FINOPBNSENovember 04, 2022

Fino Payments Bank Limited

9,424words
90turns
15analyst exchanges
4executives
Management on call
Rishi Gupta
CHIEF EXECUTIVE OFFICER – FINO PAYMENTS BANK LIMITED
Ketan Dhirendra Merchant
CHIEF
Anup Agarwal
FINANCIAL CONTROLLER – FINO PAYMENTS BANK LIMITED
Rajat Gupta
GO INDIA ADVISORS
Key numbers — 40 extracted
rs,
s that we are on the right path and the right direction. The way we have grown in the last few years, especially during the last few quarters of macro issues, has given us more confidence that we'll b
25%
deck, we continue to deliver very strong revenue growth. In quarter 2 FY '23, our revenue grew by 25% over last year and we are confident of growing at 25% over the next few years as well. Additional
INR 30.5 crore
dditionally, this was one of our best quarters in terms of profitability as our EBITDA came in at INR 30.5 crores, which grew 71% on a year-on-year basis, and our PAT came at INR 13.8 crores, which grew at 75%
71%
our best quarters in terms of profitability as our EBITDA came in at INR 30.5 crores, which grew 71% on a year-on-year basis, and our PAT came at INR 13.8 crores, which grew at 75% on a Y-on-Y basis
INR 13.8 crore
ur EBITDA came in at INR 30.5 crores, which grew 71% on a year-on-year basis, and our PAT came at INR 13.8 crores, which grew at 75% on a Y-on-Y basis. Our net revenue margin, which is a very important parame
75%
rores, which grew 71% on a year-on-year basis, and our PAT came at INR 13.8 crores, which grew at 75% on a Y-on-Y basis. Our net revenue margin, which is a very important parameter for us, our net re
30.3%
revenue margin, which is a very important parameter for us, our net revenue margin increased from 30.3% to 30.9% in this quarter. Correspondingly, our net profit margin improved from 3.5% to 4.6%, not
30.9%
argin, which is a very important parameter for us, our net revenue margin increased from 30.3% to 30.9% in this quarter. Correspondingly, our net profit margin improved from 3.5% to 4.6%, not only on b
3.5%
creased from 30.3% to 30.9% in this quarter. Correspondingly, our net profit margin improved from 3.5% to 4.6%, not only on better revenue margin, but also on account of better cost controls. We con
4.6%
from 30.3% to 30.9% in this quarter. Correspondingly, our net profit margin improved from 3.5% to 4.6%, not only on better revenue margin, but also on account of better cost controls. We continue to
12.2 lakh
our distribution network. That's the foundation, which we are building. Total merchant network at 12.2 lakh ending quarter 2 FY '23 was sequentially at 7% higher. Our digital footprint continues to expand,
7%
we are building. Total merchant network at 12.2 lakh ending quarter 2 FY '23 was sequentially at 7% higher. Our digital footprint continues to expand, which grew at 208% on a year-on-year basis in
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Guidance — 20 items
Rishi Gupta
opening
“We also believe that through cross-selling, these products will be able to boost our profitability.”
Rishi Gupta
opening
“Additionally going forward, we are confident that we'll be able to further improve our cost-to-income ratio.”
Rishi Gupta
opening
“That's a substantial 10% growth on the overall revenue on CASA and CMS, which is in line with our guidance which we have been sharing in the past.”
Rishi Gupta
opening
“We maintain a strong growth outlook and our aim to achieve 2 million distribution points, 20 million CASA customers, double the wallet share on active customers to INR 1,000 per customer and increase digital footprint over the next three years, four years that is the goals, objectives on which we are working on.”
Rishi Gupta
opening
“The journey ahead looks exciting as we aim to continue the momentum and explore growth opportunities.”
Ketan Merchant
opening
“We are delivering the growth of 25%, which we had mentioned in terms of guidance, and H1, we had seen a growth of 32%.”
Shreya Shivani
qa
“And overall, if you can tell me for the financial year FY23 if you have any guidance on what kind of gross margins or PAT margins can be build-in, because for both -- for the first 2 quarters, we have had a gross margin of 30.3% and 30.9% now, which is sort of behind the kind of trends we used to have earlier, which could be 33%, 32%, right?”
Shreya Shivani
qa
“So if you could give us some guidance about the full year margin?”
Shreya Shivani
qa
“And my last question was on the margin guidance, Ketan?”
Ashish Kumar
qa
“So when do you expect us to kind of cross a 15%, 16% ROE threshold?”
Risks & concerns — 6 flagged
The way we have grown in the last few years, especially during the last few quarters of macro issues, has given us more confidence that we'll be able to navigate through any uncertain environment.
— Rishi Gupta
If I move on to Slide Six and Slide Seven, you can see the growth we have seen over the last couple of years, including half yearly and quarterly performance and our operational efficiency has led to continuous decline in our cost-to-income ratio.
— Rishi Gupta
We saw a margin compression because the share of the open banking channels has relatively increased on a Y-o-Y basis.
— Ketan Merchant
These are risk-free G-Sec investments, and there is a natural spread of anywhere in the range of 60 to 80 basis points as well.
— Ketan Merchant
But in the current environment where the interest rates have become so volatile, do you not see that the risks have been gone up or is there an MTM loss that we have had?
— Ashish Kumar
So there has been a stress testing, which was done as well, and we had a good cushion when the entire thing has done.
— Ketan Merchant
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Q&A — 15 exchanges
Q
I have three questions. My first question is actually on the number of micro-ATM in the industry. So basically, I went and saw that RBI has revised all their historical data on the number of mATMs in the industry, and like I understand that there was a market share loss which was happening, but overall, also the market share now looks lesser than what the earlier RBI data had. So if you can help us understand what exactly happened over here and how have historical data of past two years, three years been revised. First is that. Secondly, in your CASA, while your subscription and renewal income
Rishi Gupta
Thank you, Shreya, for your question. See this RBI data on market share, I have not seen that data. And let me see the data and probably I'll come back to you on that, because we have to understand the parameters RBI has taken in their revised calculation. So we'll come back on that. As far as your CASA subscription, SMS and other charges are concerned. As you can see, the CASA numbers are growing, as well as the numbers on the renewal itself has grown substantially. Now CASA constitutes 18% of our total revenue. And CASA renewal has grown by 1.5x on a year-on-year basis. So what is your quest
Q
Congratulations for a good job done. So I had only one question. We see a borrowings number of around INR 700-odd crores in the balance sheet. Given the fact that we are largely -- or we are a payments bank, why are we kind of carrying this kind of borrowings? Classification: Internal Classification: Internal
Ketan Merchant
Ashish, thanks for this question and it's a very good question. Whilst we keep on canvassizing ourselves as a transaction bank, and which is what we are, wherein 95% plus of our revenue comes from fee income. At the end of it, along with our banking license, we have some leeway in terms of overnight borrowings. If you see, yes, the borrowings are INR 700 crores. But if you see on the asset side, you will see that investments are essentially INR 1,200 crores. So there is an opportunity, which we have got that where we have borrowed and we have also done G-Sec investment. These are risk-free G-S
Q
So good question. So when I look at the CMS business, and we have roughly 161 clients and you can see the number has grown substantially over the last one year. Our CMS throughput has also crossed INR 10,500 crores, which is a 94% growth on a Y-o-Y basis. Now it constitutes roughly about 8% of the overall revenue for us. For us, what is important and Ketan mentioned in his speech in terms of the diversification, which we are focusing on the CMS side. At one point, our NBFC and the NBFC MFI portfolio was roughly about 85% to 90% of the overall number. Now that number has come down to roughly ab
Rishi Gupta
So right now, it is more of a -- stage -- in the pilot stage itself. So once it gets rolled out, then we'll have to look at it. But we had seen the star 90, star 9 feature also, which came out a few years back. Feature phone usage for payments is still not very easy, comfortable mode like smartphone. But we will have to see how the results of the pilot goes by and then we'll be able Classification: Internal Classification: Internal to come back. Maybe another few quarters it will take for us to see how it will feature. The USSD experience, did not go that well on the feature phone side. But if
Q
Just a few of again. I wanted to understand, let's say, if we were to look out -- look for almost like, let's say, six to eight quarters out, how should we vision our revenue mix? I mean, clearly, our growth drivers are kind of changing? And given that CASA and CMS both are now reasonably sizable in the overall revenue pool, so how should we look at the revenue mix going forward?
Ketan Merchant
Umang, thanks for the question, Ketan here. I think let's just do it in two aspects. One is we've said that on an overall basis, we try and grow by 25% and we are on essential track out there. You are absolutely right that we are -- the base of CASA and CMS are increasing it off and in the past we've seen a growth of 97% or 86%. With the higher base, definitely, this kind of growth will not come in. However, in our anticipation, we are looking at anywhere in the range of 35%, 40% plus kind of growth on a sustainable basis over the next eight quarters. This may also be in a manner that in the i
Q
I just wanted to check in this the CASA accounts that we opened up, between the subscription based, and having our own CASA-based accounts, does it now -- given the fact that the interest rates have moved up by almost 200 basis points and we're more at normal. Does it make more sense to have those CASA customers as our own customers? Or does it make sense for us to still pass them on to another bank on a subscription-based?
Rishi Gupta
So in this -- sorry, let me just clarify, Ashish. Whether you -- whether it's a new CASA customer or a subscription, this is our own customer only, because subscription means that is in the second year, new means is first year. So that's the only difference with the second and third year, maybe fourth year, but that's the only difference. So whether you look at new CASA subscription, they are our own customers, whatever we opened for another bank comes under BC income. So those numbers are not included there. It's good you pointed it out. So let me clarify for everybody on the call. The CASA n
Q
I have a few questions. One is can you just share where are you just in terms of realization on a CASA account right now. And --
Management
Q
Chandra we are not able to hear you.
Management
Q
Actually, I have three questions, one is when you mentioned your CASA income; does that also include the interest income, which we earn on the customer balances?
Rishi Gupta
Yes. Kamal Khatri What's your plan on the BC income? We have seen that it is reducing from quarter-on-quarter. So what's the long term plan on that? And I was also seeing your employee cost has reduced. It has reduced marginally, but what is the reason for reducing the employee cost? Yes. So Ketan, here, I'll just take your question in maybe the reverse order first. There has been a reduction in the employee cost, a marginal reduction. As we said, we are working on the operating efficiency kind of a thing. We have had a reduction of around 80 people in terms Classification: Internal Classifica
Q
So on the realization is roughly around INR 360 to INR 375 per account, which is there on the show. On an average, if I include the subscription and non-subscription put together, will be around INR 325 or so. And on the renewal rate, as you mentioned, we are at about 60% odd in terms of recovery on the renewal side from the CASA, from first year to the second year and the year onwards. I hope it answers your question. Chandrasekhar Sridhar Yes. And do you think some talk which you made that you're kind of sort of thinking of a small finance bank license, I don't know what your thoughts are on
Rishi Gupta
So there has been a lot of discussions we have been doing on this as such from a small finance payments bank to small finance bank. And if I review from a lot of bankers as well as RBI angle it's a natural transition, which is there. From a business sense point of view, it makes more business sense as it enhances our product bouquet. So we look at payments bank to SFB as an enhancement of a product bouquet rather than a lending bank per se. So there's a big difference in the thinking. Classification: Internal Classification: Internal We are a transaction-focused bank. Our 100% income comes fro
Q
So my question is on the borrowings and the subsequent investment. Classification: Internal Classification: Internal
Management
Q
So my question is on the borrowings and the subsequent investments you are making from that borrowings. So what is the kind of expected returns from those investments? And what that is the worst case and the best case return you expect?
Ketan Merchant
Yes, Rahul. I'll try and answer those as well. But let us actually reiterate it off what Rishi and I mentioned earlier as well that we are a transaction-led bank. We have a regulatory license, which gives us a leeway, but that is not our primary business. We are having some opportunities, which we will try and use it off. Now coming to the question, what is the kind of return, which is expected it out of this? We are anyway looking at somewhere around a spread of 70 to 80 basis points, which I had earlier said it up. In certain cases it was -- earlier it was also in the range of around 150 to
Q
So just wanted some more information regarding the 10% acquisition in PaySprint. Sorry, if I mistook the name. Just curious as to how you're integrating that into the current stack and how you all are going about it? And if there are any plans on further increasing the stake based on performance or any such parameters?
Rishi Gupta
So in the case of PaySprint is an entity which is building up an API stack. We have a substantial business from that. I'll just share the numbers. I'm getting it from my team. So we'll -- in terms of how much business we have done through PaySprint. We are also doing some technology development through them. We have done our first tranche of disbursement as Classification: Internal Classification: Internal such. Looking at the performance, we may look at second tranche also by March, which is there. Our total holding will be about -- 12.9% is the maximum holding which we are looking at. In thi
Q
My question is basically on the product distribution business, basically third-party product distribution business, which is something like loan referral than third-party insurance product distribution and third-party mutual funds or distribution. So how is that business is shaping up presently, sir?
Rishi Gupta
So on the third-party products, we have been doing loans on graph of banks and NBFCs in the last few years. We on an average, you should do around INR 100 crores of loans for a bank. On top of it, we have started to also offer consumer loans as to the dealers and merchant loans also. We have seen that there is a jump of roughly 47% in the quarter 2 over quarter 1 from INR 40 crores to INR 57 crores if I get the numbers correctly on our lending piece. Insurance, we -- from INR 40 crores to INR 59 crores, there's a 49% jump on our lending, which includes the gold loan as well as the other loans
Q
Congratulations on the excellent results to Fino team. My question is as follows. I believe there are some reserve merger plans from the parent company, PayTech versus payments bank. Could we get a state update on that? Classification: Internal Classification: Internal
Rishi Gupta
So as per the regulation after five years of completion of the bank, we -- there is no promoter holding restrictions on Fino PayTech. So the plan to merge with Fino PayTech and Fino Payments Bank is definitely which is there in our Right now, we have not taken any internal approvals or applied to the regulator on the same. Whenever we will do, it will be noted to the stock exchanges.
Q
Thank you, everyone for your participation today. As you can see, a lot of hard work has started to give us better results both on the margins as well as revenues. Our strategy around diversification, adding more businesses on the ownership side has also started to give good results. The cost controls, the operating leverages have started to benefit us. And as we go forward, you should see better numbers coming from Fino in quarter 3 onwards, whether it's on the margin or on the cost controls and on the revenue side, so thank you for participating again, and stay invested. Thank you.
Ketan Merchant
Thank you very much.
Speaking time
Rishi Gupta
28
Moderator
17
Ketan Merchant
17
Ashish Kumar
10
Shreya Shivani
4
Umang Shah
4
Rahul
3
Prasad Kulkarni
2
Rajat Gupta
1
Chandrasekhar Sridhar
1
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Opening remarks
Rajat Gupta
Yes. Thank you, Faizan. Good afternoon, everyone, and welcome to Fino Payments Bank Limited earnings call to discuss the Q2 FY '23 results. We have on the call with us today, Mr. Rishi Gupta, Chief Executive Officer, Mr. Ketan Merchant, Chief Financial Officer, and Mr. Anup Agarwal, Financial Controller. 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. I 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 to 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. This quarter makes us the 21st quarter old in our banking journey, and I'm amazed to see the progress we have made over these past few years. Our vision was to make financial services to the last mile through technology-enabled solutions. As a bank today, the vision remains the same with focus on growth and profitability. I would like to express that with each passing quarter, our confidence increases that we are on the right path and the right direction. The way we have grown in the last few years, especially during the last few quarters of macro issues, has given us more confidence that we'll be able to navigate through any uncertain environment. Over the years, we have created relevant products to service our customers. Our products like, domestic money transfer, micro-ATM, Aadhaar enabled payment systems, make banking easily accessible to the lowest set of the populatio
Ketan Merchant
Thank you, Rishi. Good afternoon, ladies and gentlemen. As Rishi mentioned, this is a very strong performance and a strong quarter for the company as a whole. Our financial performance was driven by strong operational performance and is a result of investments which we have done over the past five years in the business model. Again, as Rishi mentioned, this quarter 2, we have completed almost 21 quarters of operations. However, point to reckon out here is, with 11 of those quarters have shown consistent profitability since the time we had broken even in quarter 4 FY '20. The unique thing about this journey has been the way we have evolved our customer relationships and our strong focus on customer ownership. You will see our focus on these aspects when I dwell into each of the segments. Starting with CASA, Rishi has mentioned about our CASA journey as well. And I draw your attention on Slide 24 of our presentation. Our customer acquisition rate is on massive rise. This not only generat
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