76% revenue of Affle India comes from COVID-resilient categories: Anuj Khanna Sohum
If we look at the margins of the results of Q4FY20 than it stands at 18.3% of net profit after tax (PAT), which is quite healthy from a bottom-line and it can be termed as our net position. On the cash flow basis, we have done very well across the year and have collected more cash than the profit.
Anuj Khanna Sohum, Founder, Chairman and CEO, Affle India, talks about March quarter results, business outlook in the post-COVID era, future of mobile advertisement, client addition and working capital status among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:
Q: Your revenue has shot up by 24%, what are the reasons for this kind of upside? Although revenue has gone up significantly, down the line, the margins have reduced by 8% to 25.3%? What led to this type of operational performance?
A: Affle India has posted a 34% growth in revenue and profit on an annualized basis. As far as the March quarter is concerned than our revenue growth in India stood around 37% and for international business was at 26%. Overall, growth on a blended basis has been quite good at 32-33% and this quarter’s revenue has also been a good one. When it comes to margins than it is doing well on an annualized basis, but in this quarter - because we have invested a lot on international expansion where our operating expense has been high - there has been a pressure on our international business beyond India. However, if India has is seen on a standalone basis than the profit has been good even on an organic basis. But, we will have to see that the COVID-19 impact reached to India in last 10 days of March, while it impacted 50% of the fourth quarter, i.e. February 15-March 31, 2020, of the international business. But, our performance has been quite resilient in the quarter.
Q: What is the outlook for the future because the way of doing business has changed a lot? How will you factoring the overall performance if we talk about the guidance of FY21 especially on the margin front, which has reduced by 8% to 25.3%??
A: If we look at the margins of the results of Q4FY20 than it stands at 18.3% of net profit after tax (PAT), which is quite healthy from a bottom-line and it can be termed as our net position. On the cash flow basis, we have done very well across the year and have collected more cash than the profit. Thus, financial fundamentals have been strong. But, April and May have been a difficult period as most part of the period of these months have been under lockdown in India. COVID also has an impact on the international market. Thus, this quarter, Q1FY21, has been the most difficult quarter. 76% part of our revenue comes from COVID-resilient categories and I will like to classify them for easy recall as Category E, F, G and H. Category E that primarily falls in e-commerce, entertainment and ed-tech (education tech). They have turned online and have benefitted to businesses. Category F includes Fintech (Financial technology), FMCG and food tech and online users have been engaged in these segments as well. Category G includes grocery and gaming, where significant growth has been seen and even the government will continue to spend on mobiles. Category H includes healthcare, whose online usage has seen significant growth. These 10 categories are COVID-resilient categories and have provided 76% revenue to us in the fourth quarter. So, we will defend it successfully but the 24% revenue that comes from other categories has faced huge losses in April and May, however, there is a hope that these categories will be recovered in the month of June. So, April to June quarter is going to be the toughest quarter and recovery will start from June itself. Thus, the outlook should be positive for the rest of the year. But I would like to reserve the comment on it because the outlook for the rest of the year will depend on the results of the June quarter. But, if a five-year quantum outlook is taken than mobile consumption is not going to decrease and people are spending a lot of time on mobiles. So, businesses will not have any option and mobile marketing is not going to be a discretionary spend for businesses and they will have to prioritize mobile.
Q: Do you have any number that can be shared in terms of growth in mobile advertisements that we have seen in the last few months and what growth can be factored for your business?
A: In the last quarter, our growth rate was above the average growth rate of the industry. If we assume India’s industry growth to its maximum than our growth rate has been above that. Even in the international market, if we look at our last year’s performance than we have been ahead of the industry growth average. It is true that the average growth rates are high in this segment. Companies like Affle who works with a differentiate business models and have the comparative advantage of platforms will post a growth that is better than the industry average. But under the scenario, the interim period, several things will change after the COVID in which mobile advertising will grow at a fast pace or will move on the same trend can be established after looking for another one-two quarters.
Q: How are you looking at client addition and can you tell us the segments from where clients are coming from to you? How much work do you have in the pipeline at present?
A: I have said earlier that 76% of our revenue comes from the top 10 segments and we are strongly depending on these categories. We have successfully defended the 76% of revenue from these segments in the month of April and May. So, it provides a confident position on which you can stand upon because there are certain businesses that don’t have any contribution. So in our case, we have a fortunate position that we are doing this much business on an assured basis and as we have done it during the most difficult period than it should be good in recent future. As far as new customers are concerned than our company is just not based in India and 50% of our business comes from India and the remaining 50% comes from the international market, the emerging markets. You would have seen that we have acquired several companies in an emerging market like RevX at the start of the last financial year and then Mediasmart in March quarter. These acquisitions have brought a strong growth momentum in international business. So, there is an increase in the number of clients. We have a team of around 80 people who are completely engaged in sales and marketing. We are focused on bringing the global customers in the COVID-resilient categories or whose business will grow in the post-COVID world.
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Q: How is your working capital status at present and do you have any fundraising plans in the recent future?
A: Right now I can just say that since the IPO was out last year, the company’s cash position, balance-sheet position and cash flows have been good. In the last six years, our cash flows have been positive and there has been consistent growth. If looking on the basis of these factors then there is no need for cash for time being. But a strong consolidated opportunity is coming on our way because probably the profitability and balance sheet of the competitors in the industry is not quite strong. At the same time, we will have to wait and see how resilient they are amid the COVID’s downfall on their business. So, if consolidation opportunities come to Affle than we will use the cash for that purpose.
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