Vakrangee Limited VAKRANGEE LIMITED TP - 92.45 (13.5xFY21 EPS) Industry - Information Technology Date - 4th April 2019

CMP 51.95 Target Price 92.45 Upside (%) 78% Bloomberg VKI IN NSE VAKRANGEE 52-W High/Low 245.25/22.35

We initiate a “BUY” target on Vakrangee with the target price of Rs. 92.45, a 78% upside potential from the current market price based on 13.5 times to its FY21E earnings.

Financial (INR Cr.) Rumours, Week Quarters, New Kendras, and Strong Future Ahead 2018A 2019E 2020E 2021E  Week Quarter Performance - Vakrangee’s quarterly Sales 6,379 1,424 1,471 4,953 performance has significantly deteriorated as the revenue of the company has declined by 95% on a yearly basis and profit EBITDA 983 -46 223 1,129 has ended in the negative zone. The company has reported Rs. PAT* 663 12 163 723 19.4 Cr. as other income and Rs. -0.8 Cr. adjusted profits. The sliding performance was recorded due to low numbers of EPS 6.3 0.1 1.5 6.8 Kendras under operation and non-availability of all the Change 26.7% -98.1% 1227.3% 343.0% services with the stores. P/E 8.3 447.5 33.7 7.6  Rumours - Vakrangee’s total market capitalization has P/B 2.1 2.1 2.0 1.6 slumped by more than 90%, after the rumours spread of its directors involved in the stock price and volume ROE 28.5% 0.5% 6.1% 23.2% manipulations, in SEBI investigation, there were no findings or RoCE 40.8% -2.3% 6.2% 33.0% instances of any stock manipulations by promoter or promoter *The amount has derived after considering other income for that group entities, and in EOW investigation clean chit has been year. given. The MCA has also issued no irregularities in its Shareholding Pattern preliminary finding on Vakrangee’s auditor PWC’s resignation.  Rolling Out of Next Gen Kendras - Vakrangee has rolled out 3,500 Next-Gen Kendras, which was just 95 in Dec quarter. The faster deployment of the stores are the result of companies regularly enlarging service portfolio, its brand name and the strong reach to its customers from Urban to Panchayat levels.  Strong Future Ahead - Vakrangee has clear visibility of 18,500 Next-Gen Kendras from its existing 45,000 stores. The 11,000 existing stores taken an extension to think over on the proposal. In the existing 3,500 stores, 20% of the stores are the first time franchise; while the remaining were the upgraded stores. Taking the view of the Kendras visibility and the expectation of 25,000 Next Gen Kendras by 2020 and 45,000 by 2021, it seems Vakrangee has a strong future ahead.

 Next Gen Kendras Are The Key - The new stores will be the key to growth as they have a unified service portfolio, standard look-feel, low penetrated tier-5 and tier-6 targeted market. The new stores are unlike the previous ones which were divided into different formats where not all services were available.

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, 400053, Maharashtra, SEBI REGISTRATION # INP 000004904 Vakrangee Limited

Valuation - Vakrangee is currently trading at 65.50 times to its trailing 12 months earnings and 2.1 times to its current book value. Due to the Next-Gen Kendras launch, the quarterly performances remained weak, but taking the 5 years trailing EPS of Rs. 3.79 and the P/E multiple of 13.7 times, the valuation is quite comfortable and gives a wide range of margin of safety.

What We Expect Going Forward

 We expect Vakrangee to unveil 25,000, 45,000 and 75,000 Next-Gen Kendras by March 2020, 2021 and 2022.  We Forecast the revenues to reach to Rs. 1,471 Cr. and Profit to Rs. 163 Cr. by March 2020, with EPS of Rs. 1.54.

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

Index

Page 1. Company Overview… 4 2. Business Model… 6 3. Quarterly Performance… 12 4. The Next-Gen Kendra’s Math… 15 5. The Positives… 18 6. Financials… 23 7. Disclaimer… 26

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

1. Company Overview…

Company History Vakrangee is a technology driven-company, focusing on creating India's largest network of last mile retail points of sale, to potentially enable every Indian to seamlessly benefit from financial inclusion, social inclusion, Digital India, Skill Development, Employment, Government programmes and wider access to basic goods and services.

Vakrangee was incorporated in 1990 and since then has evolved from being a sub-contractor to lead contractor for e-governance projects like computerisation of central election commission, MCA project, Passport seva Kendra, Sarva Shiksha Abhiyan, UIDAI. Since 2012, it is focussing to build India's largest network of last-mile retail touch points (“Vakrangee Kendras”) to deliver real-time banking (as a Business Correspondent), insurance, e-governance, e-commerce financial services, ATM services and logistics services to the unserved rural, semi-urban and urban markets. Vakrangee is now a Kendra based company which has been appointed as a Business Correspondent (BC) by various banks under the “Common BC” and “National BC” agreements with a contract period of 7 years as part of financial inclusion initiative. Kendras would act as an “Exclusive” BC to banks in any allocated sub-service area (SSA). Further, in addition to Banking services, the Vakrangee Kendra also offers various other services like utility bill payments, e-commerce, logistics, re-charge, etc.

Area of Operation The company delivers real-time BFSI services, Government to Citizen Services and Business to Consumer Services to the unserved rural, semi-urban and urban markets. Overall it has coverage to E-Governance, E -commerce, Logistics, Banking, Insurance, ATM and Financial Services.

Areas of Presence

Bihar, Chandigarh, Chhattisgarh, Delhi(NCR), Goa, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka. Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Uttar Pradesh, Uttarakhand, West Bengal.

Management

Mr Dinesh Nandwana – Executive Chairman A Chartered Account, Mr Nandwana is the promoter of the company. He has about 27+ years of business experience. He drives and oversees the overall business at Vakrangee since its inception in 1990.

Mr Anil Khanna - Managing Director & Group CEO Has 40 years of experience in various industries and has been with Blue Dart since 1992.

Dr Nishikant Hayatnagarkar – Director – R&D Holds Doctorate in Computer science from IIT, Mumbai. Has about 24+ years of experience in the IT sector. Main responsibilities in Vakrangee includes software development, IT compliance and technical support.

Mr Sumit Jain – CEO (e-commerce) Holds an MBA degree from Stern School of Business and B Tech from IIT, Bombay. Prior to joining Vakrangee, he has worked at Barclays, Credit Suisse and Intel Corporation in the USA.

Mr Rajeev Ranjan – CEO (e-Governance) He is a Post-graduate, was a former CEO with Vakrangee e-Solutions, inc at Manila, the Philippines led 8500 strong teams of professionals to deliver Land registration project for Govt. of Philippines. He was a former Tata group senior executive delivering national level, large scale, mission-critical projects.

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

Mr Rahul Dev Pal – CEO (Banking Business) He is an economics graduate with over 26 years of experience in the field of sales and marketing. Dealt with different Government departments and has in-depth knowledge in BFSI vertical. Started his career with HCL, he has worked with companies like Xerox, Pertech Computers, BPL and Godrej.

Mr Harish Mani - CEO (Insurance) Has 14+ years of rich experience in Insurance & Micro-Finance Industry. Prior to joining Vakrangee, he has worked for Bharti Axa Life Insurance company and ICICI Lombard General Insurance company.

Mr Sanjeet Mahajan - CEO (Financial Services) Has 20 years of experience with HDFC Bank and has served across multiple roles. In his last assignment as a Vice President at HDFC Bank, he was responsible to drive overall business and operations for some of the largest metro Retail branches of HDFC Bank.

Mr Rajesh Bhojwani - CEO (ATM) Has 12 years of experience in ATM, SME Lending and Retail Branch Banking division. His last assignment at HDFC Bank was Head – ATM Business Process. Prior to HDFC Bank, he worked with Chola MS General Insurance Company Ltd and Dewan Housing Finance Corp Ltd (DHFL) for over a span of 5 years.

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

2. Business Model…

Vakrangee has been working on a franchise model. Where it provides services through its franchises to the ultimate consumers. The company earlier had different franchise formats, but in the FY19 it has transformed its franchise into a single unified unit, Exclusive Next-Gen Kendra.

The Journey

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

First Phase General Store -

Vakrangee outlets started in 2011 with the general store model confined to a small room in a Gram Panchayat to cater the needs of rural and semi-urban citizens. These were the non-exclusive store models providing a single line of service primarily e-Governance Services.

Second Phase Banking Business Model -

Vakrangee after continuously working with people understood the need of the rural people & later started to Leverage itself to fulfil their needs. It first started by adding Banking services to their bouquet of services. This not only gave people access to services that they required but also expanded and accelerated the reach of the industry. Further on receipt of business correspondence banking mandate, the Kendras started the Business Correspondence Services model. Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

Third Phase Multi Speciality Stores -

Adding Banking services was just a start for Vakrangee as it then went on to expand its services from dual to multi-speciality stores. This model was planned as an exclusive store model with multi-line of services like Banking, e-Governance, Insurance and e-Commerce.

Forth & Current Phase Next Gen Model -

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

After watching people welcome Vakrangee with both hands open, Vakrangee is now taking the next leap by broadening the spectrum of services across different sectors to offer a “One Stop Shop” solution for its customers in its Next Gen model. The Next Gen model intends to bring a revolutionary approach to reach the rural market of India through a modern format with uniform infrastructure and consumer experience. Next Gen model has a new and standardized look along with unique features to make it future ready. It also includes key technological advancements, such as biometric and pin pad devices, White Label ATM machines to enable ease of transactions, store security by centralized CCTV monitoring devices and many other services.

The Next-Gen Kendra’s specialities have taken it numerous steps forward from Vakrangee’s previous stores.

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

Services Offered by Vakrangee Kendras

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

Business Alliances

Vakrangee has been providing a comprehensive set of services for which it has partnered with various market leaders. It is a win-win situation for both the parties as Vakrangee provides a platform where its partners have low feasibility with an anticipated huge market to penetrate and the partners bring footfalls to the Kendras. Like the partnership with - gives the e-commerce giant a new market to explore where it otherwise could not provide its services due to low visibility of the addresses, and various insurance partners, which except through the communicator as Vakrangee between them and the ultimate consumers, could not serve them due to mild awareness of the product.

Vakrangee’s Key Business Alliances

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

3. Quarterly Performance…

Quarterly Performance Review -

 In Q3 FY19, revenues slipped by 95% on a YoY basis as a few Next-Gen were in operation, 15,500 stores went on closure, which did not agree to upgrade and the rest were providing few banking, ATM and Government services. The revenue has been derived from 95 Next-Gen Kendras which were providing full services and 26,000 old version stores. Revenue, EBITDA and Adjusted PAT from Q1 FY 18 To Q3 FY19

 Operating expenses have been increased from 78% of its revenues in the Q3 FY18 to 88% in this quarter due to lower realizations from other services.

 EBITDA has declined by 105% on a yearly basis and the margin is in red. The EBITDA margin was -5.8% in Q2 FY 19 which has been further contracted to -20.5% in Q3. Operating And Employee Cost As % Of The Total Revenue

 Other Income has increased by 103% YoY in Q3 FY 18 whereas declined by 10% on QoQ.

 Adjusted PAT has turned negative if not considered the exceptional items incurred during the year.

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

 The Contraction in the revenues and profits are due to the non concentration on the older versions of the Vakrangee stores. EBITDA and PAT Margin -

Key Take-Away From Con-Call -

 Vakrangee has been focusing on its Next-Gen Kendras and the earlier version of the Kendras will either shut down or upgrade in the Next-Gen.

 The Capex requirement for upgrading the earlier stores will be arranged through internal funding, and no external funds will be required.

 15,500 stores went for closure in Dec. QTR. The Next-Gen Kendras were providing the full services, whereas the others had access to a few banking and government services, Which is the sole reason for the low topline and bottom line in the quarter.

 Management is only promoting its Next-Gen Kendras and encouraging the earlier registered franchise to upgrade to the newer version.

 Vakrangee is confident to be back on the growth track after 4Q FY19 as the management expects that the Next-Gen Kendras will start minting money for the franchise as well as to the company once they are in full service.

 Management is not pushing and encouraging sales of various services in its old version Kendras. It wants a single unified Kendra where all of its services are integrated.

 3,500 Next-Gen Kendras have already been rolled out on a pilot phase. Out of these stores, more than 70% of the stores are in Tier-5 to Tier-6 cities. The Management has the clear visibility of 15,000 more stores as they have agreed to upgrade into Next-Gen model.

 On compliance matters management has said that the MCA did not find any irregularity with respect to the Auditor resignation and SEBI has found nothing related to the stock price and volume manipulation.

 The management has been very serious about its stores' design and therefore Lewis and Hickey, the designer of the McDonald stores were appointed to design the Next-Gen.

 In the store design, ATM facility has been given inside the store so that the entrant has the visibility of the services provided in Next-Gen.

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

Revenue Allocation (Kendras vs E-governance)

 Vakrangee is emerging from a Common Service Centre (CSC) or E-Mitra Kendra, offering only e-governance services to a whole new Next-Gen Kendra, a one-stop shop. It has decreased its e-governance share in revenue from 100% in FY12 to 8% in FY18, shifted this share to its revenue from Kendras. Banking, E-commerce, ATM, Logistics and Insurance are the keys where Vakrangee is not only increasing revenues; but also diversifying its portfolio services.

 Vakrangee's associations with Amazon, Indian Oil, Netmeds and various banks are expected to boost the earnings. Company’s strategic allocation to its Kendras and planned focus on Tier-5 and Tier-6 cities would enable it to penetrate the non-organised market.

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

4. The Next-Gen Kendra’s Math…

The Worst Is Behind - Vakrangee in its recent quarters has marked falling revenues and eroding profits, at the time when the company had - - Accused of price and volume manipulation, and - Auditor’s resignation. Despite the headwinds, Vakrangee has pre-poned it's Next-Gen Kendra’s rollout, seeking a way to leave the worst behind. The move was courageous, as the falling revenues and profits may prove the allegation true. Company’s debt-free portfolio helped the board to take a valorous move, where they used the negative news to unveil their new generation Kendra and settle the low performance in between. The revenue in the transition period has fallen 95% and profits turned red due to low functioning of their older stores. In Q3 FY19, 95 Next-Gen Kendras were in operation, providing all the services what Vakrangee has in its Cart and 15,500 older stores which affirmed their conversion into Next-Gen provided ATM, Banking and few government services. The growing number of upgradations and aggressive new franchise application prove that the franchises still believe in Vakragnee’s business structure. Vakrangee’s has grown by 32.6% CAGR in Revenue and 43.4% in profits, the store numbers have nearly doubled every year with a CAGR of 85% in the last 5 years of regular business. Now when VKI unveiled a new store with added services we expect the same growth after the development period. We expect the company to show improved results in topline as well as in the bottom line from the 1Q FY20 as this would be the period where the existing 3500 stores would be in full run and the new transitional Kendras to be operational.

Numbers of old Vakrangee Kendras and Growth Numbers of Next-Gen Kendras and Their Growth

Stable Stable Growth Growth Years Years

Aggressive Aggressive Growth Growth Years Years

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

Franchise Selection Process -

Vakrangee for its Next-Gen Kendras roll out have given first preference to its existing franchise stores to upgrade. Vakrangee has a stringent franchise selection process. Vakrangee has come forward with 2 Next-Gen Models

Gold Kendra Silver Kendra

Capex and Working Capital Requirement - Capex and Working Capital Requirement - ₹ 25-30 Lakh ₹ 18-22 Lakh  Minimum Area - 300 Sq. Ft.  Minimum Area - 150 Sq. Ft.  4 Counters  2 Counters  Owner’s Desk  ATM Machine  ATM Machine

The franchise set-up process takes 14-15 weeks from payment to equipment delivery. The Process - Franchise fill the online application and pay the requisite fee, Rs. 3 Lakh for Silver and 3.75 Lakh for Gold model

Location and site selection process done in accordance with the area population and distance

Franchise due-diligence checks -

 CIBIL Check  Basic Referral Check

 KYC  Police Verification

 PAN Card  GST Registration

Accepting terms & conditions, Agreement signing and onboarding

Site Preparation, Civil construction, Interior decoration and Branding (strictly as per Vakrangee’s shared design manual)

Store inspection and approval by Vakrangee’s filed level team (Strict adherence to design guidelines)

Photo shall be ploaded through Vakrangee’s mobile app, a unique VKID shall be generated

Equipment delivery.

Services shall stick with the timeline and training as provided by Vakrangee.

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

Grant Thornton survey on the first 95 Next-Gen Kendras Grant Thorton has done a survey on the 95 first Next-Gen Kendras, a multispeciality store, which deployed in Mumbai, Thane, NCR and Noida by the company as a pilot phase.

Grant Thornton’s Observations * Backend support and VKMS team support should improve. # The outlets are becoming popular among people. ^ Non-compliant Kendras have Vakrangee approval due to the site-specific constraint.

The Conclusion of the Survey

 The branding has been strictly followed. The standardized look and feel to increase footfalls.  Vakrangee should add more govt. services.  Vakrangee adheres to all service availability at all stores, fulfilling “Ab Poori Duniya Pados Mein.”  Banking and ATM services are most utilised services hence, should focus more on e-commerce and e-governance.  Should consider upgrading franchise execute skill set. The large time frame of service availability making stores popular among the citizens.

(Credit - Grant Thornton India LLP’s Ruvey report )

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

5. The Positives…

What Makes Vakrangee Unique

 It is a One Stop Shop - Vakrangee has emerged itself into a one-stop shop where it provides Banking, Insurance, ATM, E-Governance, E-Commerce, Logistics, Financial and various other services. It has started as an e-governance service provider, but now the dependence on the e-governance has been substantially reduced due to the addition of the futuristic services. In the earlier format of Vakrangee Kendras, not all the services were provided, but now company made it mandatory to upgrade its stores in a single format which is the Next-Gen Kendra, where all of these services are available under one roof.

 Future-Oriented Business - Vakrangee has a full portfolio of future-oriented services. The Internet is grappling the business and the one who can cope-up with it, will survive. Vakrangee provided services are mostly connected with internet viz. Banking, E-Commerce and E-Governance. In banking, it provides services from A/C opening to deposit, withdrawal, FD/recurring, and many others. In the E-commerce business, the company has a huge potential and an enormous available market to grab. Vakrangee has partnered with Amazon for product sale, Jio for mobile connection-Recharge, Redbus for ticket booking, Netmeds for medicine orders, Augmont for sale of the gold product and such other alliances.

 Near Monopoly Market - Vakrangee has targeted Tier-5 and Tier-6 cities for its Next-Gen Kendras, where it has a near monopoly market. The areas have been untouched for the banking, E-commerce, logistics and other services which Vakrangee is planning to provide with almost no recurring cost for the company as the franchises are already incurring those costs. Vakrangee is providing banking-ATM services where no bank is available in a near distance, E-commerce-logistics services where no pickup or delivery is possible for any company due to non-availability of traceable address. These services put Vakrangee in a different basket where a huge opportunity is waiting for the company to materialize.

 Narrowing Competition (The Moat) - Vakrangee has been developed itself as a strong entity in the sector, providing a complete portfolio of services which can not be found in its competitors’ basket. Company’s most competitors are offering e-governance services and are small in size. Vakrangee’s 1.Extensive numbers of stores, 2.Strong Brand-Value, 3.Partnership with strong business entities, and 4.Reach to the Panchayat levels narrow the possibilities of a new entrance in the competition.

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

What Could Work For Vakrangee (External Factors)

 Easing White Label ATM Rules - RBI the banking regulatory body allowed White Label ATM Operators (WLAOs) to offer bill payments, display advertisement of non -financial product or services, and to source cash from any scheduled bank including cooperative banks and regional rural bank. The bill payment service is expected to intensify the footfalls into ATM premises whereas allowing the advertisement services would boost revenue for the company.

 NPCI Recommends A Hike In Interchange Fee - NPCI's recommendation of increasing the interchange fees from Rs. 15 to Rs. 17 would benefit the company. If the recommendation materialize and Vakrangee retains half of the incremental fee, it will boost its ATM revenue without any recurring or fixed investment. The Rs. 1 incremental revenue will boost the earnings from ATM services by 10%. Vakrangee has increased its exposure to ATM services as in its earlier stores, not every store has ATM services, but now with Next-Gen Kendra, Vakrangee has made it mandatory for every Kendra to have an ATM in the premises. With almost no additional recurring cost to the franchise and Vakrangee, ATM service would provide additional revenue, which would build a strong bottom line. We expect the revenue from ATM services to be nearly 10% of the total revenue, it the recommendation would be accepted and the company retained 50% of the increased amount, it would increase Vakrangee total revenue by 1% without any cost.

 Government Increased Its Focus On Rural Economy - The Centre and state governments are focusing more on rural upliftment. Centre’s MSP hikes by 50%, Rs. 6,000 direct income support to farmers, recent loan waiver and various other schemes are expected to benefit the rural which in the result would contribute further to Vakrangee’s topline as well as to the bottom line. Vakrangee provides Government backed low price insurance services viz. , Jyoti Bima Yojana and Pradhan Mantri Suraksha Bima Yojana which are expected to provide more footfalls to the Kendras.

 Direct Benefit Transfers - Government to curb the leakage, pushing the payments towards the option under which it transfers funds directly to the intended person's bank account. The scheme has increased the importance of the banks. The scheme is encouraging people to have bank accounts. Vakrangee has reached to the Panchayat levels, which enable its franchise to have a direct correspondence with the concerned person and as the franchise operated by one of a local person, the communication and understanding improve the business environment. The direct transfer pushes new account opening and the account opening further increased withdrawals, deposits, and ATM transactions.

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

 Increasing Debit and Credit Cards’ ATM Transaction - India after the de-monetisation has increased banking transaction exposure, whether its debit cards, credit cards, online payment or the other. The no of outstanding debit cards in Jan 2019 was 931 million, increased nearly 20% from Jan 17. The ATM transaction by debit and credit cards have increased too in the same period. Debit card transactions have recorded 24% growth in 2 years, whereas the credit cards’ ATM transactions have nearly doubled in the same period. The increasing ATM transaction in numbers and in amount would be a blessing for the Vakrangee franchises and to itself.

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

What Could Work For Vakrangee (Internal Factors)  A Debt-Free Portfolio Giving An Impetus Of Taking Strong Decision - Vakrangee has turned itself into a debt-free company with no Long-Term or Short-Term Borrowings. It makes Vakrangee take the strong decisions as it has taken in the past at the time when the company has allegedly accused of various issues and the auditor resigned just before the closing of FY18. Vakrangee stock prices corrected by more than 90% during the allegations; it had to preponed its Next-Gen Kendras rollout which was scheduled for 2020. As the management is determined to fund its Next-Gen Kendras internally, we expect the decision would enable Vakrangee to take a strong decision even when the company is facing some headwinds.

 One Kendra With All Integrated Services - Vakrangee has unified its services into a single store which it has named Next-Gen Kendra; also it has decided to eliminate the earlier edition stores. In its earlier stores, not all services have been provided in all the Kendra, but in Next-Gen, Vakrangee has made it compulsory for the franchise to give all the services viz. Banking, ATM, E-Commerce, Logistics, E-Governance and Financial services. This would eliminate the complex structure, simplified the process and reduce the requirement of another new franchise near the older one which does not have the full portfolio of services. The single consolidated store would help Vakrangee to effectively monitor Kendra’s performance on a single benchmark, which would be easy to compare and understand.

 Increasing Same Store Revenue - Increasing the same store revenue is the key to success as it comes with no recurring cost. Vakrangee with its ATM services along with all other services would increase its same-store revenue with no extra cost. ATM services are a headache for banks, swallowing their operating margins, but for Vakrangee Kendras, ATMs are a boon as they eliminate the 3 basic problems of operating ATM Machines -

 No security charges - As there would always be a franchise manager which nullifies the requirement of a security guard

 No cash filling charges - Franchise manager will do the same  No addition rent - ATM will be inside the store

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

We expect the Next-Gen Kendras to earn an average 40% more than the earlier editions as it has more services with the same recurring costs.

 E-Commerce Services To Increase Footfalls - India is the fastest growing economy in the world has penetrated e-commerce services with CAGR 53% between 2013-2017, which is the fastest among peers. Vakrangee which has its Kendras at places, where the online retail penetration is lower than the average has a potential to gain footfalls with its Amazon and Netmeds partnership. India incs penetrate the market with low-cost services and Amazon-Netmeds would do the same for Vakrangee. We expect Amazon Great Indian Sale and Netmeds uniform 20% discount on all medicines would increase customer footfalls into the Kendras.

(Credit -Bain & Company) Despite the rapid growth in the online retail, India’s online retail penetration is very low at 5% in comparison to China (20%) and USA (12%) which gives Vakrangee a huge market to capture.

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

6. FINANCIALS… Revenue Profit After Tax

EPS ROE and RoCE

Debtor, Creditor and Inventory Days

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

Income Statement (INR Cr.)

Year ended March 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Revenue 1,965 2,775 3,169 3,949 6,379 1,424 1,471 4,953 8,722 12,109 Change 26% 41% 14% 25% 62% -78% 3% 237% 76% 39% Operating Expense 1,368 2,018 2,309 2,943 5,071 1,362 1,061 3,603 6,336 8,844 Employee Benefit Expense 26 20 25 42 67 82 120 144 173 207 Other Expenses 17 20 24 35 258 27 66 76 114 155 EBITDA 555 718 811 929 983 -46 223 1,129 2,100 2,903 Change 45% 29% 13% 15% 6% -105% 580% -406% -86% -38% EBITDA Margin 28% 26% 26% 24% 15% -3% 15% 23% 24% 24% Depreciation 180 164 164 73 7 14 56 101 169 169 EBIT 375 553 647 856 976 -60 167 1,028 1,931 2,734 Interest 78 75 56 50 8 - - - - - Other Income 9 10 12 14 34 79 84 84 84 84 PBT 306 488 603 820 1,002 19 251 1,112 2,015 2,818 Tax 107 168 211 297 339 7 88 389 705 986 PAT 199 321 392 523 663 12 163 723 1,310 1,832 Change 82% 61% 22% 34% 27% -98% 1227% 343% 81% 40% PAT Margin 10% 12% 12% 13% 10% 1% 11% 15% 15% 15%

Balance Sheet (INR Cr.) Year ended March 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Share Capital 50 50 53 53 106 106 106 106 106 106 Reserves 755 1,188 1,561 2,008 2,476 2,489 2,652 3,374 4,578 6,251 Net Worth 805 1,239 1,614 2,061 2,582 2,595 2,758 3,480 4,684 6,357 Loans 475 399 320 144 ------Deferred Tax Liabilities 71 43 13 ------Capital Employed 1,351 1,681 1,947 2,205 2,582 2,595 2,758 3,480 4,684 6,357

Application of Funds Net Fixed Asset 435 272 132 29 90 158 585 934 1,440 1,272 Capital WIP 48 10 - - 3 - - - - - Investment 4 3 3 20 57 80 80 80 80 80 Loans 92 29 52 41 32 32 32 32 32 32 Other Non-Current Assets 6 6 17 5 20 20 20 20 20 20

Current Asset 1,144 1,711 1,908 2,173 2,774 2,490 2,230 2,938 3,997 6,163 Inventories 131 134 464 441 17 59 60 204 358 498 Trade Receivables 792 1,216 879 840 1,277 1,482 725 1,628 1,912 2,654 Cash & Cash Equivalents 29 37 165 594 1,439 908 1,403 1,065 1,685 2,971 Others 192 325 400 299 41 41 41 41 41 41 Current Liabilities 377 350 165 63 394 186 190 524 885 1,210 Trade Payables 255 212 113 20 345 137 141 475 836 1,161 Other Liabilities 14 68 13 38 43 43 43 43 43 43 Provision 108 70 39 5 6 6 6 6 6 6 Working Capital 767 1,361 1,743 2,110 2,380 2,304 2,040 2,414 3,111 4,953 Application of Funds 1,351 1,681 1,947 2,205 2,582 2,595 2,758 3,480 4,684 6,357

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited Cash Flow Statement (INR Cr.) Year ended March 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Profit/(Loss) Before Tax 306 488 603 820 1,002 19 251 1,112 2,015 2,818 Interest/Dividend Received -6 -7 -7 -9 -33 -79 -84 -84 -84 -84 Depreciation 180 164 164 73 7 14 56 101 169 169 Change in working Capital -225 -578 -247 33 -109 -455 760 -712 -77 -557 Direct Tax Paid -97 -142 -291 -293 -381 -7 -88 -389 -705 -986 Other Items 74 67 51 56 14 - - - - - CF Opearating Activities 233 -7 271 680 500 -509 895 28 1,318 1,360 Capital Expenditure -245 -4 -13 -11 -71 -79 -484 -450 -675 - Free Cash Flow -12 -12 258 669 429 -587 411 -422 643 1,360 Interest/Dividend Received 6 7 7 9 33 79 84 84 84 84 Other Items 8 3 -19 41 -59 -23 - - -106 -159 CF Investing Activities -232 5 -25 39 -97 -23 -400 -366 -697 -75 Proceeds of Borrowing -23 -56 -25 -12 ------Proceeds of Share Capital 1 148 1 0 1 - - - - - Others 18 -83 -72 -129 -135 - - - - - CF Financing Activities -3 10 -96 -142 -134 - - - - - Net Cash Flow for the Year -2 8 150 577 269 -531 495 -338 621 1,285

Ratios Year ended March 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E EPS 2.0 3.2 3.7 4.9 6.3 0.1 1.5 6.8 12.4 17.3 EPS Growth 81.7% 61.1% 16.2% 33.6% 26.7% -98.1% 1227.3% 343.0% 81.2% 39.9% Book Value 8.0 12.3 15.2 19.5 24.4 24.5 26.0 32.9 24.3 60.0 DPS 0.3 0.3 1.3 2.0 0.3 - - - 1.0 1.5 Payout 13% 8% 34% 40% 4% 0% 0% 0% 8% 9% Valuation P/E 26.3 16.3 14.0 10.5 8.3 447.5 33.7 7.6 4.2 3.0 P/B 6.5 4.2 3.4 2.7 2.1 2.1 2.0 1.6 2.1 0.9 Dividend Yield 0.5% 0.5% 2.4% 3.8% 0.5% 0.0% 0.0% 0.0% 1.9% 2.9% Profitability ROE 30.1% 31.4% 27.5% 28.5% 28.5% 0.5% 6.1% 23.2% 30.6% 33.2% RoCE 30.3% 36.5% 35.7% 41.2% 40.8% -2.3% 6.2% 33.0% 45.2% 49.5% ROA 16.1% 21.1% 21.6% 25.2% 27.7% 0.5% 6.1% 23.2% 30.6% 33.2% Margins EBITDA 28.2% 25.9% 25.6% 23.5% 15.4% -3.3% 15.2% 22.8% 24.1% 24.0% PAT 10.1% 11.6% 12.4% 13.2% 10.4% 0.9% 11.1% 14.6% 15.0% 15.1% Turnover Debtors Days 147 160 101 78 73 380 180 120 80 80 Inventory Days 24 18 54 41 1 15 15 15 15 15 Creditors Days 47 28 13 2 20 35 35 35 35 35 Fixed Asset Turnover 4.5 10.2 24.1 138.0 71.1 9.0 2.5 5.3 94.7 9.5 Leverage Debt/Equity 0.6 0.3 0.2 0.1 ------Net Debt/Equity 0.6 0.3 0.1 -0.2 -0.6 -0.3 -0.5 -0.3 -0.4 -0.5 DuPont Analysis PAT Margin 10.1% 11.6% 12.4% 13.2% 10.4% 0.9% 11.1% 14.6% 15.0% 15.1% Asset Turnover 113.7% 136.7% 150.0% 174.2% 214.3% 51.2% 49.9% 123.7% 156.6% 160.0% Financial Leverage 214.7% 164.0% 130.8% 110.0% 115.3% 107.2% 106.9% 115.1% 105.0% 119.0% DuPont ROE 24.7% 25.9% 24.3% 25.4% 25.7% 0.5% 5.9% 20.8% 24.7% 28.8%

Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904 Vakrangee Limited

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Abchlor Classic Equity Fund 409, Laxmi Mall, Link Road, Andheri W, Mumbai 400053, Maharashtra, India SEBI REGISTRATION # INP 000004904