FINOPBNSEQ1 FY2023August 1, 2022

Fino Payments Bank Limited

11,429words

89turns

12analyst exchanges

4executives

Download PDF ↗FINOPB stock page →

Management on call

Rishi Gupta

MANAGING DIRECTOR & CHIEF

Ketan Merchant

CHIEF FINANCIAL OFFICER - FINO PAYMENTS BANK LIMITED

Rajat Gupta

GO INDIA ADVISORS

Rishi Gupta

Managing Director & Chief Executive Officer, Mr. Ketan Merchant – Chief

Key numbers — 40 extracted

40%

s. Our merchant base has grown by eleven times, our four-year revenue CAGR till FY2022 was nearly 40% and have been profitable for more than half the time of our bank. While Ketan will discuss the

for us. This is the first time our Q1 has been higher than Q4 in so many years. Our PAT grew over 3x in this quarter and this is despite the investments, which are ongoing in the digital business. W

Rs.60000 Crore

are ongoing in the digital business. We have achieved an all time high of throughput of more than Rs.60000 Crores of which nearly Rs.50000 Crores plus were on non-digital side. This is also the first for us. Ou

Rs.50000 Crore

ess. We have achieved an all time high of throughput of more than Rs.60000 Crores of which nearly Rs.50000 Crores plus were on non-digital side. This is also the first for us. Our digital impetus continues and

16%

irst for us. Our digital impetus continues and for the Q1 FY2023 our digital constitutes nearly 16% of our total throughput. Our strong focus on customer engagement is showing results. Growth in ou

20%

ving towards high growth and higher margin products like CASA and CMS, which now constitutes over 20% of our revenues. Our ability to cross-sell is getting standard substantially so that in Fino 2.0

25%

m for growth in Fino 1.0, which is our core business across product expected to grow at a CAGR of 25% around that level, but what really excites us is our next phase of growth, our digital initiative

Rs.400

omers to move to the fintech value curve. My aim in long run is to take our customers from around Rs.400 to Rs.500 right now to Rs.1000 through our Omni channel presence and that shall cater to the pro

Rs.500

e to the fintech value curve. My aim in long run is to take our customers from around Rs.400 to Rs.500 right now to Rs.1000 through our Omni channel presence and that shall cater to the profitability a

Rs.1000

alue curve. My aim in long run is to take our customers from around Rs.400 to Rs.500 right now to Rs.1000 through our Omni channel presence and that shall cater to the profitability and ROE targets, which

Rs. 289 Crore

years and how this momentum of Q1 stands out to be the best over the years. Our Q1 revenue was at Rs. 289 Crores a Y-o-Y increase of 40%. Our Q1 throughput at Rs. 60784 Crores has increased by 47% Y-o-Y; again

Rs. 60784 Crore

ver the years. Our Q1 revenue was at Rs. 289 Crores a Y-o-Y increase of 40%. Our Q1 throughput at Rs. 60784 Crores has increased by 47% Y-o-Y; again this is the first quarter wherein we have had a non-digital th

Advertisement

Guidance — 20 items

Rishi Gupta

opening

“Our merchant base has grown by eleven times, our four-year revenue CAGR till FY2022 was nearly 40% and have been profitable for more than half the time of our bank.”

Rishi Gupta

opening

“We are future ready and additional investments are underway and this product will be rolled out in staggered manner over the next two to three quarters.”

Rishi Gupta

opening

“There is still significant headroom for growth in Fino 1.0, which is our core business across product expected to grow at a CAGR of 25% around that level, but what really excites us is our next phase of growth, our digital initiatives, which will form Fino 2.0.”

Rishi Gupta

opening

“My aim in long run is to take our customers from around Rs.400 to Rs.500 right now to Rs.1000 through our Omni channel presence and that shall cater to the profitability and ROE targets, which we have over the medium term period.”

Rishi Gupta

opening

“At the same time our digital stack will help us target millennials a new user group, which will provide us with more diversified customer base and will enhance our product offerings.”

Ketan Merchant

opening

“Before I cover each of the business segments briefly I intend to throw some light on the operational highlights.”

Ketan Merchant

opening

“This is going to be a medium term investment before business starts accruing on this new channel, but when we make the statement what essentially it means you would all agree that customer acquisition rate for Fino are on meteoric rise every quarter.”

Ketan Merchant

opening

“This just validates what I started off with basis of our investments towards digital in 2.0 with more used cases on the platform, we are confident we will be able to do more with these customers with the product suite, which we are planning to come on the digital as well.”

Ketan Merchant

opening

“Industry on a Y-o-Y basis for AePS has grown by 28% and we have grown by 40% here again margins as we had given earlier guidance are moderating, as our share of open banking in AePS has increased from 26% to 40% on our own AePS channel and our own AePS channel has grown by 10% and open banking shares has gone up from 26% to 40%.”

Ketan Merchant

“So our renewal rate for CASA you are right, our renewal has gone by 4.79x in this thing, so we have a renewal rate, which is in excess of 50% when the customer is coming across, so every year when a customer comes more than 50% of the guy comes and renew it next year.”

Risks & concerns — 4 flagged

581 Crores a 16% growth coupled by the other EMD deposits also which we get, we are playing in a manner that we are net positive for this quarter and there is a stress testing analysis, which is done that even if the overnight rates go up to 200 basis points or 225 basis points further we will continue to have profit only, sorry that was on the balance sheet piece.

— Ketan Merchant

I guess the broader question was that given there is pricing pressure and the pricing pressure seems being a function of A.

— C. Sridhar

Yes, that is a very good one and if you recollect the last call and in the way I started off by this time transcript as well we had mentioned that when it was around 32% we are looking at 30% kind of a thing, I should be very honest out here that in this particular quarter I was not expecting that it will go to 30%, I was looking at a largely or slightly moderate kind of margin compression which is happening.

— Ketan Merchant

My question was around the gross margins basically I am just following up from the last speaker do we see that the margins given the fact that the product mix is changing in a manner where the margins are kind of going down do you see a risk that the gross margin may slip to mid 20s or go below 30%?

— Ashish Kumar

Advertisement

Q&A — 12 exchanges

Thank you. A couple of questions, one on the balance sheet and then one on the business, with respect to your balance sheet management what I was wondering is why have we been increasing our borrowings on the balance sheet side and especially given that there is more a treasury operation and an increasing rate environment has that led to a material treasury loss for us during the quarter those two on the balance sheet front, third question on the business I want to understand the renewal rate on CASA customer base? Thank you.

Ketan Merchant

Hi, Sri Karthik, Ketan here, let me just first attempt to address the balance sheet point, you are right, if you see on the balance sheet side our borrowings from Rs. 249 Crores have gone up to Rs. 581 Crores, now again here it is nothing to do with a long-term strategic borrowing, these are all overnight borrowings, which are essentially there, your second point and if we go to the asset side as well our investment, which was at Rs. 631 Crores has gone to Rs. 1102 Crores, so there is a whopping growth out there as well. On the point on the losses on the balance sheet which couple of other fin

Good afternoon. Three questions, first can you…

Management

Am I audible now?

Rishi Gupta

Let us try. Mr. Maheshwari, please continue. I will get back in the queue.

Sir, thank you for taking my questions. Sir, I have a couple of questions, many of the other banks are offering zero balance accounts, which are free as well, so just wanted to understand how do they capture more market share here then we are charging a subscription fee for maintaining a bank account with us and another question is what are the key business verticals that we have focussed that we feel would constitute for the larger share of revenue mix in the next two, three years and how do we plan?

Rishi Gupta

Let me answer the first one, see in our case while we also offer a zero balance but we are not focusing on that account that much, our ability to get subscription and open more than 2 lakhs accounts on a monthly basis consistently is testimony to the fact that there are people who are ready to pay, now free zero balance accounts or free accounts have a very low activeness and a very low transaction business and if you see our balances have gone up by 28% from Rs. 800 odd to Rs. 1100 odd on an average basis and nearly 33% of them are becoming more digitally active as well, so our belief is that

Good afternoon, just I think one of the bigger purposes of also doing the CASA over a time is that you want to have the share of owners transactions being a little higher than where we are, I get the fact that they are still very small just in terms of number of accounts with the whole system, but at some point we see some inflection point where the share of owners starts picking up relatively because right now the offers are still growing larger and I agree that the system is still much larger than where we are, so offers will still go, but if you had to say look you know maybe two years out

Rishi Gupta

Interesting question Chandra, good afternoon. My share on this is that if I look at the forward or if I look at the way we have been building our business taking you back a couple of years when we started the business we used to do half our volume of transactions and two years back also and now we are at Rs. 60000 Crores number on a quarterly basis, having said that our number of accounts we used to barely open 30000 to 40000 accounts, in last to last year we were averaging about one lakh, this last year we averaged at about 1.75, this year we are already at 2 lakhs plus on a monthly basis and

Thank you for the opportunity. Sir, I have three questions broadly, I think I heard you say that you will want to change the remittance mix between own and API channel to something like that 30:70 ratio now that kind of mix you guys used to have back in FY2019 way back before the COVID even started, so how would you go about it, this basically means you will be pushing more of your own channel because you cannot really stop business coming on the API channel and I just want to understand that part of the business, this is first, secondly on the CASA account opening, clearly the trend has been

Ketan Merchant

Thanks Shreya. Let me just take your first question first, this is the open banking versus own, you are right, I will throw the attention on slide #24 wherein we have given data of how it was in Q1 FY2022 and how it is in Q1 FY2023, just a minor point to put across, it was not only remittance what I have essentially said off is that between on all the products whether it is micro-ATM, AePS, and remittance the transaction products taken together our endeavour has been to put a ratio of 33 and 67 that is the number. Currently we are off because you are right the open banking essentially has grow

Sir, good afternoon and congrats on a great set of numbers. Sir, just two questions, one is sort of clarification on the notes to account part we have mentioned the employee benefit under this section of code of security, so what is that and what kind of accounting impact we see on P&L because of this?

Ketan Merchant

Hi, Renish Ketan here. Last year we had issued from the motivation of the staff perspective the ESOP for all the key management staff has been given off, so that is the note which you are referring to, the impact of that on an annualized basis to the P&L is around 6 Crores that is based on the calculation including the Black-Scholes method and the RBI regulations which come through and this is being given to a set of employees, the key set of employees or the core set of employees in terms of driving the function and the organization to the next level. Got it. Sir, secondly on this investment

My questions have been answered. Thank you.

Management

Thanks for taking my question, Rishi and Ketan. Great show on the revenue growth. My question was around the gross margins basically I am just following up from the last speaker do we see that the margins given the fact that the product mix is changing in a manner where the margins are kind of going down do you see a risk that the gross margin may slip to mid 20s or go below 30%?

Ketan Merchant

Ashish thanks. I will try and reframe what I was mentioning to Renish earlier that the product mix, yes, they have changed, there were a couple of logical reason which I explained as well that remittance being a dominant for open banking that has grown, earlier we did not have material AePS are happening in open banking that is growing, but if your question is very pointed that are we looking at 20s kind of a margin is that something which is what we are looking at, the answer is essentially no. We are looking at margin being range bound from here on and not to forget the growth drivers which

Good afternoon gentlemen. My first question was around the cyclicality element that I have observed actually on the slide 12 of the presentation so maybe could you please elaborate on the cyclicality element, another question that I had was around the employee expenses there is a 20% increase sequentially, so maybe could you please elaborate on that as well as to what contributed to that and are there any nonrecurring components within this, which would not be contributing in the upcoming quarters and last question that I have was I think your press release talks about some kind of a moderatio

Rishi Gupta

So, on the first part on the cyclicality you are right, first quarter normally has been always low for us because a lot of people actually specially all kind of migrant people they go back to their homes for crop and other purposes, so that is where we see the cash withdrawal as well as the remittance business normally drops, this year while they still could have been higher compared to a normal quarter, but Q1 still has cyclicality, which we are able to overcome by our expansion which we did in the last year or so, so starting July, August when people come back actually they come back from a

Thanks for taking my question again, just a last technical bit this new products even the international remittance, the income is flowing to the other line item right from second half of FY2023 or in FY2024 because till now that line only includes interest income and maybe some other charges, is that correct?

Ketan Merchant

Yes, there will be a separate line item wherein it will start coming through, once it becomes a material kind of thing. So, effectively from second half of FY2023 we should expect some revenue in that line right if you are launching the product in the next two quarters which are in international remittance? Yes, that is how it will be once it picks up the momentum as Rishi said with the lead period we have already done it on the branch this quarter we will do it in terms of merchant and maybe Q3 ending or Q4 this can be having a reasonable impact on the bottomline coming through in terms of th

Thank you everyone for participating. It has been a very rewarding quarter for us if you see from the topline point of view, sequentially we have grown on an annual basis also we grew by 40%, we expect profits to continue to grow from here Q1 normally is a lower profit quarter for us every year, we should expect profit growth as well as topline growth from the Q2 onwards onset. The market is big, our CASA, CMS and some of the products have started to show a lot of traction, ownership story and the implementation of that has been very, very good. We expect as more and more customers get onboard

Ketan Merchant

Thank you everyone.

Speaking time

Ketan Merchant

Moderator

Rishi Gupta

Shreya Shivani

Hitesh Randhawa

Renish Bhuva

Ashish Kumar

Sri Karthik

Rahul Maheshwari

C. Sridhar

Advertisement

Opening remarks

Rajat Gupta

Thank you Lizaan. Good afternoon, everybody and welcome to Fino Payments Bank earnings call to discuss the Q1 FY2023 results. We have on the call with us today Mr. Rishi Gupta – Managing Director & Chief Executive Officer, Mr. Ketan Merchant – Chief Financial Officer, and Mr. Sayantan Mitra from the investor relations team. We must remind you that the discussion on today’s call may include certain forward-looking statements and must be therefore viewed in conjunction with the risk that the company faces. We now request Mr. Rishi Gupta to take us through the company’s business outlook and financial highlights subsequent to which we will open the floor for Q&A. Thank you and over to you Sir!

Rishi Gupta

Thank you Rajat. Good afternoon ladies and gentlemen and thank you for joining us today for our earnings call. Fino’s business model was conceptualized keeping in mind the problems of a common man, who does not have easy access to a neighborhood bank, who is unable to bank in normal banking hours and have many other constraints. Our vision was to provide all inclusive fintech growth to the set of people by making them not only comfortable with organized banking but getting them to move on to a digital banking. Over the years we created relevant products to service our customers. Our products like domestic money transfer, which is a remittance product, micro-ATM and AePS, which are cash withdrawal products makes banking easily accessible to the lowest rate of population and offers them differentiated services. These are normal banking products, which are there for everybody’s use on a daily basis. The growth we saw in this model gave us the confidence that this business model is sustain

Ketan Merchant

Thank you, Rishi. Good afternoon ladies and gentlemen. I hope you have seen our presentation, which has been already uploaded. Over the next 10 minutes odd I will briefly talk about the performance in this quarter and also give a strategic direction how this quarter dovetails into a long-term plan, which we are doing. To begin with as Rishi mentioned in his comments we have delivered a strong revenue growth sequentially as well. To resonate it again what Rishi said if we go to slide #12 of our investor deck it actually clearly shows the trend for the past couple of years and how this momentum of Q1 stands out to be the best over the years. Our Q1 revenue was at Rs. 289 Crores a Y-o-Y increase of 40%. Our Q1 throughput at Rs. 60784 Crores has increased by 47% Y-o-Y; again this is the first quarter wherein we have had a non-digital throughput in excess of Rs. 50000 Crores. Coming to profitability on Y-o-Y basis our EBITDA has more than doubled to Rs. 24 Crores and we delivered a quarterl

Advertisement

← All transcripts FINOPB stock page →

Fino Payments Bank Limited

Market Movers