How Vakrangee Turned From A Penny Stock Into A Rs 37,000 Crore Firm

Vakrangee’s market cap is now bigger than that of Idea Cellular or Power Finance Corporation. 

A Vakrangee kendra. (Source: Company website)
A Vakrangee kendra. (Source: Company website)

An opportunity that not many could foresee, much before everything digital became the holy grail of business. No real competitor and a deep reach.

That’s turned Vakrangee Ltd. into a Rs 37,000-crore company by market value in seven years. Bigger than India’s third largest telecom operator Idea Cellular Ltd. or infrastructure lender Power Finance Corporation Ltd. and many others for that matter. And that’s made promoter Dinesh Nandwana, who owns 42 percent of Vakrangee along with his wife Jyoti Nandwana, a billionaire—Forbes added him to its list last month.

Shares of Vakrangee soared from about Rs 16 apiece in 2010 to more than Rs 700 now. The latest rally being fuelled by Prime Minister Narendra Modi’s currency purge in November last year. Not surprising given that it’s a channel for banks and the government to offer services.

How Vakrangee Turned From A Penny Stock Into A Rs 37,000 Crore Firm

Backed by the likes of Life Insurance Corporation of India, Credit Suisse, BNY Mellon and Vanguard Group, the company runs more than 35,000 digitally connected kendras or outlets across 16 states that take deposits, offer loans, sell insurance, collect taxes and utility bills, let people apply for passports and even enroll them for the Aadhaar biometric ID. And it has tied up with 31 lenders, including the country’s largest—State Bank of India—to offer financial services, its website said.

Founded in 1990 as an e-governance services provider, a change in business model helped Vakrangee boost its growth trajectory. It shifted its focus to the franchisee kendras in 2012.

The contribution of centres to its revenue is likely to nearly double, from 39 percent to 76 percent in four years to March 2018, according to its filings.
How Vakrangee Turned From A Penny Stock Into A Rs 37,000 Crore Firm

And it’s a business that hardly entails any capital expenditure since it works on a franchise model. The company is only required to find the infrastructure for setting up outlets for which they get a commission of 20-35 percent. The franchise bears the setup costs of around Rs 1.5-2 lakh in rural areas and Rs 60,000-90,000 in cities.

“Opening outlets is very easy but the day-to-day management on the ground, with operational issues is the key,” a Vakrangee spokesperson told BloombergQuint. “We have our field team till the block level—in the sense that there’s a state head, divisional heads, district coordinator and a block coordinator to oversee the operations.”

The only downside: low margins. Yet a higher share of the kendra business means lower interest costs on the capex for e-governance services, brokerage B&K Securities said in a report. And that’s helped it become debt-free, with over Rs 1,200 crore of cash in hand.

How Vakrangee Turned From A Penny Stock Into A Rs 37,000 Crore Firm

The company plans to more than double its outlets to 75,000 in the next three years. And its inclusion in MSCI Large Cap and S&P BSE 100 indices could spur investment by global investors.

Vakrangee recently tied up with and Indian Oil Corporation Ltd., with the company planning to open kendras at the fuel retailer’s near-20,000 petrol pumps. “The size is an entry barrier. The larger we become, the better partner brands we attract,” the spokesperson said.

Yet, no single service is profitable on a standalone basis, the spokesperson said. “It’s (business) viable for us because there is a strong bouquet of services.”

A slow ramp-up in new outlets could impact the earnings per share growth, B&K Securities said in a report. Also, it has a high dependence on the franchise model. And any tweak in the Reserve Bank of India norms could affect its banking business, the report said.