Friday, June 15, 2018

FUTURE OF VAKRANGEE - LOTS OF INNOVATIONS - DIVIDEND DENIAL UNFAIR TO INVESTORS - ANALYSIS



FUTURE OF VAKRANGEE

LATEST INFO & ANALYSIS


VAKRANGEE has at last released its Q4 and FY 18 results. It has also released a Press Report and an Investor Presentation.

Some commentators find fault with many things that Vakrangee has done and not done. They are right to some extent. But, overall, the course of action that Vakrangee has chosen for itself cannot be dismissed lightly. Let us discuss the Hits and Misses, Things Done and not done in some detail.

First the Q4 FY 18 Key Financial High Lights :

VAKRANGEE
Q4 FY18
Q3FY18
Q4FY17
YOY
QOQ
INCOME
1847
1802
1145
61.31
2.5
OTHER INCOME
20
8
3
566.67
150
TOTAL INCOME
1867
1810
1148
62.63
3.15
TOTAL EXPENSES
1753*
1447
901


*Includes One Time, Non-recurring OTHER EXPENSES on Bad Debts amounting to Rs.220 Cr





P  B T
113
364
246
-54.07
-68.96
NET PROFIT
76
247
161
-52.8
-69.23
NPT+ONETIME OE/Bad Debts w/off
296
247
161
83.85
19.84
EQUITY(FV RS.1)
106
106
53

0
EPS (DIL)
0.72
2.31
1.43
-49.65
-68.83

The current Market price of the scrip is Rs.42 and the PE Ratio on that works out to 15. If we remove the effect of onetime write-off of Bad Debts of Rs.220 crores, the picture is reasonably decent.

The company says – it is now a Debt-Free company.

Now, let us also look at FY 18 consolidated Results
                    
For Full Year FY2017-18 (Consolidated)

Total Income is Rs.6,536 Cr against Rs.4,006 Cr in  FY 17, a growth of  63%
EBIDTA : Rs.1038 cr in FY 18 against Rs.951 cr in FY 17, a growth rate of 9%
EBIDTA (excluding legacy business write off) stands at Rs.1,258 Cr in FY 18 against Rs.951Cr in FY 17, a growth rate of +32%
PAT : stands at Rs.680 Cr in FY 18 against Rs.531 Cr in FY 17, a growth of + 28%
PAT (excluding legacy business write off) stood at Rs.900 Cr in  FY 18 against Rs.531 Cr in FY 17 , a growth of + 69.63%
EPS (basic) on a Face Value of Rs.1 stands at Rs.6.43 in FY 18 against Rs.5.02 in FY 17. But, we must remember that this EPS has resulted on Post Bonus, doubled Equity in FY 18, that too after writing off Rs.220 Cr as bad Debts.

The company has issued some significant Future strategy Updates for clarifying the position of the company on many aspects, which are summarized below :

Company Strategy Updates

1.   Hold & Consolidate for the Current Year

Focus to convert / upgrade all 45,000+ outlets to the Nextgen Vakrangee kendra – Silver or Gold model with standardized Look & Feel
  Focus is on consolidation and standardization of all 45,000+ kendra outlets
Conversion / Upgrade / churn to happen in a gradual manner.
Long term target for 2020 = 75,000 kendras

2.   CAPEX ON ATM Business

ATM is mandatory
ATMs to be provided to all Nextgen Franchisees on Custodian Basis by the Company
Capex of more than Rs. 2.00 Lakhs per ATM to be incurred by Vakrangee.
Ø Return on Investment is lucrative compared to current return ratios.

Note :

The company has not stated as to how many ATMs are already available and how many more are needed. This needs to be clarified by the company. Huge part of current cash reserves will go for provision of the ATMs as CAPEX.

3.   Impact on Profitability & Revenue Growth

Franchisee to incur capex plus working capital investment upto  Rs. 10 Lakh for silver kendra and upto Rs. 18-20 Lakh for Gold kendra.
Ø Revenue sharing ratio to change hence resulting into impact of profitability for the company
During the process, at any time there would be around 10,000 outlets under up-gradation or churn mode for a period of 6 months, impacting the Revenue and profitability growth for that period

Note : 

Investors must be prepared to see lower profits margin for next 2 quarters, according to this strategy. But, long term future may be good.

4.   To focus on Vakrangee Kendra Business

Ø Company to focus only on Vakrangee Kendra Business.
Ø Company has stopped taking new mandates in relation to legacy business
There are old outstanding receivables on legacy e-Governance business of Rs.219.95 Cr which stands written off.

Note : 

This is good for company and Investors. Vakrangee must not take such legacy Businesses in future in which it is helpless to recover the Dues from the Debtors.

5.   Update on Current Progress for the Next-Gen Franchisee Model

Ø Already Received more than 7,800+ applications for the Next-gen Vakrangee kendra Silver or Gold model.
Ø Pan India marketing planned over the next few quarters to increase the Brand awareness
More than 50 outlets in Mumbai Metro Region to be operational by 31st July.
Grant Thornton to start the Business quality analysis from 1st July onwards. first report by Sept end.

6.   Update on Dividend Payout & Capital Allocation Policy

Based on the current Capex plan for the ATM business and increased spend in marketing expenses, the company plans to change the Capital Allocation policy.
Capital allocation policy to be finalized based on the outcome of 5,000 operational Next gen outlets.

Note :

Vakrangee must prove that it is investor friendly. Investors in Vakrangee have already lost sizeable wealth by the erosion of share values, which the company failed to arrest. Yes. It can make all Grand plans for the future of the company.
But, I feel, the company should have come forward with a good dividend, to recognize the pain of the Investors at this point of time and reward them for staying with it.
Vakrangee is clearly missing that opportunity.

Update on Market Rumors
& Change in Auditor

Update on Market Rumors
no show cause notice either from Stock Exchanges or Security Exchange Board of India (SEBI) or any regulatory body for being involved for any price and volume manipulation.
The rumors of are completely baseless and factually incorrect.

Note :

PWC had commented something on Election Books, Bullion and Jewellery. Neither PWC nor the company nor any regulator is clarifying much on this. We don’t find any such Business in the quarterly or annual statements submitted by the company. Then, what is it? There must be transparency in all aspects of Business. Vakrangee must aim for such transparency at least in future.

Update on Change in Auditor

Company’s financial statements present the true and fair view
PWC had satisfactorily done the limited review for the period till 31st December 2017.
Company has already appointed M/s. A. P. Sanzgiri & Co., as the New Statutory Auditor.
Current Full Year March 2018 results have been satisfactorily audited by M/s. A. P. Sanzgiri & Co.

Vakrangee has already gone through 3 Phases. The 4th Phase is explained as below :

PHASE.4 :

Exclusive next gen assisted digital convenience store :
Banking, financial services, e-governance, insurance, e-commerce, logistics and ATM services;
Standard design by Lewis & Hickey, Branding and signage, ATM mandatory, Digital signange and CCTV, Pinpad devices for all kinds of pmts,
Upgrading all 45000+franchsees to next gen Vakrangee kendras – Silver Model 200 sft and Gold Model 300 sft

Lewis & Hickey are the brand consultants

Vakrangee has estimated the TOTAL OUTLET POTENTIAL as 3,69,977
Ø RURAL : 2,94,442
Ø URBAN  : 75,535
Ø RBI WHITE LABLE ATM LICENCE FOR 15,000 WLA
Ø MAINTAIN RURAL : URBAN 2:1 RATIO

ABOUT VAKRANGEE :

Vakrangee is focused on building India's largest network of last-mile retail outlets to deliver real-time banking & Financial Services, ATM, insurance, e-governance, e-commerce and logistics services to the unserved rural, semi-urban and urban markets. These will be Nextgen Assisted Digital Convenience stores 

It has signed “Common BC” and “National BC” agreements with various public sector banks for offering real-time banking to unserved and under-served Rur-ban population. Banking at “Vakrangee Kendra” outlets is a unique experience with disruptive technology and real-time transactions.

Outlets also provide insurance products, e-governance services and e commerce products. 

Also offers assisted e-commerce services offering strong platform for buying/collecting/delivering large variety of products; 

Alliance with RedBus for offering bus ticketing services  Cinestaan Digital Private Limited to offer free and offline videos to citizens and with Netmeds Marketplace Limited to offer medicines and other health Products

Alliance with (IRCTC) for offering Railway E-Tickets booking.

Tie-up with (LIC), HDFC Life Insurance Company Limited, Bajaj Allianz Life Insurance Company Limited and other Insurance Companies.

Alliance with FedEx , Blue dart and First Flight Couriers Limited for courier and logistics services (Forward Delivery as well as Reverse Pick Up services).

Strategic tie-up with Indian Oil Corporation Limited to set up about 20000 plus IOC Retail Outlets

Final Note

The Q4 results are marred by the Bad debts written off and also the Dividend not considered. Next 2 quarters results are also likely to see lower profitability due to capex issues.

Vakrangee must not only look at its Business from promoter perspective but also from Retail Investor Perspective. Retail Investors in Vakrangee are terribly shaken by the steep erosion in their Invested wealth in Vakrangee. In fairness to them, Vakrangee should have declared a Good dividend and used the balance cash for CAPEX.

Keep the retail Investors on your side, Dear Promoters. Otherwise, they will get disheartened and desert Vakrangee at whatever be the Market price. Current Rs.42 price may come down further also, if this attitude persists.
Again, rumours, again ugly demands from Media etc will ensue.
I do hope, Vakrangee will see the sheer logic behind keeping the retail investors always happy, which it has not been doing so far.


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