Q4 24/25

Apr 29, 2025

Summary

FY2025 revenue grew 15% and PAT 40%, but Q4 revenue and PAT fell amid lower broking volumes and subdued investment banking. The strategy is shifting toward wealth and recurring asset-based income, with near-term hiring costs and market volatility as headwinds.

That this conference is being recorded. I now hand the conference over to Mr. R. Venkataraman, Managing Director, IIFL Capital Services. Thank you, and over to you, sir. Thank you, and good afternoon, and welcome to the Q4 FY 2025 analyst call of IIFL Capital. I am R. Venkataraman, Managing Director and Co-promoter of IIFL Capital, and I am accompanied with Ronak Gandhi, our CFO. We are living in volatile times, and heightened geopolitical tensions continue to be a significant near-term risk. Macroeconomically speaking, India is still on a strong wicket, but geopolitical risks remain a concern. As you know, IIFL Capital is a focused Indian capital markets and wealth management financial planning player. Our legacy business was retail broking, and we are on way to transform this to a wealth management practice with a focus on asset accumulation and not merely transactional income. To reflect the changed focus, the name of the company was changed from IIFL Securities to IIFL Capital Services Limited. We believe that we have all the pillars to successfully transform the legacy broking business into a wealth practice, be it brand equity, 2,500 crores of network, distribution reach across India, a critical base of customers, cutting-edge research, as well as technology for high-quality user experience. To facilitate this transformation, we recently hired Raghav Gupta and Prakash Bulusu. They have taken charge as joint CEOs to grow this business. They are experienced private bankers, and prior to joining IIFL, they had long careers with ASK Group in the private wealth business. The initial signs of this transformation are encouraging. The other update is that Nemkumar joined IIFL Capital in June of 2007 and was a founding member of the institutional equities business. Under his dynamic leadership, IIFL institutional equities, comprising institutional broking and investment banking, has scaled up extremely well over the years. Given the current focus on affluent wealth business and to have his focus on business development, he has been re-designated as Chief Growth Officer and the board has accepted his resignation as proposed for Managing Director. Subsequently, I have taken charge as Managing Director in the month of May. In the month of March, sorry. Ms. Rekha Warriar, Independent Director, has been appointed as the Chairperson of the board. This ensures the roles of the Chairperson and Managing Director are separate, which is a good corporate governance practice. She has been associated with the company since 2019 as an independent director. With over 30 years of experience in Reserve Bank of India, she will provide the company with invaluable guidance on corporate governance, regulatory compliance, and other initiatives. Coming to the results. For the full year, consolidated results for FY 2025, revenues was INR 2,567 crores, which was up 15% year-over-year. First, I will talk about the full year numbers, and then I will talk about the quarterly numbers. Coming to the full year, total institutional broking and banking revenues are virtually flat compared to last year, more or less at about INR 630 crores. Retail brokerage was up marginally at about INR 650 crores. This retail broking has been impacted for the last quarter because of regulatory changes related to expiry of derivatives, and that has affected the F&O business. Of course, market volatility in the JFM quarter also affected business. Distribution income, that has increased from INR 387 crores to INR 500 crores, up 32%, and mainly because of increased focus on asset allocation, which was a key focus area. Other income was up significantly, 132% from INR 70 crores to INR 162 crores and that was primarily because of mark-to-market gains on BSE shares, some investments in AIF, and also gain on sale of real estate property. We booked a profit of about INR 45 crores because of gain on sale of real estate. Increase in interest income by 27% from INR 329 crores to INR 419 crores was primarily because of increase in the margin funding book. Coming to costs. Manpower costs was up 29%, which was at INR 591 crores from INR 457 crores, and that was primarily because of hiring of the new wealth RMs. As a result, the average headcount was up to 232 versus 1,880. Also, we had granted ESOPs of almost INR 90 crores to senior management. Depreciation declined by 52%, from INR 114 crores to INR 55 crores. That is, if you remember last year, fourth quarter, we had written off the entire investment we had made in Karvy acquisition, and because of which it has fallen down. Fees and commission expenses increased marginally, from INR 437 crores to INR 496 crores, mainly due to increases. Basically, these are expenses pass out, marketing expenses paid for customer acquisition to external wealth partners for distribution income. Admin costs decreased 9% from INR 353 crores to INR 321 crores because of marginal benefits of cost optimization. As a result, profit after tax went up almost 40%, from INR 513 crores to INR 713 crores. Now, coming to the quarterly numbers. For the quarter ended March 31, 2025, if you compare March 31, 2024 with March 31, 2025, which is year-on-year basis, total revenues decreased 20% approximately from INR 704 crores to INR 573 crores, primarily due to fall of exchange volume due to tightening of norms for derivatives expiry as well as muted primary market conditions. As a result, institutional and banking revenues also decreased from INR 215 crores to INR 97 crores because of which our IB income has seen some decline. Retail brokerage was down from INR 194 crores to INR 113 crores but distribution income increased by almost 62%, from INR 117 crores to INR 190 crores. Other income also increased from INR 18 crores to INR 36 crores mainly because of mark-to-market on investments made in AIF and BSE and as well as some book profits on some other financial instruments. Interest income declined marginally from INR. INR 105 crores to INR 97 crores. Employee expenses increased 33% from INR 122 crores in Q4 FY 2024 to INR 163 crores in Q4 FY 2025 due to ESOPs, increase in headcount, and bonus provisions. Depreciation fell sharply 75% from INR 63 crores to INR 16 crores, mainly because of the impact of the profit hit we had taken in last year and I have already spoken about it earlier. Fees and commission income fell from INR 129 crores in Q4 FY 2024 to INR 108 crores in Q4 FY 2025. Admin also fell from INR 98 crores to INR 80 crores as a result of some cost optimization. Primarily driven by the revenue decline, the PAT fell from INR 181 crores to INR 128 crores in Q4 FY 2025. If you compare December quarter with March quarter, revenue again fell INR 646 crores in December to INR 533 crores in March, down 11%. Institutional broking fell, and that was primarily driven by a steep decline in investment banking income. Retail brokerage also fell to INR 150 crores to INR 113 crores, which was down 23%. Distribution income increased because of more focus on getting cross-sell income. Interest income fell from INR 111 crores to INR 97 crores because of a relative decline in the MTF book. Employee costs increased from INR 149 crores to INR 163 crores, mainly because of headcount and bonus provisions. Flattish depreciation. Fees and commission income was also virtually flat at about INR 118 crores to INR 108 crores. Admin expenses increased marginally from INR 71 to INR 80 crores because of spending in marketing as well as technology. As a result, PAT declined from INR 197 crores in Q3 FY 2025 to INR 128 crores in March quarter FY 2025. Now, coming to some housekeeping numbers. Our average daily turnover was INR 192,871 crores in F&O, of which cash was INR 2,535 crores and derivatives was INR 190,336 crores and this was almost INR 3 lakh crores in the Q4 FY 2024. As I explained earlier, this was because of the tightening of derivatives norms particularly related to expiry of indices and on March 31, 2024, F&O volumes were 296,975 and cash was INR 3,120 crores, which was down almost 36%, and the same number was 278,267 in the December quarter which was 275,520 in F&O versus cash of INR 2,747, again, down almost 30%. Now, coming to income tax. The income tax authorities had conducted search activity during the month of January 2025 at the registered office and other premises of the company. We extended full cooperation to income tax officials during the search and provided all details, clarifications, documents. We have not received any subsequent communication from the department regarding the outcome of the search. Hence, the impact on financial statements, if any, is not determinable. Dividends. The board of directors on February 11 declared a dividend of INR 3 per share and this has been already paid and the same was considered as final. With this I come to the end of my opening remarks and will be more than happy to answer any queries that you may have. Thank you so much. Thank you very much, sir. 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 withdraw 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. I repeat, if you wish to ask a question you may press star and one. A reminder to all participants, if you wish to ask a question you may press star and one. We have our first question from the line of Nidhesh from Investec. Please go ahead. Thank you for the opportunity, sir. Can you share some trends on the retail ADTO market share for us in FY 2025 over our last two to three earnings? That is one. Second is, as we are now changing our strategy and building more towards wealth management. Can you speak about how the approach towards business will change as we move towards the wealth management business and away from a broking business? Sorry. Overall market share for Q4 FY 2025 was about 0.96%. Including. Correct. Overall, total on an NSE volume, which was about 2.62 in cash and 0.96 in F&O. The same was about virtually flattish for Q3 FY 2025 at about 2.61, and actually, F&O was about 0.87%. The trend is more or less the same, if you look at the last three, four quarters. The cash is more or less roughly at about 2.6, 2.7% and F&O is about 0.8 to 0.95. Is this data including institutional business as well or is it just for retail? Everything. Okay. How are the trends on the retail business, if you can share that? See, retail, I don't have things separately on the retail part of it, but I'll get back to you on the retail market share. Sure. Secondly, do you have to share with the change in strategy and moving more towards wealth business, how will that change approach towards business? Let's say, how we look at the customer-level profitability or overall profitability in that context? See, basically what we think is that if you look at the way we are positioned, if you look, we have a significant presence in investment banking and institutional broking business. We think that this is a synergistic, it is a wealth practice because if you have client relationships at client levels, you have multilevel offering to the client, which helps us with deeper market share. It helps us to get deal origination as well as cross-selling. It is a synergistic benefit on the franchise. We also get some benefit of economies of scale, and also we share a lot of market intelligence and research. The way historically we have been structured or we have been positioned is that we have focused more on transaction income. The entire firm was driven for, I would say, with a focus on transaction. Asset gathering was not a measured metric. The big shift, I would say, in the mindset is that the focus will be more on asset gathering, focus will be more on selling, I would say, annuity products like mutual funds, AIF and PMS. Basically, we believe that the entire broking industry has become tech-driven, and hence the role of the RM is more towards client acquisition, servicing, and asset gathering. This, I would say, is the big mindset change that will happen in the next 12 months. Will that have an impact on the cost-to-income ratio for us? Yes, of course, it will have some impact on the cost-to-income ratio in the short term, simply because as the build-out is happening, there will be increase in manpower cost, and that has been evident because our manpower cost has risen. This is a cost to pay for the long-term gain, and we are cognizant of it and we will incur that cost. Okay. Lastly, if you can share the data in terms of institutional revenue break-up, in terms of brokerage and fee income for the full year. I think the full year income for broking, roughly full year income was about INR 600 crores for institutional. Can you break up this INR 600 crores in institutional equities, broking business and fee income, investment banking? This is a combination of institutional broking and banking. I think the ratio will be about 60/40, right? Roughly it will be about 60/40. Okay. Thank you for that. Thank you. Thank you. Actually, sorry. To that other person, if you send an email now to our investor relationships or ronak.gandhi@iiflcapital.com, we will answer that. Okay. Thank you, sir. He has gone back to the call. No problem. We have our next question from the line of Pawan Kumar, an individual investor. Please go ahead. Mr. Kumar, are you there? Hi. So there is a significant jump in distribution income from INR 100 crores to INR 257 crores, despite the distribution AUM growing from INR 262 billion to INR 313 billion. So it's about like a 19.5% or 20% growth in the AUM. But the jump in the revenue is significant. Can you explain how that is? I'm referring to PPT, slide number 17. One second. Yeah, that is because we have also had some amount of transaction income booked in that because we had distributed certain unlisted shares, especially NSE. So that gain has been booked there. Got it, sir. Could you be able to quantify the NSE or unlisted transaction income share and what would be the MF, PMS, and AUM distribution? Actually, I can tell you how much is that mutual fund AUM. Out of the total distribution, that's just about INR 13,000 crores. Yeah. We have about mutual funds of about roughly INR 14,500 crores. Yes. More or less roughly about INR 7,000-8,000 crores of PMS and AIF, and the rest is fixed income bonds. This is a rough distribution of the assets, cross-sell assets. Got it, sir. Sir, what would be the revenue or the yield on these MF plus PMS plus AIF assets? Actually, on a blended basis, I think the yield will be about 0.75%, 0.8%, 0.9%. 0.75% to 0.8% would be the blended yield. Yeah. On the insurance side, you have the reported premium that you have reported, like the life insurance premium is around INR 735 crores. Is this entirely first year premium? If so, what would be the revenue? Sorry. It is not INR 735 crores, INR 73 crores. Yeah, sorry, INR 73 crores. What would be the renewable? Pardon me, sir, I missed you. What would be the renewable premium? Hello? Sir, I missed you. Can you please repeat it? What would be the renewable premium? This is not renewable premium. It is a first year premium. I understand, sir. I understood. What would be the renewal premium is the question. I do not have the data right in front of me. I will share it. I will share with you. If you can send an email to ronak.gandhi@iiflcapital.com, I will share that with you. Understood, sir. I will do that. In terms of the cost-to-income ratio, you were mentioning to the earlier question. What would be the cost-to-income this year for FY 2025, and what is your guidance for FY 2026? Can you give numerical numbers? We are not giving any forward-looking statement. That is why I will not be able to comment on the cost-to-income ratio for FY 2026. Got it, sir. For FY 2025 full year, what is the sub-brokerage charges as percentage of overall retail brokerage? Retail brokerage INR 650 crore revenue, right? Out of that, how much is paid out to sub-brokers? See, actually, the retail brokerage income about INR 650 crores, roughly 45% comes from sub-brokers. Okay. Thank you, sir. Thank you. Out of this 45% that you get, how much you pay? You see the industry norm is anywhere from about 35%, 90%, depends upon the scale of the sub-broker, relationship and other qualitative factors. Got it, sir. Thank you. Thank you. A reminder to all participants, you may press star and 1 to ask a question. We have our next question from the line of Prayesh Jain from Motilal Oswal. Please go ahead. Hi. Good afternoon, sir. Good afternoon. Sir, just on this wealth management business we had earlier seeded 360 ONE, or we had started this business way back, and we did it via getting people on board. And similar is the strategy now that we're doing? Or what's the strategy there, and where is the RM count today for the Ultra HNI piece in particular? See, basically, as I mentioned earlier, that we have all the pillars to succeed because we have the brand, we have the balance sheet, we have the technology, we have the client reach. Given the way the broking industry is panning out and what is happening to the entire transaction space, it is imperative for us to do this transformation. As of now, we have about 450 of the affluent RMs and roughly about 50 for the, I would say HNI or Ultra HNI RMs. Sir, could you repeat those numbers? 50. 50 in the Ultra HNI? Yes. Okay. How many more do you plan to add in the next, say, one year or so? I think in the next one year, the headcount will go from about 50 to about 100 or 120. Okay. Sir, on this insurance premium, life insurance premium has come down quite sharply now. Obviously we cannot compare it with FY 2023 base because of the change in taxation at that point of time. But even then, even in a year-over-year basis, even then this year it is kind of down. How do you see this kind of business picking up from here on? See, actually, we think that this business will not show a big spike, but it should get back to a truly upward sloping graph in the mid-teens. Okay. And sir, just one last question on the IB business. How much of the IB business that we were getting earlier was with respect to the relationship that we had earlier with 360 ONE, and how much of the business we were doing organically? See, actually it is very difficult to differentiate between what was organic and what was relationship-driven because even if you have a relationship, unless you have proven capable to execute, nobody trusts their fundraising plans with you. We think that we got most of the business on banking part of it because we have, A, strong referrals, we have linkages with both domestic and foreign institutions, and third, this is extremely important, distribution amongst all the channels. Yes, there were references, but I think the deal couldn't happen because of our own strength. Hence, that is the reason why it is very difficult for me to give an exact number to how much came because of that and how much came because of this. Got that. And the last question, do you think that the pain on the retail side from a broking standpoint is now behind and that the implications of all the regulations are now behind us? Should we see an upward trajectory if the markets are supportive? My view is that the short term, I would still say that there will be some amount of recalibration happening. But if you don't have a short-term, maybe one or two quarter view, I believe that given the low penetration of equity participation in the country, we will soon And of course, as you rightly pointed out, if the markets are supportive, we should see an upward sloping graph. But I think for the next one or two quarters, I am constricted and I think because of volatility, we should see some amount of headwinds. Got that. Thank you so much, sir. Thank you. Thank you. Before we move on to the next question, a reminder to all participants, if you wish to ask a question, you may press star and one on your touchtone phone. We have our next question from the line of Kshitiz Tara from Tusk Investments. Please go ahead. Hi, good afternoon. Wanted to understand on the asset management side, you made a few key hires and you mentioned this in your presentation as well, NVC and IIFL Fintech Fund with a 400 odd crore AUM, if I am not wrong. Could you just shed some light on the plans and the hiring thereof, and how much do you look to scale this to and what is the plan ahead? See, on the asset management side, actually we have one IIFL Fintech Fund which has been with us for almost two, three years. We also have a derivatives advantage fund, which is again, not exactly a long-term fund, but something similar. We also have an equity fund which we are going to reposition. So we have already recruited a fund manager for equities, and he has joined us. So at this point in time, I would say that we have roughly about close to about 800, 900 crores of AUM, and this we think should easily double in the next one year. Thank you. That is helpful. Are you planning to launch mutual funds as well? No, it is unlikely. At least in the next 12 months, it is unlikely. At this point in time, whatever discussions we had with the board, it looks unlikely. All right. With respect to wealth, are there any new offerings we saw? There are things such as estate planning mapped out there. What is the size of the opportunity you see? Also because the competition over here is intensifying across the country, what would be your sort of unique differentiation in this space? See, first of all, I would say that competition in India and unique business is given. But what we have to look at is the size of the opportunity, and we are not selling credit cards in Singapore. That's the way I tell everyone that that is a cause of optimism because India is a large country and I think we are just seeing the beginning of the industry and the growth. Coming to what we think are unique, you are right that we have started succession planning trust. These are important, I would say, services to be offered to the HNI, Ultra HNI segment. We have also started a family office offering. These are, I would say, essential offerings, specifically for targeting the HNI, Ultra HNI segment. As I mentioned earlier, we think that we have the element of success because we have a brand, we have balance sheet, we have the relationships, we have a critical mass of customers. Last but not least, is high cutting-edge research and the fact that we have a strong banking and institutional equities practice which effectively reinforces the relationship because in some case, we can help the HNI monetize wealth and the other case they can also invest. So these we think may be the critical elements for our success. Understood. Thank you. Thank you so much. Thank you so much. Thank you. Before we move on to the next participant, I would like to remind all the participants, you may press star and 1 to ask a question. We have our next question from the line of Pranay from Johnson and Johnson. Please go ahead. Hi, sir. Good afternoon. Thank you for this opportunity. My first question is basically in wealth management piece, what sort of a cash burn do we expect and where do we see this management wealth thing in next 3 years? See, it's very difficult to give a cash burn number because it's a function of team build-out, business book, et cetera. As I said, at this point in time we are doing a build-out phase. My feeling is that it's very difficult for me to make a forward-looking statement. The key element to track is how our cross-sell assets grow and we think that this is a path which should rise. Obviously in the short term because of people take time to join and become productive, there will be some amount of burn simply on the employee cost part of it. Okay. My next question is basically one of our subsidiaries has invested in Avanti Feeds. We have taken a 4.5% stake. What is the rationale behind IIFL Capital and IIFL Facilities investing in this? No, actually that's the wrong information. It was taken for selling purposes and it's already off our books. Okay, so we don't own any more shares in Avanti Feeds. We don't own any Avanti Feeds as of now. Either IIFL Capital or IIFL Facilities? In IIFL Capital, IIFL Facilities or whichever the company you have spoke about, we don't have Avanti Feeds. Okay. Thank you so much, sir. Thank you. Thank you. A reminder to all participants, you may press star and one to ask a question. I repeat, you may press star and one to ask a question. A reminder to all participants, if you wish to ask a question, you may press star and one. Anyways, people have come to the end of the question. I would like to thank all the participants for participating and also asking questions. If you have any follow-on questions, please feel free to reach out to our investor cell. Thank you so much for joining us today and I really appreciate your time. Thank you. Thank you. On behalf of IIFL Capital Services, that concludes this conference. Thank you for joining us and you may now disconnect your lines.