, and is exploring AI-driven opportunities for further optimization.
Negative Points
- The DLG model creates a bit of a drag on financials in the initial quarters due to upfront expensing of DLG costs.
- There is some quarterly volatility expected in net payment margins due to seasonal factors like festive periods.
- The company is still in the early stages of scaling new lending partners, which may delay the expected growth in personal loan distribution.
- One97 Communications Ltd (BOM:543396) has not yet provided a clear framework for the use of excess cash or potential cash returns to shareholders.
- The company faces regulatory challenges and market practices that could impact the implementation and profitability of the DLG model.
Q & A Highlights
Q: Can you explain the DLG model and its impact on revenue and costs?
A: Madhur Deora, Executive Director & Group CFO, explained that the DLG model involves a sourcing fee and upfront DLG costs, which are expensed in the quarter they are given. This model is applied to merchant loans, and the overall take rate net of DLG costs is expected to be north of 5%. The model is aligned with industry practices and does not require additional equity or capital investment.
Q: What is driving the improvement in net payment margin?
A: Madhur Deora noted that the improvement is due to better monetization of merchants and control over payment gateway costs. The company expects to maintain these levels, with some quarterly volatility due to seasonal factors. Excluding UPI incentives, the payment processing margin is expected to be significantly higher.
Q: What is the strategy for monetizing inactive devices?
A: Vijay Shekhar Sharma, Chairman & MD & CEO, explained that the focus is on reactivating, refurbishing, and redeploying devices. Subscription revenues are the core of this strategy, and the company is working on increasing active rates and monetizing active devices.
Q: How does the DLG model affect the take rate compared to non-DLG loans?
A: Madhur Deora stated that the net take rate for DLG loans is similar to non-DLG loans, with the key factor being credit loss. The company is seeing improving asset quality and collection performance, which positively impacts the net take rate. The DLG model is open to more partners, and the company is aligned with market practices.
Q: What are the plans for the cash on the balance sheet?
A: Madhur Deora mentioned that the company aims to be consistently free cash flow positive before deciding on the use of excess cash. The board will discuss potential uses, including returning cash to shareholders, but the focus remains on operating the business efficiently and profitably.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
