Ladies and gentlemen, good day and welcome to the IIFL Capital Services Limited Q2 FY 2027 earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Venkataraman from IIFL Capital Services. Thank you, and over to you, sir.
Good afternoon and welcome to the Q2 FY 2027 analyst call of IIFL Capital. I am R. Venkataraman, Managing Director, and I am accompanied with my colleague, Ronak Gandhi, who is the CFO. The global environment remained challenging during Q2 FY 2027 because of geopolitical tensions, elevated oil prices, high interest rates, and that has led to increased volatility across multiple asset classes. However, India remained resilient. Our GDP is showing signs of growth. I think it grew 7.8% in Q1 FY 2027, and it has been supported by manufacturing services. In this environment, because of inflation pressure, crude price pressure, currency pressure, and outgoing foreign flows, we have to closely monitor the happenings on a macroeconomic front. However, as of now, as we speak now, India's medium-term fundamentals remain strong. We remain focused on disciplined growth, prudent capital allocation, governance, and risk management.
Coming to our results, consolidated operational revenue for the quarter was INR 722 crores, up 14% quarter-on-quarter, 22% year-on-year. If you compare Q2 FY 2027 with Q1 FY 2027, the retail equity was INR 316 crores, which was up 6%. We saw a significant growth in our institutional and banking revenues. It was up 18%, INR 245 crores versus INR 207 crores the first quarter. Basically, we have seen traction in broking as well as banking. FPD income, which is distribution income, was INR 159 crores in Q2 versus INR 125 crores, which was up 27%. Employee cost increased 8% because of both headcount increase as well as bonus provisions. Finance cost increased 25% to INR 75 crores due to increase in borrowings, which was off. Then depreciation increased 6% to INR 18 crores.
Fees and commissions were virtually flat, down 4% to INR 134 versus INR 139 crores. Admin expenses grew by 9% to INR 96 crores, mainly because of investments in technology. Operational PBT, which was before mark-to-market, was INR 206 crores, up almost 40% on a quarter-on-quarter basis. If you remember last time in the analyst call, I had spoken about the other income which we had seen in the first quarter of FY 2027 due to mark-to-market gains in BSE. This time, unfortunately because of adverse price movement, we have a loss of INR 32 crores. That is primarily because of BSE shares price movement. If you now look at data on a year-on-year basis, Q2 FY 2027 versus Q2 FY 2026, then we have seen a retail broking income growth of almost 17% to INR 316 crores.
Institutional banking income was up 31%. Then we have FPD income, which was up almost 23%, INR 159 crores versus INR 130 crores. Employee cost increased 26% to INR 194 crores, basically due to both increase in headcount, variable pay and fixed cost, because on a year-on-year basis, we have to take normal wage increase also. Finance cost increased 40% because of increased borrowing. Our MTM book has grown. Depreciation increased 16% because of branches and technology investments. Fees and commissions increased 13%. Admin expense grew again 11%, mainly driven by tech. Operational PBT was at INR 206 crores before mark-to-market, and it was a gain of about 25%. Other income, as I mentioned, was due to mark-to-market in BSE shares due to price movement in BSE shares.
Coming to year-on-year basis for H1 FY 2027 versus H1 FY 2026, then we have seen a 15% increase in retail equity, INR 613 crores. Institutional broking income was up 16%, INR 451 crores versus INR 390 crores. FPD income was virtually flat, INR 285 crores versus INR 275 crores, because in the last year first quarter we had seen exceptional upfront transactional income. Finance cost increased 44% to INR 135 crores. Depreciation, 9% increase, again, as I mentioned, because of accident technology. Fees and commissions increased 8%, INR 273 crores versus INR 253 crores. Admin expense was up 6%. Operational PBT was up 8% to INR 355 crores before MTM. Primarily, we have investments in BSE, which is a legacy investment.
We continue to hold about 5.95 lakh shares of BSE, which is the main driver of the MTM. Now coming to some housekeeping data. Average daily turnover was INR 305,073 crores, of which F&O was INR 301,785 crores. Cash was INR 308 crores in Q2 FY 2027 versus INR 35,780 crores, F&O INR 312.80 crores and cash was INR 3,300 crores in Q1 FY 2027, which was down roughly 3% on an overall ADTO basis. We have actually done reasonably well compared to the overall decline in market volumes. On a year-on-year basis, we have seen a 16% increase because the last year same quarter it was about INR 263,568 crores. Coming to other updates.
First, I'll give you an update on the Fairfax investment. If you remember, Fairfax had decided to do a preferential infusion of capital in IIFL Capital. We have received FIH, Fairfax Holdings Investments has received all requisite regulatory and shareholder approvals for the proposed acquisition of 51% of the company through a preferential allotment open offer and other arrangements with the promoters. The preferred allotment and open offer are under implementation and we are expecting that we'll get closed in this month of November itself. As consequent to this, Fairfax will join the promoter group along with existing promoters. The other update is, we also propose to incorporate a wholly-owned NBFC subsidiary and this basically, NBFC is aligned with the company strategy to expand the financial services offerings and develop lending and credit solutions to HNI segment. This is, of course, subject to regulatory approvals from RBI.
Last point is about succession planning. As part of our leadership succession, the board has approved appointment of Vasudev Jagannath as additional director and whole-time director for three years, subject to requisite regulatory approvals. Vasu is an MBA from IIM Calcutta, and he has over, I would say, close to three decades experience in capital markets. Of which two decades he has been with IIFL Capital. Prior to joining IIFL Capital, he was in the New York desk of CLSA, and also just before joining us, he was the head of sales of CLSA. So he comes with deep experience and has been with the firm for almost two decades.
We believe that Vasu is well-positioned to lead the company to the next phase of growth, and he will be designated as managing director with effect from January 1, 2027. I will continue to be on the board of directors even after that. With this, I think I have come to the end of my opening remarks, and we will be more than happy to answer any questions that you have. Thank you so much.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Keshav Karwa with White Pine Investment. Please go ahead.
Hi, sir. Thank you for the opportunity. I have few questions. This quarter, how many RMs were added, and could you also please provide the breakup between the institutional broking and investment banking revenue?
See, this quarter, I don't think we added any. Even if we have added RMs, it will be in single digits. Bank RM, I'm assuming you're asking, so net increase has been marginal. Coming to institutional broking and investment banking, I think that for this quarter, it was roughly about INR 245 crores, out of which I think the split would be about INR 250 crores of broking and INR 200 crores of institutional investment banking.
My second question was on Fairfax. How are you planning to deploy the funds?
See, actually, I think fund utilization will happen and bulk of it will go for, I think, margin funding. Repayment of borrowing will be one use of funds and a margin funding book will be the other use of funds. These are the broad, I would say, use of funds. I'll do one thing. I think whatever we have published in the open offer document we have given, I'll communicate to you separately. If you can drop an email at venkat@iiflcapital.com, I'll give you the exact details.
Okay. Sure. My third question was, your PMS AUM had declined this quarter. Could you please provide an update on it?
Yes. We have seen some decline in the PMS AUM, primarily because we have seen some outflows in the Indo PMS, which we hope to recover in the coming days. That was the reason.
Okay, sir. Thank you so much.
Thank you so much.
A reminder to all participants, you may press star and one to ask a question. The next question comes from the line of Neha with Abakkus Asset Manager. Please go ahead.
Hi. Thank you for the opportunity. Congratulations on a good set of numbers. Sir, just a couple of questions. On the FPD, the distribution income, the ARR as a share, grew by 5% sequentially. Going forward, what do you think will be the key drivers for this segment for us?
In the FPD income, the key driver earlier was, there were some components, which was the ARR income, some amount of transaction income, some insurance income also. I think going ahead, in the next two quarters at least, we should see some uptick on the insurance income and the key driver will be growth of AUM. So PMS AUM should increase and that will drive the income.
So, sir, this quarter, AUMs have increased. Is that coming from insurance or that's been coming from the other segments? Because
Insurance has underperformed. This quarter insurance has underperformed. So we have seen actual growth in the ARR income.
Right. That's largely coming from the fixed income and mutual fund, right?
Yes. AIF, PMS and mutual fund.
Got it, sir. Sir, also on these assets. If you could just give a broad sense of how much would be from the UHNI clients.
I don't have that detail. I think that's a good question. Generally, I look at it in a consolidated basis, but let me call that number and get back to you.
Sure, sir. Sir, with respect to our broking business, what kind of impact did we see because of the RBI regulations that came into effect from second quarter? Have we seen any impact of that? I mean, of course, we have done much better.
Yes, no. We have seen marginal impact. Nothing to write home about because we have no prop, so I do not think we have any impact, if I can say.
Got it, sir. Sir, lastly, just on the employee cost, you mentioned that the increase is because of the headcount increase and provision. Where is the headcount increase coming from? Because you mentioned that in the wealth we have not added RMs as such. So where is the headcount increase coming from?
I talked about the wealth RM, but in wealth we have the AMC business, so there we are seeing some headcount and headcount has not been so dramatic also. If you see the overall expense, employee expense has increased 8% only on a quarter-on-quarter basis because of some bonus provisions and few increase in headcount and on a year-on-year basis also it has increased 26%. That was because we have roughly about some 5% increase in the headcount and then also we have seen some increase because of variable pay and on account of overall year-on-year inflation and actually this year inflation has been quite, base full inflation has been quite high.
Understood. This INR 194 number is what we can expect to see continuing for the rest of the year, right? INR 194 quarter.
Quarter, yes.
Understood. Okay. Thank you, sir.
Thank you so much.
Participants, please press star and one to ask a question. The next question comes from the line of Krish Agarwal with Neo- Asset. Please go ahead.
Hey, Krish this side. I wanted some clarity on the difference between the fee charges in the assets that we are distributing by ourselves and the third-party assets.
Sorry?
We have our own distribution, AUM, in the FPD business and we are also distributing the third-party products. I wanted to know what's the differential fee charge between the third-party distribution.
Typically, on the equity products in-house, we get about 2.5%, 2.25% maybe, and third-party products it will be about a 50% cut. I think these are rough numbers. I hope I give you directionally the answer.
Okay. So 2% on our own products and-
1.5.
One [inaudible]
Yeah.
1% on the third party. Got it. Thank you.
Thank you.
A reminder to all participants, please press star and one to ask a question. Participants, please press star and one to ask a question. The next question comes from the line of Axay Shah with VVD Asset Managers. Please go ahead.
Thank you for the opportunity, sir. Sir, I joined later, so pardon me if it is a repeating question. Sir, how do we see the direction of breaking even in our FPD business?
See, actually in the wealth business, I am assuming you are asking a question regarding the wealth business, right? Because the FPD has got components from both our existing broking business which have migrated to HDFC broking. The new business wealth we have started, so we hope that we should break even in the next maybe 6-18 months. But what has happened is that subsequently we have started in-house manufacturing also and we have close to roughly about INR 4,500 crores, right? In-house manufacturing. We have roughly about INR 4,500 crores of in-house manufacturing and investing in that. So that I think will take a longer time to break even.
Okay. What was the loss from FPD business for H1?
The equity business?
No. Your wealth business is making loss as of now.
We are making loss on the wealth business. I will do one thing, I will call you separately and give you the figure. I do not have the figure right now.
Okay. Thank you so much, sir.
Okay.
The next question comes from the line of Abhijeet Sakhare with Kotak Securities. Please go ahead.
Hi. Good afternoon, everyone. Sir, pardon my lack of information on this, but the Fairfax transactions, the ultimate end goal is that it all rolls up into the banking license, right? I am just reading through what Fairfax has put out in their disclosures on the transaction.
Actually, you have a very good point you have made. Actually, the Fairfax press release mentions about that, but it says that ultimately the interest of both Go Digit and IIFL Capital will get consumed into the bank. Maybe become a part of the bank as a subsidiary. I think that is what will happen in the long term. Although this question is better answered by Fairfax people than us.
Got it, sir. Just curiosity. Thanks a lot.
Thank you.
A reminder to all participants, you may press star and one to ask a question. The next question comes from the line of Axay Shah with VVD Asset Managers. Please go ahead.
Yes, sir. Our insurance business has not performed much well. So what is our target in insurance business going forward? Are we focused-
So answer the question. I will answer it to you. Sorry, I cut you. Please complete the question.
Okay. So how are we, are we focused more on capital market business in distribution business, or are we have same focus on insurance business?
Actually, Tobey, that is a good question because this entire insurance business has become marginal, and in the last two quarters we have seen some amount of this, and for the next two quarters we will focus on this because before the new regulations kick in. But on the long term, if you ask me, we will focus more on the capital markets distribution rather than insurance distribution.
Okay. So if there is an opportunity, you will sell it out of this business, is that possibility?
Actually, yeah. We are open to all discussions to enhance shareholder value. I think we will explore.
Okay. Thank you, sir.
Thank you.
Participants, please press star and one to ask a question. The next question comes from the line of Devansh Jain with Neo Wealth Management. Please go ahead.
Hey. This was regarding the open offer, whether promoters are inclined to tender their shares in the open offer, other than the promoters selling shareholders.
No, no. Actually, let me clarify. The way this open offer is structured is they will make an open offer. If they do not get shares to go up to 51%, then we will sell to make them 51%.
Okay. But other than promoters who are selling their shareholders to make that 51%, can tender in open offer or not?
No, they are not tendering.
They are not tendering.
I am talking here for the promoters, not for everyone.
Okay. Thank you.
Thank you.
A reminder to all participants.
I think let me clarify the question that Neo-, I forget your name. What is your name, sorry?
Devansh, sir.
Devansh of Neo. See, the way we have structured the transaction is that the promoters and the promoter group will not offer shares in the open offer. As and when the open offer gets concluded, if they do not make it to 51%, only then they will give shares to them. I hope I have answered your question.
Oh, yeah. Thank you.
Thank you.
A reminder to all participants, you may press star and one to ask the question. Participants, please press star and one to ask a question.
Anyway, if you do not have any more questions, first of all, thank you so much to all the participants. As I mentioned, venkat@iiflcapital.com is my email, and both Ronak and I are available to answer any further questions that you may have. Thank you so much for giving me a patient hearing. Thank you.
Thank you, sir. Ladies and gentlemen, on behalf of IIFL Capital Services, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.