Choice International Limited analyst Q&A

Thank you very much. We will now begin the Q&A session. The first question is from the line of Jai Chauhan from Trinetra Asset Managers.

I just had a question. How much in-capital revenue are you expecting per new branch and what is the revenue per branch at FY25 and what is the target for FY26 for revenue per branch? if you track that, can you please give some insights on that?

It all depends on the seasoning of the branch , how much know vintage has been there for a branch. Of course, we track the profitability at each branch level. From the revenue perspective, it will largely depend on the seasoning. Based on the geography of the branch, there are various categories for each branch, A, B, C, D, etc. Accordingly, the revenues vary from geograp hy to geography. On a general mindset, to comment on, there is a six-month timeline for a branch to reach break-even levels.

Understood. Actually, I wanted to get more insights on the unit economics. But s ir, as you mentioned, I just wanted to get more insights on what is the product mix like broking, lending versus bank you are seeing from these newer locations compared to your more established ones?

Our major revenue contributor is as on date equity only. If you see our branches, almost 85% revenue comes from the broking business, 10% come s from the wealth product and 5% only from the lending side. Our NBFC branches more or less are independent branches and equity branches sell more or less all the products. So, revenue contribution is 80% from the broking and distribution, around 15% from the wealth product and balance from others.

Understood. So, NBFC branches are independent and the rest of the branches shares all the services, right?

Yes. That's right.

Got it. Just one last question. What are some digital marketing strategies that you are doing to onboard Tier 3 clients? Do you have any comments on that?

Largely, so far, we have been onboarding Tier -3 and Tier-4 clients by way of our physical approach, where we onboard branches, we do ground-level marketing, and onboard customers from these clusters. Of course, yes, we do have a digital marketing team, but the overall contribution of digital marketing is qu ite low at the moment. The largest contributor is the physical expansion of our branches.

Got it. That's all from my side. Thank you.

Thank you for the opportunity. I have two questions. Your revenue grew by 16% YoY, but there is a decline in QoQ. Is this a seasonal or one-off event, and what led to the dip?

This is a general trend in business because Q4 is always heavy because of various contests and various other business growth activities which we do in Q4. Moreover, generally, in the investment segment also, people tend to plan their investments in Q4 because of tax planning as well. These are the kinds of reasons why Q4 is higher and Q1 is usually lower. So, it's a cyclical kind of thing. There is no one-off event in this particular quarter.

Got it, sir. What's the growth roadmap and which vertical will be the key focus area in the coming future?

On the growth perspective, we expect on a Y oY basis is to maintain a healthy growth rate of around 25% to 30% for the next 3-4 years. On the business verticals perspective, we foresee broking continue to grow as it is growing, as well as insurance increasing their contribution in the overall broking segment . W e have recently acquired Arete Capital , which has a larger expertise in wealth management space. So, we expect that segment also as coming out as a separate vertical out of the broking segment.

Got it, sir. That was really helpful.

Thank you. The next question is from the line of Nakul Dev from ND Investments . Please go ahead.

Thank you for the opportunity. First of all, congratulations on a very good set of numbers. I had a couple of questions regarding the consultancy business which is doing quite well. Firstly, the advisory segment order book stood at Rs. 586 Cr. Can you share the execution time period and revenue conversion plans for this order book? Also, this quarter we have won two orders worth Rs. 63.5 Cr, including the World Bank -backed MahaSTRIDE project and a top -rank bid in Odisha. If you could elaborate on the nature of these projects and their potential margins and execution timeline. Do we have plans t o demerge this vertical going forward? These are my questions.

Nakul, as far as revenue is concerned for Rs. 586 Cr order book, normally it takes around 24 to 36 month time to book the revenue. In terms of Maharashtra and Odisha project s timel ine, \Maharashtra project will take 5 years of time as it's a 60 month project and Odisha is 2 year project. So, total revenue for Maharashtra project will be booked in next 5 year time and Odisha project will take around 2 to 3 year time. As far as the demerger of this activity is concerned, as of now, it's not in our plan. We are purely focusing on business growth and getting the major numbers. As of now, there is no plan in terms of demerger or disengaged services. As far as margin is concerned, in gov ernment advisory practice, our margins are around 22% to 25% tentatively and it' takes almost 2 to 3 years time to book the revenue.

Okay. Yes. That answers my questions for now. If there's anything else, I'll get back into the question queue. Thank you.

Thanks, Nakul.

Thank you. The next question is from the line of Nikita Shah, an Individual Investor. Please go ahead.

Yes. Thanks for the opportunity. I have one question. I actually wanted to understand the way forward for the stock broking business. There is a lot of competition now from discount brokers and even other large traditional brokers. So, how do we plan to grow this vertical and retain our clients and also expand or get more clients on this?

Thank you, Nikita, for asking this question. This is very important to understand that, as you rightly pointed out, there are discount brokers, physical brokers, full -service brokers like us, as well as the bank brokers in the market. As the regul ator has started being more strict on the compliance perspective, the cost of operation for the discount brokers has started increasing. We have seen instances where discount brokers have also started increasing the charges. So, this clearly lays out the way forward that ultimately everybody will start charging the cost. Now, it will be the game of service who is providing what level of service to the client, especially in the Tier 3 and Tier 4 geographies. We foresee a very healthy competition, if a discount broker also starts moving towards the physical kind of model. But until then, we don't see any particular challenge in our healthy growth, or we foresee to grow continuously as we are doing over the last five years.

Yes. Okay. In the insura nce broking business , how do we account for the income from this business? Is it commission -based or what is the percentage we get here? How do we share it with the brokers?

In case of insurance, we do get payout from the insurance companies. That's the revenue for the insurance broking company. Also, there are certain POSPs through which we do originate clients and there are revenue sharing arrangements for each POSP, depending on the level of business they are originating.

Okay. Got it. Lastly, what is the status of the AMC business? We have got approval from SEBI to launch the mutual fund; when can we expect the operations to begin? Any products you have in mind, initially what focus will you have?

Nikita, last week the final visit was done by SEBI for the final approval. Initially, we got the in- principal approval from the SEBI. We are expecting the final go ahead from the next one-month time tentatively. Before Diwali, tentatively, we are planning to launch our first fund.

Okay.

Okay. Thank you, sir. That will be all from my side.

Thank you. The next question is from the line of Shashank Venugopal from Venugopal Family Office. Please go ahead.

Thanks for the opportunity. Can you elaborate on the Choice Business Associates network? We have not seen something like this in other brokers. I just wanted to understand how this works . Do we give them a fixed commission or how it works? How do we manage receivables from the government business?

Thank you, Shashank, for joining in. We started this network in 2019 and our larger focus is again in Tier 3 and below geographies where we onboard Choice Business Associates. Think of a situation of a Tier 3 city where one individual is doing a practice of, let's say, GST consulting. He has clients for whom he is filing the GST returns. Now, we onboard them as CBA. We train him and we equip him to be able to sell the financial services products, and he starts selling these products to his existing clients and gradually starts onboarding new clients. This is just one of the examples. Think of a scenario where there are insurance agents in these kinds of geographies. We onboard them as CBAs and train them to sell other products also, including demat accounts, including mutual funds, SIPs, etc. So, these are the kinds of examples who are the CBAs and working for us. We onboard them, train them and equip them to sell other financial services products and this helps them to grow their own revenues as well as grow the business for us. There are various levels for which the CBAs are working o n. According to their level of business, there is a specific payout percentage for each prod uct specifically. Let's say, there is level A, which is on the top, and level C, which is the number 3. So, payout for level C will be different, level A will be different. This way we are growing this particular distribution network.

The next question is from the line of Nayan Gala from Ertica Wealth. Please go ahead.

Thank you for the opportunity. Just had a couple of questions. One was from the NBFC business point of view, just wanted to understand on the outlook of the business. Also , which states we are currently present in and how do we plan to expand our reach in terms of the number of states? What is the strategy to acquire more clients under this vertical?

Currently, we are operating across Rajasthan, Gujarat, MP, Delhi NCR, and some part of Maharashtra as well. There are 75 branches across all these states through which we are doing the business in the NBFC vertical. In N BFC, there are three major products where we are focusing on. First and foremost is the MSME focused Micro LAP where the average ticket size is around Rs. 8 to 9 lakh and average rate of interest which we are charging is around 20%, 20.5%, 21% kind of number. Second is rooftop solar and third is vehicle. So, these three products contribute largest to our current AUM. As far as the customer acquisition strategy is concerned, we work on a physical branch-led model where we have the on-ground sales team who reaches out to the customers, check their interest. If the customers are interested, we do their onboarding through our online mobile app. From there, the complete underwriting is done, credit assessment is done at the ground level as well as the central level. Basis that a final sanction is given and disbursement happens through the digital channels only. So, this is the overall model in the NBFC. As far as the growth is concerned, this year we are planning to stay focused on these 75 branches only. Our target is to grow the AUM in these particular branches. As we have the adequate amount of AUM from these branches, we will expand more bran ches in these states as well as expand to newer states next year onwards.

So, at present you would like to focus on the areas that you are already present in. That's the correct understanding.

Yes, right.

Also, in terms of the offerings, you will stick to the three offerings that you have currently?

That's right.

On the next question, Choice has significantly expanded its operation over the last three years. So, what is the strategy from here? How do we plan to expand from here? Are we targeting Tier 1 states or are we focused on Tier 2 and Tier 3? Which vertical do we plan to expand first?

Nayan, as you must have seen in our earnings presentation also, almost 70% of our c ustomers are from Tier 3 and below geographies. So, our largest focus remains on Tier 3 and below geographies and that's where we are planning to expand over the next couple of years as well. As far as the verticals are concerned, we are equally focused across all our verticals and we are working on a multidimensional growth plan where on one side we are expanding our investment banking business also. We have been engaged in the seven IPOs over the last one and a half year time and there are 24 more mandat es which are there in the pipeline where we are going to act as a lead merchant banker. Similarly, on the wealth side, as I had mentioned that last quarter, we had acquired arete capital and through that we plan to expand our institutional wealth, HNI and UHNI segment and wealth management practice as well. On NBFC and insurances we have already spoken . We are working on all these segments with equal focus and we target to grow all these verticals equally.

Okay, thank you. Lastly on the outlook for the industry, if you have any, views or some points that can help us understand about the growth the industry can see in the near future?

Yes, broking industry in particular?

Nayan, broking industry as a strategy, as Ayush has already told about that we are expanding on the physical branches network and we see that we will gain a benefit of physical branches having a trust factor in that. For that we are going on events also on ground with the Zee business and other media platforms. From the industry perspective as such, the growth will be continued. The only thing is the factors which are changing due to the regulations and public perception. We see consolidation will happen and shift will happen in the discount model as we discussed. It will help players like us to boost more in this business and in growth perspective we don't see any challenge. Though it will be a little bit more standardized and commoditized business, but growth opportunities are huge and we see a healthy growth in coming. Short terms, measures can be happened like Jane Street or any other event might happen, but in the longer run we see a good opportunity.

Sir, any merger or acquisition plans under this?

Yes. We are always looking forward to it. So, if anything materializes, or some conclusion will happen, we will let you know. We will go for the disclosure on the exchange. We are actively looking for it.

Okay.

The next question is from the line of Manoj Rajani from Rajani Family Office.

Good evening. Sir, just had three questions. First one is, what is the current breakdown between retail and institutional clients, and what was it last time that will give the comparison?

The current revenue which is coming from retail amounts to around 93% to 94% and institutional is around 6% to 7%. The institutional business has expanded from the last year by 100 to 200 bps on a rough estimate.

Okay. That's very nice. Second question would be what would be the brokerage charges and do they vary by customer segment?

The brokerage is 0.02% and 0.20% for cash and delivery, and these are standardized, fixed. For delivery and intraday, depends on the segment, and these are the basic pricing, and it will vary depending on the client segment.

All right, sir. That gives quite a lot of clearance. Lastly would like to ask what are we doing with the F&O as an offering and what is the brokerage we charge there?

On the F&O brokerage part, we charge on each lot and it is Rs. 20 per lot on the options piece.

As a focus, we largely work on the mission projects of the Central Government . To give you a background, when we started consulting in the advisory business, we started with the NHAI projects where we used to prepare DPRs for road and highway projects, because in the first tenure of NDA government, larger focus was on roads and highways. Second was Jal Je evan Mission where we also worked quite aggressively on the Jal Jeevan Mission projects. Now, as the focus is still continuing on both the segment and additional focus is moving towards railways, ports, telecommunication kind of sector. So, we are also exp anding towards those sectors. The good part about these mission projects is that the target of government is to complete these projects on a fast track timeline. So, the payments are also on a fast track mode. We don't see major challenge in the receivable management from the government in this segment. Manoj, I hope this was helpful.

Yes, sir. That was more than helpful, sir. I'll be joined back in the queue later on.

Okay.

The next question is from the line of Rahil from Crown Capital.

Hi. Just one question , if you could just elaborate and explain a bit about your plans about the insurance business, what stage that it is according to you and anything new you're focusing on over there?

For insurance, there are two segments on which we are working on. One is corporate and the second is retail. We have dedicated teams who are specifically focused on corporate, as well as retail. We foresee a huge opportunity in both segments equally. However, the corporate is more lucrative for us. So, we are expecting to grow higher in the corporate insurances piece as well along with the focus on the retail insurance. So, take an example. There are specific clusters of industrial zones across India. We are expanding to those industrial zones where we can reach out to those customers, those larger corporates who are having large setups for their insurance needs. That's one of the expansion strategies which we are adopting to grow the corporate insurance business.

Okay. As mentioned earlier, you expect to maintain this 25% or 30% growth rate for the next three years to four years, you meant overall for the business, at consolidated level right?

Yes. That’s right.

Okay. Just lastly, with that kind of a growth rate, what are your plans to support your EBITDA margins? You have been doing well for the past three years from 27% to 31%. So, any room for improvement there, and if so, how?

On the margins front, Rahil, one thing is that all our operations are digitized. There is no manual operations we are into. Everything is tech driven. Everything is system driven. So, the opex does not increase directly in sync with the growth in revenues in our majority of busines ses. So, we expect that margins will although remain at the similar levels, however, there is still room for a little improvement. That we will be leveraging upon.

So, that improvement will be simply tech driven or is there any other leeway for that?

Actually, it will be tech driven.

I now hand the conference over to Mr. Arun Poddar for closing comments.

Thank you for joining us today. The first quarter has set a steady start to the year, and we remain focused on maintaining this momentum while serving our customer and building on our strength. We value your continued interest in Choice International Limited and appreciate the trust you place in us. We look forward to connecting with you again next quarter and if anyone wants to connect one on one, we are very much positive. Wishing you all a very good day ahead. Thank you.

Thank you. On behalf of Choice International Limited, that concludes this conference. Thank you for joining us and you may now disconnect your line. (This document has been edited for readability purposes.)