Already got nod for 100% FDI in white label ATMs, whats the impact with Vakrangee


They were looking to raise money to setup White Label ATMs. It should help them in raising money.

17 companies have given positive returns year on year for the last 5 consecutive years. Vakrangee is one out of these.
Yearly returns is %: 8.1%(2011), 266.8%(2012), 40% (2013), 49.3%(2014), 40.1%(2015)

Also, the investor’s presentation dated 7-Nov-2015 ( I downloaded from ) is quite impressive.


If I understand correct: the distribution network would be the moat, and I assume the ATM’s would be this distribution network. That would be the 15K odd ATMs. But as per the findings (or lets say claims) of the document I have pasted above - financial locations which are 15 to 30 km away from a village is detrimental.

If I view this setup in a simple picture - do correct me if I am wrong -
RBI will pay a commission to the Payment Bank - for every successful transaction made using its ‘terminal’.
15K odd ATMs have to be built, maintained (well guarded) - hence cost to Vakrangee.
Not all villages will have ATM’s - as I read, even 15 km is not worth the travel.
So villagers where the ATMs are present are ok; nearby villagers are not.
So the economies of scale would not kick in.
Meaning the number of successful transactions will come down for Vakrangee - hence less of commission.
This is where mobile telephone bank steps in; for those odd villages where the ATM is not present, they will use a mobile.
Telcos get commission.
Word spreads to those villagers who have an ATM in their village, that they can use their mobiles instead of using the ATMs - why travel 100m when the job can be done sitting in their house.
So the ATM villages will garner less commissions.
So no longer would the be a moat.


Karvy coverage with target of 211Vakrangee_Karvy_Jan8-2015.pdf (953.3 KB)

IMHO & analysis- Vakrangee scores are as below

Its a fundamentally good & growth stock, but not much scope for value entry now

With Govt. allowing DoPT to start functioning as a Payments Bank and adding other services at the post offices I think the distribution advantage will somewhat get diluted. I think it is absolutely clear that if you get the same service at the post office and and a private outlet people might prefer Post office only.

Just a thought

This can help to know the business atleast.

It might benefit all those invested in Vakrangee to go through this post by Amit Mantri on the following link. It seems extremely extremely likely that the management is cooking it’s books. Link below, post # 27

Basically the company is capitalizing expenses on the balance sheet instead of expensing them on the P&L, thereby artificially boosting profits. Their cash flows tell the same story. An example of the same - Look at the notes to account for their gross block, 300 odd crores of computers for a thousand or so employees, that works out to almost 30 lakh per employee in just computers!! Does this make sense?
Pasted below for your reference. Keep in mind this is Amit Mantri’s work and he deserves all credit, I am just sharing it on this forum for the benefit of its readers. (See below)

Hope this helps

From Amit -

A few months back I had written a note on Vakrangee highlighting the red flags. The note was based on the reported financials and some management claims regarding biz economics which were too good to be true. (some of the data may be a few months old)

No Free Cash Flow - While the Company has demonstrated strong earnings growth, the Company has not generated any free cash flow. High earnings growth with continuously -ve FCF is a red flag suggesting that earnings may not be real. Debt reduction that has happened over the last 1 year was also through equity issuance and not internal cash flows.

Increasing Working Capital requirements - Over the last 5 years, Vakrangee’s net current assets have increased from 55 crs to 750 crs (13.5x increase) while sales have gone up from 295 cr to 1950 cr (6.5x increase). WC requirements increasing substantially faster than Sales is a red flag suggesting Sales may not be real.

High capex on government business
-Vakrangee incurred 228 crs in capex in FY14 (of which 197 crs is for Computers & Printers) towards the e-governance business. Vakrangee continuing to incur high capex for the government business does not make business sense considering the poor economics of the segment and low growth expected by the management.
-197 crs in capex for computers and printers suggests the purchase of over 20,000 computers in a 1 year period. This number would significantly exceed the company’s employee count (permanent and contracted – Vakrangee incurred 31 crs in employee costs in FY14 and as per the opex breakup does not have significant sub-contracting expenses). The high capex does not match with the current scale of the company’s operations and this is probably opex classified as capex to boost earnings.

Vakrangee Kendra (VK) economics - too good to be true
-As per management, a typical VK requires very little upfront investment by the company with franchise bearing most of the capex and working capital costs. And a typical VK generates 10 lakhs in annual revenues with the franchise getting 70% share leading to 3 lakhs revenues per VK for Vakrangee. These numbers seem too high and are inconsistent with the realized economics of other companies such as FINO and ALW which have struggled in the BC business.
-In March 2014, Vakrangee had 3,853 VKs which generated approx. 900 crs in Revenue in the full year. This implies Revenue/VK of 23 lakhs which is substantially higher than the management estimate of 10 lakhs per VK. If we consider that the VK rollout would have happened over the year, the average revenue/VK number would be even higher. These numbers are staggeringly high and hence in all likelihood fictitious.

Exaggerated claims on White Label ATM (WLA) business –
-Vakrangee has the license to install and operate 15,000 WLAs over a 3-year period (starting January 2014). Management claims the WLA ATM business will be extremely profitable. However, Vakrangee having installed less than a 100 ATMs over the last 14 months is contrary to management claims ( Management claims that they were trying to get RBI permission for new biometric ATM technology and hence the delay. This is difficult to believe considering all the other players (Tata, Prizm, BIT) have already started installing ATMs and now Vakrangee would have to make do with sub-par locations for their ATMs (location is the key driver of ATM transaction volumes). Vakrangee’s lack of progress on WLA ATM deployment is consistent with the market view that the WLA ATM business is economically unviable for most players (White Label ATMs struggle to stay afloat | Mint)
-Management has guided at installation of 5,000 ATMs over the next 3 months and another 5,000 over the next 9 months. Even the largest ATM players have been unable to achieve such a pace of ATM rollout. This number seems fairly exaggerated. Should be verified 3 months down the line if the company is anywhere close to even achieving its rollout target. (The company had made this claim 3 months back - they haven’t installed even 50 ATMs since then)

Employee count inconsistent with claimed size of operations
-As per management, Vakrangee currently has 1064 employees (150-200 at the corporate-level, 800-900 at block level for managing 12,000 VKs and identification and deployment of new VKs). The employee count is inconsistent with their current pace of VK rollout (37 per day) and planned ATM rollout (50 per day) over and above their government business. This suggests that the overall scale of operations is much smaller than what the management claims.

The biggest red flag for me at that time was the company’s capex on computers and printers of approx 20 lakhs per employee !!! A clear sign of opex being shown as capex.


Interesting to note that the modified C score is just 1:

On another note, the may 13 issue of Outlook Business has an article on small finance banks which is worth reading.

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I invested in this company in 2008 -09, 2000 shares at low price of ~28-32 after some evaluation and knowledge in Govt printing work it was doing at that time. Management had claimed in previous ARs/presentations that business is recession proof (it being totally dependent on Govt contracts). But in 2009 profit of the company plumped from 50 Cr to 4 Cr. As results were against the Mgmt thesis, I sold it around 2x, ~68/- after waiting for couple of Qs & some not so positive feedback on the company in different forums. (If I remember during 2009 melt down Goldmen Schash had shares in the company.)

Since then I am looking this stock go up and up … 150x times or in 9 years now, market cap of the company is at $4B, how long a fraud can continue? Is it fraud or In-efficient research or wrong risk evaluation amidst some irregularity?



Interesting observation. Anything can happen in India of course.May be these guys are well connected.But the stock has been performing very well.



Company has issued 1:1 bonus share

Any recent developments that investors are aware of that is moving the price to orbits?

I think strong tailwinds in terms of push given by the modi government to social inclusion, digital india and various other initiatives is driving the companies performance quarter on quarter and this growth seems to be sustainable at least for the next 5 years as they are trying to reach 75000 win codes by 2020 and which seems achievable to me the way they are progressing.The best part of their model is the asset light part which will create high operating leverage as the sales increases.Even the promoters I think have changed their mindset to bring in more transparency to the complete system,whwerin they have appointed a respectable auditing firm on board.This story sound to me where promoters are ““chor banye more””.At todays market cap of around 38000 crs,and addition of of stock in msci index the road seems long and clear even from here.


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Vakrangee gets into a tie up with Netmeds for assisted eCommerce for its customers at its centers. This is a significant value add and it is a non discretionary need of people which will improve its earnings. Its network moat is just starting to play out is my view. It will go on for many many years…

Vakrangee Q3 results. Profits at consolidated level is almost double

The Q3 and updated presentation of Vakrangee

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Thank you.

I like Vakrangee’s results.
But I am quite uncomfortable with the valuation and market cap.

Vakrangee’s Market Cap: 53,000 Rs Cr (EV 52,000 Cr as no debt & surplus cash)
Indigo’s Market Cap: 43,000 Rs Cr (EV appx. 49,000 Cr)
Pidilite Industry Market Cap: 45,000 Rs Cr (EV 43,500 Cr)
Marico Market Cap: 40,000 Rs Cr (EV 39,300 Cr)

Please note that this is obviously not an apple to apple comparison.
However, the question is: Are we saying Vakrangee is more valuable than Indigo, Pidilite or Marico?

Views invited.

P.S. These are rounded-off approximate figures based on current market cap & FY18 Q2 Balance sheets

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