Infibeam Q3FY17 Concall Summary

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Business Model

  • Infibeam provides an integrated and synergistic business model for both its B2B and B2C customers based on the cloud-based infrastructure that enables them to sell their products and services locally as well as globally

Demand

  • Buildabazaar infrastructure helps merchants to build out their own brand, their own presence as well as to reach out to consumers not just on their own website and mobile applications, but also across multiple other market places including Infibeam.com as a market place
  • Infibeam provides “BUILDABAZAAR” platform which allows merchants on the demand side to sell their product and services online directly to the customer
  • Infibeam believes that enablement of demand is where the largest opportunity for the company lies
  • The merchant just invests into the URL. The rest of the infrastructure, the software as well as the movement of material, money, and process happen directly from Infibeam’s infrastructure
  • The platform is used by Indian as well as International market players such as Hidesign, Crossword, GVK Airport( Pranaam Services), Theme Parks in India, Eros( Large Retailer in Middle-East, Axiom Telecom, Jumbo Electronics(U.A.E), Sears(U.S.A)
  • Contracts in International business have variable revenues and variable costing
  • In domestic business, the company works with variable revenues and a ceiling of minimum revenues

Supply

  • On the supply side are brands, retailers, and suppliers, these typically do not have an appetite to directly sell to the consumer especially in brands. These generally sell through distribution channels.
  • Infibeam also gives Buildabazaar infrastructure on the supply side to many of the largest brands as well as distributors that can potentially bring their entire channel online and Infibeam also offer opportunities for them to sell on a B2B format
  • On the supplier side, a smaller section of their products will account for the majority of the revenues.Infibeamoffer their platform to such suppliers and connect the product deal
  • Infibeam also provides a deeply integrated ERP framework that comes along with the platform
  • On the supplier side, the infrastructure is given out to Amul, which is one of the largest dairies and they are able to bring their distribution channel as well as the services and products to online consumers. So the entire infrastructure is on Infibeam’s framework that allows for anyone in certain cities to be able to place orders
  • Infibeam is the largest enabler of transactions in the country

Capacity

  • Infibeam is growing its capacity by opening up logistic centres, which provide delivery mechanism to allow products to reach out to consumers across the country
  • Infibeam will add 75 additional logistic centres
  • As of now, revenue is not generated from logistics. Theyoffer Logistics services to the suppliers so that they are able to move the products or the product deal to users
  • Infibeam is investing in capacity to move logistics for products, that same capacity can be opened out to merchants both locally as well as for any global merchant who wants to perhaps come to India
  • Infibeam is investing in data centre framework or the computing framework as these are very important specifically at the scale and volumes. In this, all primary databases will stay with Infibeam. The company will terminate transactions on its data centres.
  • Infibeam will use thethird party for all backup disaster recovery as well as other mechanisms

Financial Highlights

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  • Profitability in this quarter was the highest in the history of the company
  • As per the estimate, about 70% of overall e-commerce orders are paid in cash
  • Infibeam is a zero debt company
  • The customer acquisition strategy adopted by the company as a pull factor, which is in sharp contrast to the push, which most e-tailers are operating with. Under the pull factor, the company does not incur high cost for acquiring customers, which results in preserving cash in books
  • The company strategically follows an asset light inventory model
  • The company has focused on services during the last couple of years to substantially improve on profitability. It is reflected in the figures of current quarter
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Strategy for services Services

  • Infibeam will focus into B2B as against B2C mainly because of following advantages:
    • Faster growth in services compared to product
    • Higher EBITDA in case of B2B.
  •  All new developments in terms of JVs, MOUS arrangement nationally as well as internationally are with B2B where revenues are higher and profitsare lucrative.
  • They are also building out their own securitization frameworks that allow them to manage a debt scale and not eventually incur that cost
  • Infibeam is also trying to use the right agencies that can perhaps help them in lowering the cost of the overall management of such domains. Infibeam is targeting to reduce their cost to 1/10th of the cost. If this happens Infibeam would be able to sell at 1/20th of the price and still make the same profits. The target to achieve all of this is before March 2017. The value realization of this may take effect from May 2017

New Developments

  • Infibeam had announced an MOU with IL&FS to go after the government business, integrating the payments platform along with their software framework calledBuildabazaar and also provide logistics in warehousing as well as value-added services.
  • For Saudi Telecom, Infibeamhas launched the Jarvis Service. It was launched in the first half of FY17 and they continue providing more service in growing with the partner

CCAvenue

  • It is a company that Infibeam had made aninvestment into through their fully owned subsidiary, NSI InfiniumGlobal Private Limited in June of 2016.
  • Infibeam had invested 60 Crores in the company.
  • CCAvenue is one of the largest payment aggregators in the county and they provide payments platform to more than 100,000 merchants
  • On an average, on the annual basis,CCAvenue processes 15,000 Crores of transitions for around 100,000 merchants
  • CCAvenue has got more than 15 years of experience in the digital payments platform.
  • They offer multichannel payment platform with tie-ups with more than 48 banks for net banking with UPI. Debit and credit card payments covering Master and Visa as well as RuPay.
  • CCAvenue will also soon have Bharat Bill Payment System, which will facilitate all bill payments of utilities and services
  • Infibeam will able to enable merchants to complete the transitions online. So in order to actually be a one-stop unique shop wherein, a merchant could potentially come to Infibeam and that they can offer not just payments software platform, but also payments platform to more than a few 100,000 merchants
  • Infibeam has entered into an MOU wherein they will invest another 150 Crores for acquiring 7.5% equity shares of CCAvenue over and above the 3.85% of equity shares, which is held by their fully owned subsidiary
  • Infibeam will amalgamate CCAvenue into Infibeam by theissuance of new fresh shares subject to regulatory approvals and due diligence.
  • Infibeam had announced an issuance of warrant fully convertible into equity shares for an aggregate amount of 60 Crores. This is to Bennett Coleman Company Limited and issued on preferential basis at a conversion price of 13.75 per equity share
  • The revenue from CCAvenue depends on scale and size in terms of the number of transactions that they process, a five basis points improvement in that almost doubles the free cash flow
  • The number of merchants at Infibeam is around 66,000 and the customer base of CCAvenue is around 100,000. So from an operating perspective that each of these 100,000 merchants becomes an opportunity to be able to monetize out of
  • C.A.G.R for CCAvenue is around 45%-50% on YOY basis
  • The potential impact of CCAvenue on Infibeam is that it will add around 150-200 crores to the revenue of services portfolio. Around 40-50 crores of Net Profit will also likely to add to the bottom line
  • Infibeam filed a scheme of amalgamation pending regulatory approvals, which will give control rights to Infibeam
  • P/E is around 40

Payment System

  • There are payment aggregators, which are called payment processors. They provide integrated payment processing across multiple banks both for net banking as well as credit cards. The role of the processor becomes very critical for any merchant to be able to close a transaction.
  • All the risks, the fraud frameworks as well as being able to collect card and process card transactions lie with the processor
  • On top of a processor, there are certain wallets, which are peer-to-peer wallets. The underlying theory is that each of these wallets, as well as any peer-to-peer service,would require either integration with the bank or with the payment processor directly.

International Business

  • The company has already made 100% subsidy operational in Dubai for the last couple of months. The company earns revenue by offering a combination of setup fee followed by monthly fees and a per transaction commission. The share of international business is in the range of higher double-digit percentage.
  • Global merchants would require something, which is more about machine learning, deep analytics, and data learning for every set of services
  • Last year’s revenue from International operations was around 15% of revenues and this year it is expected to rise to around 20% of total revenues
  • Infibeam has setup a fully owned subsidiary in the Middle East that allows them to do some amount of management locally as well as to grow the client base in that region.
  • Revenue per merchant for International customers is significantly higher than what Infibeam report in India
  • International margins are also better than the domestic margins
  • Infibeam was successful in getting Sears, U.S.A on its framework and platform
  • Infibeam gives the merchants platform along with an expanded framework to be able to be manage of lot of machine learning
  • Some of the challenges that they work with are that they are not just a retailer, but they also have a market place presence, which means that any merchant can potentially go and upload a product on Sears and that such product can potentially be searched, browsed, and fulfilled by the merchant or Sears. They work as a retailer as well as a market place.
  • Buildbazaar framework will allow them to identify with the fair amount of accuracy what the product identity is through the catalogue management system, so as to put it in a particular product category

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