In conversation with Prakarsh Gagdani, CEO, 5paisa Capital Ltd
Our objectives are to grow our customer base, grow revenues, and increase profitability; states Prakarsh Gagdani, CEO, 5paisa Capital Ltd
What is your outlook on India's discount broking industry?
Discount broking, as an industry or as a business model, is well-established in India. Though it started off with apprehensions and questions in the mind of people on the sustainability of the model yet the kind of growth that discount broking companies have brought to the capital market sector as a whole is phenomenal. Now, it is more than clear or well-established that the growth in the future of capital markets can and will be only based on the back of the discount broking model. I strongly believe that the future of broking will be divided broadly into 2 or 3 categories. One will be at the top of the pyramid, which will be wealth brokers. The mid will be bank-backed brokers while the broad sections of the large retail masses will be catered by the discount broking. So, I see a very strong and robust future as despite the growth that we have seen in the Demat account in the last two years, we have touched only 4.7 or 4.8 per cent of the population. So, as and when the population matures, more people get added to the workforce & capital market, and that journey will be through the route of discount broking.
5paisa Capital's consolidated income for Q4FY22 came in at Rs 88.3 crore on a 77 per cent YoY basis. What factors are responsible for your strong performance?
So, in the last complete full financial year, our focus has been to acquire customers and also acquire quality customers. So, we have grown our base by almost 100 per cent while YoY, we have grown our revenue by 53 per cent. This is on the back of good broking revenues and also, non-broking revenues from products like margin trading, subscription, and our cross-sell business. So, our trading product, which is designed in a way to engage customers even if he's new to the market or an existing market has helped us to increase our revenues, not just YoY but sequentially, every quarter, and also, our efforts on optimising our customer acquisition cost and other costs has helped us to improve our profitability as well.
Can you throw some colour on your partnership with Vested, the US-based advisory firm that provides international investing options to your customers? Also, what are the top three reasons as to why an individual must consider investing beyond the Indian shore?
We partnered with Vested for US stock investing in early 2021. Though we have seen decent growth yet it’s a niche segment and the typical ticket size in an international investing is of course 75,000 to a lakh. Thus, the number of customers that we have seen is not as compared to the retail growth that we are seeing in the Indian market but the uptick is good and we have almost more than 10,000 customers, who have shown interest in international investing. I strongly feel that there is a huge potential for this business and if we clear out some hurdles that are detrimental to the growth of this segment - especially on the remittance side. So, if the process of remittance is streamlined, then there is a huge potential. The reason is that today people are more global rather than Indian. Our young generation uses international and US brands more than Indian brands at least in some sectors. We are familiar with Netflix as an OTT platform, Apple products, Google, Facebook & Tesla, and these are just a few names. But then, there are other names also that are prominent and of which, people are aware. So, if people are using these products, there will definitely be an inclination for investors to invest in these companies and if you see in the last 3 to 4 years, the US markets have given the growth that is equal to or more than Indian markets barring the current sell-off, which is happening in NASDAQ. If you ignore the last three months and take the chart for the last 3 years or 5 years, the performance of NASDAQ in US markets, and the returns in the US market are equivalent to Indian markets or in some years, even higher. So, investment is always a slave of returns. Therefore, if you get good returns then definitely, there should be an opportunity for people to invest and that's why I feel that the opportunity in the US investing is huge in the coming quarters.
How 5paisa is uniquely positioned to capitalise on the tailwinds propelling India's Demat account?
So, as the market and the Demat account grew, competition also got intensified in the last couple of years not just from the incumbent full-service brokers (who converted into discount brokers) but also, from tech-based new-age brokers. So, with competition, it is important that we create a niche for ourselves. Our focus has always been on our product, which is our mobile app. We believe that if the trading platform or mobile app is simple, easy to use, and is able to solve retail investors’ problems in its own language by providing solutions that are directly related to a retail investor, then loyalty will always prevail. In the past, we have built products & solutions that have helped like our subscription product, which is helping traders. We have built a great charting system and added solid features for derivative traders. The simplicity of our platform and the eight languages that we offer on our mobile app has helped us garner market as well as retail market share. We believe that even in the future, our focus on products & providing solutions to problems in a very simple and easy way will help us grow exponentially and also, gain market share despite having stiff competition.
What are your key growth triggers?
Today, the bulk of our revenues come from brokerage, which will continue to be dominant even in the future but in brokerage, some of the solutions like our product stock SIP have taken off very well and we feel that there is a huge potential in not just mutual fund SIPs but also, stock SIP. Secondly, our subscription product will be our growth driver because now, there are millions of customers, who want to trade in the derivatives segment where the price is an important factor. So, with our subscription product, we provide just Rs 10 flat per order with an option of Rs 1,000 cashback. These two products along with our margin funding product will help us grow our market share. Having said that, we are also expanding our product based on non-broking which is mutual funds, loans i.e. personal loans, digital gold, US stocks and also bonds, fixed deposit & insurance. So, these are the products that we already have and we will be building a good journey and communication around the right target audience by using data analytics & AI. Hence, a mix of the balance of broking revenues and non-broking third party products will help us increase our revenue in the coming future.
At the moment, what are your top three strategic objectives?
Our objectives are to grow our customer base, grow revenues, and increase profitability.
What is your outlook on FY23?
Though for the last 24 months, there has been a single side rally in Nifty and markets. Now, there is a common consistent and we also believe that this year is going to be tough in terms of markets going further from the high they have already made. We are expecting a sideways market. Typically, a sideways market or even some corrections in the market leads to some reduction in the broking activity. So, overall, the year is going to be a bit challenging as compared to the last year. Having said that, we see that there is a huge potential in new customers coming to the market and with products that I just said which are our stock SIP product, derivatives product, features along with some data points that we provide in Algo trading, these are the products that will help us to attract new customers and also, something that will drive growth for the next year. So, though I'm optimistic that definitely we will grow over the last year but it is difficult to put a number on anything because I may be positively surprised that growth is more than what we anticipated.