Over the past few years, Vakrangee has evolved from a sub-contractor and IT-enabler for e-governance projects to a company taking on projects on its own. Rising revenue contribution from Vakrangee Kendras has enabled it to move away from the capital-intensive, low-return ratios e-governance projects to an asset-light business model with high-return ratios. Share of Vakrangee Kendras (all on franchisee basis) in the company’s revenues has surged to sixty per cent currently, from 34 per cent in FY13 - with the rest coming from e-governance. The management believes the Kendras will form 100 per cent of their revenues by 2020.
The company provides all its services through these outlets. In addition to e-governance and aadhar card services, the company also sells insurance, opens banking accounts, makes payment of bills, provides mobile phone recharge, etc through these outlets. Recent tie-ups with leading companies namely Amazon andAramex will be other strong growth drivers for these Kendras. Vakrangee Kendras act as a one-stop shop for consumers to place their orders, collect or return goods from Amazon. “Amazon’s tie up with Vakrangee is helping it to penetrate the rural hinterland and urban slums, wherein it is otherwise difficult for e-commerce companies to reach. As of June’16, Amazon is already active in more than 1,000 outlets, with plans to increase to 75,000 outlets by 2020,” wrote analysts at Bank of America Merrill Lynch in a recent report. For Aramex as well, these Kendras will provide parcel booking and collection as well as payment collection services. Vakrangee plans to ramp up these Kendras from 21,820 outlets currently to 35,000 outlets by March '17 and 75,000 outlets by March 2020. According to the management's guidance, revenues for FY17 will be between Rs 3,800 crore to Rs 4,000 crore, which translates into a robust growth of 19 to 25 per cent over FY16. Given that these Kendras are in a franchisee model, Vakrangee’s earnings before interest, taxes, depreciation, and amortisation margin could come down from about 26 per cent currently to 20 per cent going forward, but the management remains confident of delivering good growth in its net profit in the future. Vakrangee has been appointed as a business correspondent by various banks for opening their accounts and other banking services in rural, under-served areas and also has a Reserve Bank of India license to set up and manage 15,000 white label ATMs across the country. The company thus is an important part of the government’s financial inclusion plans. In this backdrop, it is not surprising that the Vakrangee scrip has outperformed the S&P BSE Sensex consistently over the past one year to gain 87 per cent to Rs 240. Despite this rise, the scrip trades at 26 times FY17 estimated earnings - close to its historical average valuations. Given the strong revenue visibility, a near zero-debt balance sheet and healthy return ratios, the stock could continue to give attractive returns from here on.