AFFLENSENovember 15, 2022

Affle 3i Limited

9,706words

54turns

11analyst exchanges

3executives

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Management on call

Anuj Khanna Sohum

Managing Director & Chief

Kapil Bhutani

Chief Financial & Operations Officer

Shobit Singhal

Anand Rathi Share & Stock Brokers

Key numbers — 40 extracted

29.1%

innovations and sustainable long-term value creation. Affle delivered organic revenue growth of 29.1% y-o-y, PAT growth of 39.6% y-o-y in Q2 FY2023 and Revenue CAGR of 61.2% in Q2 over the last 3-yea

39.6%

le long-term value creation. Affle delivered organic revenue growth of 29.1% y-o-y, PAT growth of 39.6% y-o-y in Q2 FY2023 and Revenue CAGR of 61.2% in Q2 over the last 3-year period, much ahead of t

61.2%

organic revenue growth of 29.1% y-o-y, PAT growth of 39.6% y-o-y in Q2 FY2023 and Revenue CAGR of 61.2% in Q2 over the last 3-year period, much ahead of the industry growth trends. Our CPCU business no

64.7 million

much ahead of the industry growth trends. Our CPCU business noted a strong momentum delivering 64.7 million user conversions during the quarter, an increase of 32.7% y-o-y at Rs. 51 CPCU rate. In terms of

32.7%

d a strong momentum delivering 64.7 million user conversions during the quarter, an increase of 32.7% y-o-y at Rs. 51 CPCU rate. In terms of H1 FY2023, we achieved revenue growth of 64.4% y-o-y & PAT

Rs. 51

mentum delivering 64.7 million user conversions during the quarter, an increase of 32.7% y-o-y at Rs. 51 CPCU rate. In terms of H1 FY2023, we achieved revenue growth of 64.4% y-o-y & PAT growth of 61.4%

64.4%

increase of 32.7% y-o-y at Rs. 51 CPCU rate. In terms of H1 FY2023, we achieved revenue growth of 64.4% y-o-y & PAT growth of 61.4% y-o-y and this was supported by well-balanced organic growth over the

61.4%

s. 51 CPCU rate. In terms of H1 FY2023, we achieved revenue growth of 64.4% y-o-y & PAT growth of 61.4% y-o-y and this was supported by well-balanced organic growth over the first 2 quarters. Our seque

10%

y well-balanced organic growth over the first 2 quarters. Our sequential growth was approximately 10% higher on revenue in India as well as similar trend in other emerging markets and 2% higher on re

proximately 10% higher on revenue in India as well as similar trend in other emerging markets and 2% higher on revenue overall in Q2, with a clear pattern of bottom-line margin expansion on both q-o

4 million

f not for the negative impact in developed markets, we would have potentially earned about USD3-4 million of additional revenue in the first 2 quarters of this financial year. To mitigate this short-term

25%

aim to end FY2023 with y-o-y organic growth % aligned with the long-term industry growth of about 25% CAGR over the next few years. Given our asset-light platform based business model, it is reason

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Guidance — 20 items

Anuj Khanna Sohum

opening

“Affle delivered organic revenue growth of 29.1% y-o-y, PAT growth of 39.6% y-o-y in Q2 FY2023 and Revenue CAGR of 61.2% in Q2 over the last 3-year period, much ahead of the industry growth trends.”

Anuj Khanna Sohum

opening

“Affle’s strong organic growth momentum in H1 FY2023 should enable us to beat any short-term industry trends in H2 and we can realistically aim to end FY2023 with y-o-y organic growth % aligned with the long-term industry growth of about 25% CAGR over the next few years.”

Anuj Khanna Sohum

opening

“Given our asset-light platform based business model, it is reasonable to expect margin expansion and thus our overall growth % on EBITDA and PAT in H2 will be significantly higher than our growth on revenue.”

Anuj Khanna Sohum

opening

“In view of our long-term optimistic growth outlook of about 25% CAGR, we are continuing to invest in our organic growth operations & we are also actively evaluating inorganic growth opportunities in line with our Affle2.0 growth strategy and execution track record.”

Anuj Khanna Sohum

“I think there will be natural inclination for CashKaro and Affle India to work together since they have a common shareholder as the holding company.”

Rahul Jain

“So, I understand that delivering this will be incredible given the kind of macros we are following, but in that light, is it fair to assume that FY2024 growth 7 Affle (India) Limited November 09, 2022 should be slightly lower organically while the CAGR aspiration of 25%+ maybe even over a 4-5 year period?”

Anuj Khanna Sohum

“Now, like H1 we have already grown quite nicely and next year H1, I believe that you should follow a similar trend.”

Anuj Khanna Sohum

“So, I think I would still maintain about 25% CAGR outlook for FY2024 or FY2025 and we will try to beat industry average growth comprehensively on the topline and even more so on the bottom-line.”

Anuj Khanna Sohum

“Without giving any more detailed guidance on it, you can understand the mindset with which we are leading the company.”

Anuj Khanna Sohum

“Until the last day of the year, we will be fighting for every single dollar of revenue and every single incremental dollar of profit.”

Risks & concerns — 15 flagged

However, we did see a negative impact of the global headwinds in developed markets i.e., US and Europe.

— Anuj Khanna Sohum

We are not seeing any increase in credit loss risk.

— Kapil Bhutani

Given the macroeconomic risk globally and especially in US and Europe, have you seen any ad budget cut from clients?

— Shobit Singhal

In my commentary, I had already provided details on the impact of developed markets.

— Anuj Khanna Sohum

Even without that, I think our performance is very resilient, but in case there were no effects of 5 Affle (India) Limited November 09, 2022 budget cuts or the impact of the global headwinds, results would have been even more phenomenal.

— Anuj Khanna Sohum

So even with the macroeconomic risk factors, we will still continue to be growth oriented.

— Anuj Khanna Sohum

Whenever there is are recessionary conversations or backdrops, there is intuitively pressure on pricing and one of the things that we are doing is very strongly defending pricing.

— Anuj Khanna Sohum

Rather pick business that can deliver profitability, cash flows and credit risk managed business.

— Anuj Khanna Sohum

With consumers going more & more digital and let’s say even when there is recessionary pressure, let that pressure be on traditional media.

— Anuj Khanna Sohum

We are picking business or picking only the volume of business that can support the profitability metrics and not give any volume-based discount because that is where the pressure comes.

— Anuj Khanna Sohum

Are we really seeing any growth slowdown in India as well at the category level or is it like more like some high base quarter issue?

— Arun Prasath

Whenever there is any customer concentration that is building up, that is a risk that I want to cure as soon as possible.

— Anuj Khanna Sohum

While the costs are generally in dollars, so there is a pressure on the cost on the dollars, but it gets neutralized on the other side.

— Kapil Bhutani

So, at the moment, if I take the impact of currency movement on an average basis, we would be mostly neutral to it.

— Kapil Bhutani

If you see our bottom-line, the impact of currency movement is largely more muted as we are quite hedged.

— Kapil Bhutani

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Q&A — 11 exchanges

I have few questions. Given the macroeconomic risk globally and especially in US and Europe, have you seen any ad budget cut from clients? What are their sentiments and how do you see H2 FY2023? Second question is how much did Jampp contribute this quarter as compared to the last quarter?

Anuj Khanna Sohum

Thanks for your questions. In my commentary, I had already provided details on the impact of developed markets. The way we should look at it is that Affle’s business is in a very privileged position because of its deep focus on India as well as other global emerging markets. Because of that, we are continuing to see a very clear growth pattern in India as well as in other emerging markets on a sequential basis. When we compare Q1 to Q2, there is a clear sequential growth pattern in India and other emerging markets. Because of that a lot of the investors are saying, how come Affle is so immune

My first question is related to the investment in CashKaro. If you could explain the rationale for that investment and how do you think that investment adds to your business moat from a medium-to-long-term perspective? Secondly on Bobble, you mentioned in the opening comment it has been classified as a 6 Affle (India) Limited November 09, 2022 financial investment and there was a press release that suggests that the deal with Krafton has not yet concluded. Maybe you could update on what is happening on that?

Anuj Khanna Sohum

The first one, CashKaro is not an investment of Affle (India) Limited, the listed company. It is a financial minority investment made by the holding company from Singapore. Since the holding company has no other operating business other than its investments in the Affle (India) Limited as a promoter as well as any other investment that it is doing, which are financial in nature. So, that is to the extent I can speak. With respect to Pouring Pounds, which is a UK-based entity that owns the business of CashKaro India. With respect to any strategic advantages with respect to CashKaro’s business i

I have a question on the outlook side to Anuj. So, you mentioned something about the realigned strategy. Could you elaborate a little bit more on that and to your comment of H2 growth of 10% over H1 would imply 18-19% growth on a Y-o-Y basis for H2. So, I understand that delivering this will be incredible given the kind of macros we are following, but in that light, is it fair to assume that FY2024 growth 7 Affle (India) Limited November 09, 2022 should be slightly lower organically while the CAGR aspiration of 25%+ maybe even over a 4-5 year period?

Anuj Khanna Sohum

On your first question on realigned strategy, the core strategy is the same. When we talk about realigning the operating resources, we are essentially talking about deeper focus on pricing and profitability. Whenever there is are recessionary conversations or backdrops, there is intuitively pressure on pricing and one of the things that we are doing is very strongly defending pricing. If we look at in Q2, we delivered our highest volume of conversions but we held our pricing at Rs.51 CPCU rate, which is quite a commendable effort by our team. Similarly, we are focused more on profitability; no

I have a couple of questions. Firstly, just wanted to ask Anuj that we are implying about a 25% growth for FY2023. Now, we have already in the first half done around 35% organic growth, so would this mean that seasonality of Q3 would not play out in this year? Secondly, I wanted to ask a bookkeeping question to Kapil. In this particular quarter we have seen forex gain into our cash flow statement by the tune of around Rs. 37 Crores. If you can highlight what does it regards to and how does it come out in the P&L statement?

Anuj Khanna Sohum

Thanks Anmol for your insightful questions. Let me first of all clarify that when I talk about growth or any growth percentage of the industry, I am only talking organic growth. Now this year H1 vs. last year’s H1 had one difference. In last year Q1, we did not have Jampp. In this year Q1 we had Jampp and Q2-to-Q2 comparison is absolutely clear because in both Q2s we had Jampp. So, when we say that the industry will grow at an average 25%, we are talking about incremental organic growth. In our case, we have given you two commentaries, one for the full financial year - our goal is to attain or

I have two questions. In response to one of the earlier question, you made a remark that in FY2024 and FY2025, you are looking at an organic growth of 25% plus and you aim to beat the industry so long as you are in leadership of the firm. So, was that just an off-the-cuff remark or is there a change in leadership that is in contemplation?

Anuj Khanna Sohum

There is no change in leadership contemplated, as long as I am healthy, fit and fine, I hope to lead the organization for decades to come. I think the nature of that comment is to be interpreted that I am giving you a peek into my mindset. How do I set targets for this company? How do I tell my leadership team? How do I convince them? We have a strong leadership team and this is not just a one-man 11 Affle (India) Limited November 09, 2022 thing that Anuj says something and everybody has to follow. We have a vocal leadership here including Kapil. Many times we are challenged and debate ourselv

Anuj, in terms of employee cost this quarter you saw an increase. So, what were the areas of investments there and does this increase continue in the near term or most of it will start to give us leverage as we go forward? The second question was to Kapil, in terms of the level of intangibles capitalization in this quarter and any outlook on the D&A going forward, which saw some increase this quarter?

Anuj Khanna Sohum

On the employee cost, we are basically following our organic growth plan and investing into the areas such as sales and towards enhancing our on-ground presence in emerging markets as well as going for deeper verticalization. Therefore, focusing on teams which are verticalizing our platforms even further to unlock more strategic value so we can drive greater ROI for the advertisers and drive more profitability from those verticals. This is in line with our approach and the strengthening of our moat and backing it up. I want the investors and the analysts to look at is that if the company is ca

My first question to Anuj. I take your point that the emerging market is strong and in developed markets we are facing some macro headwinds but if you see our own numbers, if you see the India segment topline sequentially it has grown at 10% but y-o-y it is more like 20%. We are used to see this number at a much higher 30-35%. Are we really seeing any growth slowdown in India as well at the category level or is it like more like some high base quarter issue?

Anuj Khanna Sohum

The way to look at India right now is certainly on a sequential basis. The reason why I emphasize that is because the headwinds and related issues are primarily sort of common across H1, in Q1 and Q2. When we look at emerging markets doing better vs. developed markets, that thesis can only be analyzed on a sequential basis and not on a y-o-y basis. In terms of y-o-y basis, when you start looking at it and say how come India is only growing in 20%-odd and not 30% or 40% odd. I think there are also India or emerging market-specific issues, which we are quite resilient against any which ways and

Congratulations on a good set of numbers. Just wanted a clarification on what was the reason for the inventory and data cost to come off significantly and can we expect this to be the new normal and the trajectory going ahead?

Anuj Khanna Sohum

To me, the inventory and data cost did not really come down. It just stayed flat as a percentage of revenue while the revenue overall increased 2% y-o-y but emerging markets did better. There is no dramatic trend to take out of it but I do think that there are levers within our hands to make sure that the inventory and data cost can be optimized. Which means we can buy cheaper because the inventory and data cost is what we are paying out. We are buying the programmatic inventory or we are paying for the impressions and clicks. As we get more volume, in terms of the commodity pricing we can pre

I had a question regarding the CPCU. We have seen that the CPCU have been on an upward trajectory for a while now. Given the business models, it augurs well for you as well. But we have been seeing with Meta, Snapchat, etc., that they are losing on the price per ad for a while now be it in the developed markets or in the rest of the world markets for them. How do you see this trend going ahead for you? Do you see that there is some risk to the upside from here? What are the risks that you see and how do you see CPCUs going forward considering that the larger players are losing out on the price

Anuj Khanna Sohum

The fundamental aspect about Affle and you can check the history also. We always have identified ourselves as a consumer platform company. Even though we are a B2B company and we are not direct to consumer, but we still call our tech stack, the consumer platform stack. In essence, I am trying to tell you is that our revenue is coming from the actions that the consumers are taking and delivering almost an assured ROI linkage with respect to performance to our advertisers. When you say price per ad is coming down, that should mean that I should see efficiency in my inventory and data cost becaus

My question is in the light of you indicating - hypothetically being positively disposed to inorganic opportunities in developed markets under current recessionary environment. Will Affle even be looking at organizations like Digital Turbine whose market caps have crashed 80-90% though the revenues may be 4x- 5x as that of Affle. Generally looking at it from a client addition perspective, have discussions at the Board level happened at acquiring bigger companies than Affle?

Anuj Khanna Sohum

I can tell you two things about our psyche. Yes, discussions happen because we are intellectually sharp and alert. Just as you, we are seeing possibilities in the map and we see all possibilities as well, but we are also very mindful of two things. We are executing on a solid track. When I say that I mean that to an external light, it might seem risky that they have operations in so many countries, across some many currencies. But from where I see it, it is just a predictable path of execution that we are on. Now any acquisition that we do add a certain element of risk to it such as risk of in

Thank you very much everyone for insightful questions and a good dialogue. I certainly enjoyed it. I hope it was valuable for you and you have a deeper insight into Affle’s mindset. Clearly for a significant part of our business, we are insulated from the macroeconomic headwinds and the good news is we still have tailwinds in the emerging markets. As far as the economic factors are concerned, there is actually some impact but that is limited and it is quantified so that you can all assess it. But there is also opportunity in there for us. Because a lot of the 21 Affle (India) Limited November

Management

Speaking time

Anuj Khanna Sohum

Moderator

Kapil Bhutani

Bharat Shah

Ashwin Mehta

Shobit Singhal

Rahul Jain

Anmol Garg

Arun Prasath

Abhishek Bhandari

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Opening remarks

Shobit Singhal

Thank you Rutuja. Good morning everyone. On behalf of Anand Rathi, we welcome you all to the Q2 and H1 FY2023 conference call of Affle (India) Limited. I take this opportunity to welcome the management of Affle (India) Limited represented by Mr. Anuj Khanna Sohum, who is Managing Director & Chief Executive Officer of the company; and Mr. Kapil Bhutani, who is Chief Financial & Operations Officer of the company. Before we begin with the discussion, I would like to remind you that some of the statements made in today’s conference call maybe forward-looking in nature and may involve some risks and uncertainties. Kindly refer to slide #26 of the company’s Q2 earnings presentation for a detailed disclaimer. I will now hand over the call to Mr. Anuj Khanna Sohum for his opening remarks. Thank you and over to you Sir!

Anuj Khanna Sohum

Good morning everyone and thank you for joining the call today. I trust all of you are keeping in good health. We achieved robust organic growth in the first half of this financial year, despite the ongoing global headwinds that have impacted businesses globally. We closed this quarter with our highest quarterly revenue run-rate, highest conversions and highest EBITDA, anchored on our Affle2.0 growth strategy, tech innovations and sustainable long-term value creation. Affle delivered organic revenue growth of 29.1% y-o-y, PAT growth of 39.6% y-o-y in Q2 FY2023 and Revenue CAGR of 61.2% in Q2 over the last 3-year period, much ahead of the industry growth trends. Our CPCU business noted a strong momentum delivering 64.7 million user conversions during the quarter, an increase of 32.7% y-o-y at Rs. 51 CPCU rate. In terms of H1 FY2023, we achieved revenue growth of 64.4% y-o-y & PAT growth of 61.4% y-o-y and this was supported by well-balanced organic growth over the first 2 quarters. Our

Kapil Bhutani

Thank you Anuj. Wishing everyone a good day. In Q2 FY2023, the Company reported Revenue from Operations of Rs. 3,546 million, a growth of 29.1% y-o-y. Sequentially, while our overall Revenue increased by 2.0%, we had a significant revenue growth of about 10% in India and similar growth trend in Other emerging markets, on a q-o-q basis. Except for the developed markets, which anyways has a much lower contribution for us on a consolidated basis, our business across Global emerging markets remained resilient, with strong bottom-line growth momentum and margin expansion. Our EBITDA for the quarter stood at Rs. 723 million, an increase of 38.8% y-o-y and 5.3% growth q-o-q. EBITDA margin stood at 20.3% in this quarter vs. 19% in Q2 last year and 19.8% in Q1 sequentially. We are focused on higher profitability and margin expansion. This quarter, our EBITDA margin crossed 20%+ after a 4 quarter period, with Profit After Tax also slightly notched up. In terms of Opex, our Inventory and Data Cos

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