Radiant Cash Management Services Limited (RADIANTCMS) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Radiant Cash Management Services Q4 FY '24 Earnings Conference Call hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Sarvesh Mutha from Antique Stock Broking. Thank you. And over to you, Sarvesh.

Thank you, Ralf. We welcome you all to Q4 FY '24 Earnings Call of Radiant Cash Management Services. We have with us today the entire management team, so Colonel David Devasahayam, CMD; Mr. TV Venkataramanan, CFO; Colonel Benz, COO; Mr. Alexander David, GM Operations; and Mr. Muthuraman, Director, Advisor Strategy and Investor Relations. Without further delay, let me hand over the call to David sir for his opening remarks, post which we can start the Q&A. Over to you, sir.

Thank you very much, Sarvesh. Good morning, ladies and gentlemen. Thank you for joining us today for Radiant's investor call. The year 2023, '24 has been a year of investment and consolidation for Radiant. A demanding and challenging call we had to take in the long-term interest of your company. I would like to highlight 5 key strategic initiatives taken by the company during the year. We have acquired Acemoney to capitalize on the strong growth in the digital payments and complement our cash management business. We have forayed into DBJ segment, that is diamond, bullion and jewelry segment as a large adjacent business opportunity. We have increased focus on our direct clients business and strengthened the team and outreach into these clients, largely serviced by the nationalized banking sector. We had acquired 220 cash vans and increased our focus on Cash Van Operations segment. And lastly, we had launched Radiant Insta Credit, or RIC, leaning heavily on our new acquisition and digital payments, which has enabled us to target a much wider small outlet market. I'm happy to inform that each of these initiatives has matured well, and we are poised for a healthy growth of 18% plus in revenues for the current financial year, in line with our long-term revenue guidance. At the same time, the core business faced certain headwinds last year, specifically Petroleum segment and E-com logistics segment with a drop in volumes and points besides pricing pressure from a few clients. Your company has taken several corrective actions including strident cost control measures, and we are confident of restoring our growth and profitability to a historical trend levels in the current financial year. I'm happy to announce that in keeping with our standard practice of declaring regular dividends, our Board has proposed to declare a dividend of 250% of the face value of equity shares. I would like to reemphasize that in keeping with our standard practice of declaring regular dividends, our Board has proposed to declare a dividend of 250% of the face value of equity shares. Our widest network in the country covering 14,370 pin codes, our strong risk management practices as reflected in lowest cash losses in the industry and a strong technological backbone covering every aspect of our operations remains our core strength. Our performance for this quarter and year ended March 31, 2024, was a mix bag. We have done well in cash van operations with 53% revenue growth, direct clients going up to 50% revenue growth, cash burial 14% growth, but have had muted growth in the core cash pickup and delivery segment. Cash handle for the year was INR 1.67 trillion, representing 6.2% growth over the previous year. As a company, we continue to maintain the highest return on capital and return on equity in the industry. Our Fintech acquisition in the last year, Acemoney, has done very well. And I'm happy to inform you that we have already achieved operational breakeven in this business. This business is poised for excellent growth in the current year. Mr. Alexander David would speak more about it shortly. The diamond, bullion and jewelry segment is undergoing a period of strong consolidation after rapid expansion of its [indiscernible] network last year. The key focus of this business is achieving profitable growth, and we expect this business to be breakeven within the next 2 quarters. Both Acemoney and DBJ would contribute positively to the EBITDA of the company in the current year, which should help restore the company to its previously healthy profitability levels. Our priorities are to restore the revenue growth to the historical trend levels in the current year through additional direct clients and offering a wider range of technological solutions to our clients. The potential for growth is enormous as the doorstep banking services or retail cash management is still in the nascent stages in India. We are excited about the journey ahead. As always, we remain committed to providing transparent updates on our progress and answering any questions that you may have. I will now request Mr. Alexander David to speak about about the progress achieved in Radiant Acemoney. It's over to you.

Thank you, sir. Good morning, everyone. I'm happy to present the update on Radiant Acemoney, our recent foray into the Fintech industry. Since our acquisition in November 2023, Radiant Acemoney has started growing at a rapid pace with a clear target towards increasing its digital footprint of POS machines across the hinterland and offering a wide range of transactions and services to these retail outlets that were hitherto not part of the fast-growing digital economy of India. Over 50% of India's 20 million retail outlets do not have any form of digital payment acceptance as yet, which provides ample opportunities for growth for Radiant. The strong support from the government to bring every individual and every commercial establishment onto the digital banking infrastructure augurs well for our ambitious growth plans. The synergy benefits between Radiant and Acemoney have started to flow as envisaged during our acquisition. Radiant's 7000-plus strong feet on street of cash executors are at the forefront of rolling out the Radiant Acemoney POS machines in remote areas as far as in the Tier 3 locations in Northeast and Jammu and Kashmir. Acemoney's rich experience in Fintech also came in handy in a rapid rollout of RIC by the parent company to tap a much wider market for offering its retail cash management solutions. In terms of financial performance, Radiant Acemoney clocked INR 35 million in revenues for FY '24, representing 110% growth over the previous year and has improved upon its EBITDA level losses. I'm happy to inform that we have currently reached operational breakeven in this business and financial year '25 appears to be a very promising year for both revenue growth and profitability. I will now request Mr. Muthuraman, our Head of Strategy, to present our operational performance.

Thanks, Alex. Good morning, everyone. Thanks for joining us on this investor call today. I will present the company's key performance indicators for the year ended March 31, 2024. During the year FY '24, we handled INR 1.67 trillion of cash, representing 6.2% growth over the previous year. During this year, we added 64 new clients, 104 new end customers and 6,514 new retail touch points. Today, we service close to 70,000 touch points covering 14,300 plus PIN codes across 8,000 plus locations, and we continue to have the widest network in the industry. In terms of sectoral performance, we witnessed strong growth in the petroleum sector, which clocked 54% growth over previous year, largely a catch-up growth. Organized retail, which grew at 27% and BFSI segment, which reported 16% growth. As mentioned in our earlier earnings call, our overall growth was muted due to subpar growth in the e-com logistics sector. Our recent launch of RIC is being received very well in the market and will help improve the subpar performance in this segment. In terms of business verticals, we witnessed healthy growth in cash flow and operations, a 53% growth, albeit on a small base, and network cash management, which grew at 14%. However, the growth was muted in the core business of cash pickup and delivery at 2.2% because of the degrowth in e-comm logistics segment and pricing pressure from a few clients. The mitigating measures taken to address this include stronger focus on direct clients from the untapped nationalized banking sector, which grew at 97% this year and the launch of RIC, which opens up a much larger market for cash management services. I'll now hand over the call to our CFO, Mr. Venkatraman, to present our financial performance.

Thank you, Muthuraman. Good morning, everybody. Coming to the financial performance. The total standalone revenues for FY '24 were INR 3.9 billion, representing a growth of 9.2% over the previous year. EBITDA margin for the year stood at 17.7%. This was an impact of a conscious decision of diversification and growth for just this financial year. I would like to repeat that this was an effect of a conscious decision of diversification and growth for just this financial year. The EBITDA margins are affected mainly because of the losses incurred in the DBJ business, which we entered in July 2023. The initial period of this business was focused on building the requisite infrastructure including branch network, manpower, armored vehicles and its crew. This business has scaled up well and has established its credentials among its key customers. The focus has now moved to achieving profitable growth and the management is confident of achieving breakeven and have positive contribution from this segment in the current financial year. The other key reason for the drop in margins is the Cash Van Operation segment. Though this segment has grown at a healthy pace of 53%, the profitability in this segment is still not reflected fully as we are still in the deployment phase of the 220 vehicles acquired by the company during the year. As can be observed, expenses in DBJ business and cash van operations are in the nature of investments and prerequisite for strong future growth of the company. We expect margins to improve further in the coming quarters because of the measures taken by the company. The return on capital employed for the year was 22%. Investment in cash vans to the tune of INR 240 million during the year and the drop in EBITDA margins as discussed earlier, have contributed to a reduction in ROCE. Return on equity for this year was 17.9%. I would like to highlight that the ROCE and ROE for Radiant continue to be the highest in the industry because of our strong and clean balance sheet, high fixed asset turnover ratio and strong working capital management. I would like to add that our cash flow from operations is more is INR 46 crores for the current year, more than the PAT for the current year. This indicates a level of very high efficiency in working capital management. In conclusion, the year has been one of expansion, diversification and investment in complementary areas with significant growth opportunities with new initiatives, as highlighted by CMD in his opening remarks. We are building new long-term levers for growth with a more diversified revenue profile and robust profitability. I now hand over the floor to Sarvesh for questions and answers.

[Operator Instructions] The first question is from the line of Ankit Kanodia from Smart Sync Services.

Congratulations on good numbers on retail touch points, which we have increased in the last quarter. So my first question is related to the retail touch points on the [indiscernible]. In Q3, we had a tepid growth, but in Q4. So is it something seasonal? Or have we done something different in Q4? Or how do we look at this number in the coming year, directionally?

Yes. Thanks, Ankit. We have been consciously looking at opportunities for entering newer markets. As I just mentioned, our direct revenues have grown by almost 97%. All of these have added new points. And as CMD mentioned, the market opportunity is huge, and the level of penetration of these services is very small. So we are confident of adding gross additions of about 1,000 points every month in the coming year as well.

Okay, got it. Sir, in the presentation and also in the opening commentary, we mentioned about 2 areas where we had some problems. One was the e-comm logistics, which we, I think, alluded in the last call as well. But I think this is sort of first time we have spoken about Petroleum segment. Can you give more color into what happened in the Petroleum segment?

Yes. So this was a onetime sharp reduction in volume that happened in later half of Q1 and second half of Q2. Because of the Ukraine war, the domestic refiners diverted their refining capacity towards exports rather than domestic markets. So that affected the overall volumes sharply. But subsequently, since Q3 onwards, we have been reporting healthy growth in this segment. But still for the full year, our revenues are still lower than what it was in FY '22. And we are almost there -- almost 80%, 85% catch-up has happened, and the segment continues to grow well.

And sir, regarding this Acemoney acquisition, and as we have mentioned in the opening remarks that the synergy is taking place and there was some really good growth in the last year, in FY '24. But in terms of numbers -- I don't see an exact guidance. But in terms of numbers, how do we see this business contributing in FY '25 and FY '26, in percentage terms, if you can mention of total turnover, where it would be?

Yes, I'll take that on. Acemoney, we've had a 110% growth over the previous year. And in our previous earnings calls, we had mentioned that we are looking to distribute over 1 lakh POS machines over the next 2 years, and we are well on the way of achieving that. So that should contribute to a steep growth in revenue in the coming financial year. As we already mentioned, we have already broken even operationally, and profitability also should be in line with that. So we can't put a number on percentage, but that should be -- we are definitely going to be seeing a steep growth in revenue over the coming year.

Is it okay to assume around 20% of the total revenue would be contributed by Acemoney in the next 2 years?

No, I think it will be a smaller number than that because the core business also we expect to grow at a healthy pace. It will be 10% plus or minus.

And sir, one last question related to the direct client initiative, which we have taken up consciously in the last year. If you can throw more color as to how we are progressing and what are our plans in FY '25 and FY '26. That could be very helpful.

I'll step in on this. Direct clients, we've been focusing on -- 67% of the clients are covered by the nationalized banking sector. And the penetration as far as retail cash management in this segment is very less. And there are quite a few clients who are being serviced by the sector. So therefore, we are focusing on these clients who are being taken care of by the nationalized banking sector. And we are bringing them onboard, now that we are a listed entity, as direct clients. So that's an area of focus for us.

Any particular customer segment or industry segment we are focusing on.

This is highlighted by our Head of Strategy.

Yes. Sir, any particular industry segment we are focusing more on when you are looking at direct clients? Any few industries we are focusing more on?

See, the large potential do exist in jewelry, petroleum and healthcare sectors. But this is a -- as you can see in our own revenue profile, everywhere, wherever there is a daily cash collection, it's a potential market. So the market is fairly large, and we are not restricting to targeting any specific clients, we're going all out on this.

And one last question before I join in the queue. For expanding this direct client business, do we plan to onboard more employee strength? Or do you think that the current employee strength is good enough to handle this work?

No, we are building a sales organization for this focus shift.

The next question is from Divyanshu Mahawar from Dalal & Broacha Stock Broking Private Limited.

I just wanted to know about the retail opportunity. So in the [indiscernible] survey, if we look at -- India has total 40 lakh retail touch points, organized plus unorganized, and out of 6 lakhs are organized. And out of 6 lakhs, 150,000 are using outsourcing services, so what kind of growth you are seeing that the 150,000 will grow from here? And what kind of market share you are looking for there that you want to capture from it?

The numbers you have indicated are quite conservative. I think we are not just looking at only organized retail. We are looking at every form of retail outlets, including restaurants and educational institutions, hospitals, pharmacies, whole host of them. As in our own estimate, based on third-party research, close to 20 million mom-and-pop stores, to roadside vendors, to large organized retail outlets, 20 million are there. 25% of that would be eligible to use the service of this nature is our estimate, market size estimates, which is like 5 million, but all the players put together hardly handle less than 200,000 outlets. So the growth potential is huge. Historically, we have grown at 18% plus CAGR, and we don't see any problem in continuing to grow that number.

The next question is from Vikas Kasturi from Focus Capital.

So I had a few questions. So one is, could you please provide some description on the cash logistics that you do? We are 2-wheelers for example, number of 2-wheelers that you deploy and the percentage of cash volume that is transported and where do you use 2-wheelers and where do you use the van? Some idea on this, please.

See, there's a phased rollout as directed by RBI to the banks on the movement of cash only through van. And banks adhere to that, and in turn, as service providers, we adhere to this plan. So as of now, it's about 120 cities where RBI has rolled it out, which covers almost like 80%, 85% plus of the cash volumes. So even before RBI's plans, almost more than 85% of our cash by volumes are transported by vans. So in Tier 3 plus remote locations where the volumes are small, we transport as per the Ministry of Home Affairs guidelines.

To add on to what Muthu has said, maybe even in very densely congested areas, where taking a van maybe difficulty, we could probably use [indiscernible] model to pick up some cash. But as he mentioned, even before implementation of this, we were about 84%, 85% of the total volume of cash was moved by cash vans.

Next question is what percentage of your 840 vans are in the cash and transit business versus the cash pickup business, sir?

Yes. Our cash van operations today is roughly about 150 vans.

Okay. And sir, could you also just provide some description of the DBJ business as in -- would it be air logistics or air plus ground logistics, some idea of like where you're moving the jewelry from? From where to where kind of a thing, sir, could you just help me understand that.

Sure. So that business has both ...

Sorry, sir. Sorry to interrupt. And can you transport cash and DBJ at the same time in the same van, that also, sir, yes.

At this point of time, we have kept DBJ and retail cash management as independent business verticals. We do have some synergies in terms of branch operations, but otherwise, the vehicle infrastructure. The transport infrastructure is independent between these 2. Over a period, we can look at synergies, but being an early and new entrant into this segment, dedicated focus is required, so that's the implementation at this point of time. This segment involves both surface transport as well as air transport, roughly half of our business is from surface and the other half is from air cargo. And so the movement is on various legs. One is from the import ports to the manufacturing units. Second is from manufacturing units to hub like Zaveri Bazaar, Bombay. The third leg will be from hubs to the actual jewelry retail outlets spread across the country. So all 3 legs are handled, roughly about maybe up to 250-kilometer radius is by surface transport and beyond that is through air cargo.

One last question, sir, to our CFO. Sir, could you just throw more light on what constitutes these other expenses?

Yes, other expenses mainly consist of service charges for the cash executives, the van/vehicle expenses, the driver and gunman costs and power and fuel and all other expenses, like all major items as bank charges. Bank charges also forms a major component of that. These are the 5, 6 major categories, consisting of other expenses.

The next question is from Aditya Sen from RoboCapital.

Sir, we have fallen down from our peak EBITDA margin significantly and the reasons you have already stated. So I just wanted to know in how many quarters or in how many years will we inch up towards the previous highs of 28% to 30% EBITDA range.

Yes. We expect that in the current year, we should be able to -- in the third and fourth quarter of this current year, we should be able to revert back to historical levels.

Of 28%, 30%?

Historical levels, I think FY 23%, 25%, yes those numbers.

The next question is from Aravind R from Sundaram Alternates.

Like obviously, you mentioned about the investments we have made in DBJ business and the employees to operate the direct sales and multiple investments we have made in FY '24. How to visualize the investments or expenses in FY '25, Like what could be the run rate of employee or other expenses in FY '25?

See, this year, the employee cost was higher because of the reasons stated above. Because of new additions in the DBJ business. And also, we have made some addition to employees to cater to the increased business in future. But in FY '25, we expect the employee cost to come back to the '22, '23 levels.

So you mean in absolute terms or growth...

No, as a percentage of sales.

Okay. Okay. And I had another question, within the breakup of the businesses we do put in the presentation, I can see that except at BFSI and organized retail, all other businesses have reported negative growth in year-on-year terms. I'm just trying to understand what makes us believe that the growth will come back? How are we hoping to -- which segment would come back? And even the e-commerce segment growth has been weak -- year-on-year terms, it has been negative 3.5%.

No, no. E-commerce segment has grown. There is negative growth only in e-comm logistics and near-flat growth in railways. All other segments have grown at a positive rate.

Because you give percentage numbers. I Was back calculating it. I'm seeing like -- sorry, INR 14 crores and INR 13 crores in FY '24.

For example, railways. Railways was INR 10.6 crores in FY '22, about INR 14.5 crores in both FY '23 and '24. Organized retail, INR 32 crores in FY '22, move to INR 54 crores and further to INR 68 crores.

Sir, obviously, e-commerce on a year-on-year basis -- on the full year, it has grown. I'm not denying that. I'm asking about fourth quarter 2024 versus fourth quarter 2023.

Always we had Indicated this e-commerce -- see our business is seasonal. Q3 is the best quarter followed by Q4, followed by Q2 and then Q1.

In year-on-year terms. I understand that Q3 to Q4, there would be decline?

There is no decline in e-commerce business year-on-year from FY '22 to '23 or '23 to '24. E-comm Logistics, yes, there's a decline, but not in e-commerce, not in petroleum, not in BFSI, not in organized retail.

The next question is from Disha Gandhi from Motilal Oswal.

I wanted to understand a little bit more about the RIC business and how it has progressed so far? And what are your plans in the future?

I'll take it on. The RIC business. Essentially, one of the reasons why we acquired Acemoney was, we wanted to also get into the digital payment ecosystem and align it with cash logistics. So with that, we are now able to service a large number of clientele at the extreme hinterlands and the client profile has completely changed as a consequence in terms of business correspondents, small-time merchants, whom we are able to service using our digital solution that's available from the acquisition.

RIC is also helping us in regaining our lost market share in the e-comm logistics...

We are focusing on e-comm logistics, so that has also been reinforced by this new system that we brought.

Sure. And in terms of the plans going forward, is the same strategy that we'll continue or do you see more traction coming in from the hinterland? Or is there a similar service application need in the other markets there you are present currently?

As of now, we are exploring what all opportunities are there and how to take this forward. But it's an exciting new area, and we are looking at it very closely. It's going to have a very substantial contribution to our revenue performance in the coming years.

Our next question is from [ Prashanth Pandarathil ] from [indiscernible] Investment.

My question is around this segment. So on the investor presentation, it's clear that the trend is, the segment revenue is shifting from cash pickup and delivery to the other segments like network cash management, cash processing, et cetera. So how would this have an impact on the -- how is the margin profiles of the other segments compared to the cash pickup and delivery and how do we think the profitability part there would be -- once the cash pickup delivery goes down and other segments pick up?

Okay. See, our cash pickup and delivery is the base on top of which network cash management, cash processing, et cetera. Yes, it has grown slower and hence, the composition of the segment-wise revenues look a bit skewed at this point in time. As I said, in any of these strategic initiatives that you are looking on direct sales, on RIC, [indiscernible] will help grow our core business of cash pickup and delivery. And on top of it, the other businesses will continue to grow. So we cannot -- again the sense that is -- the cash processing or network cash management cannot operate on a stand-alone basis without the core business of cash pickup and delivery. So there's no point -- in a sense, we cannot proportion cost to view margins individually like that. But yes, the low growth in cash pickup and delivery is one of the reasons why our margins have come down. As I said, that is particularly so from the e-commerce logistics segment.