Some notes from the meeting with the CFO Payal and co-founder Gautam. (I also asked for a demo of their SCF software product which was very nicely given by two of their employees).
This was my first such management meeting, so please pardon the not-so detailed and systematic notes. Also there were time constraints.
- The way they charge their clients for the SCF product is a certain (low) BP of the book size and there is a 3-5 years lock-in on rates. Intentionally kept low to increase get the customers onboard so as to earn over the lifetime.The pain of migrating out increases the stickiness of clients.
- Currently #1 in the domain in India and vision is to be #1 globally (let’s see if they achieve that). She claimed that in the last few years, no other SCF product sold in India except theirs and that they get called upfront for RFPs in India, such is their status in this domain. I have no means of verifying this claim.
- They have a “unique” ‘country directorship program’ where they have these ex-bankers working (on incentive basis, not on salary) in various countries to pitch their product to banks in that country.
- They already have Riyadh bank in Saudi Arabia as their client.
- As to why so many subsidiaries: they do not believe in giving cash exits to founders of companies they acquire. Rather, they keep them as a subsidiary, acquiring them on a equity swap. So those founders have a stake in that subsidiary, keeping them invested in it’s ongoing success. They also have got experienced veterans like Mr Parag Ekbote and Mr Shantanu Bairagi as CEOs of some of their constituent businesses/subsidiaries and these senior folks have stake in those subsidiaries. Note: as an investor in the listed holding co, my concern would be on the dilution of the holding co stake in subsidiaries through these arrangements and the stake sales I will allude to, later.
- Private placements of shares of subsidiaries:
The recently concluded placement of Rs 136 cr (originally Rs 120 cr but increased seeing the oversubscription) was to investors such as India Eq Fund, New Vernon, Nuvama and some Sr Management folks of Nuvama. They are also having a next round of Rs 155 cr for two of their subsidiaries. - Gautam mentioned that they are working on baking in AI tools into their core product offerings. Remember they recently bought Walnut.AI and even before that were working closely with that company. I see a parallel with AurionPro having made an AI acquisition and baking it into their core offerings. I think that’s imperative for any such company to survive in the years to come.