Q3 23/24

Jan 23, 2024

Summary

Q3 FY24 revenue rose 68% YoY to INR 582 crore, led by brokerage, distribution and investment banking. Management cited a strong deal pipeline but emphasized market cyclicality and a renewed review of the proposed retail-customer transfer to 5paisa.

Ladies and gentlemen, good day and welcome to IIFL Securities Limited Q3 FY 2024 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 the 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. R. Venkataraman. Thank you, and over to you, sir. Thank you, and good afternoon, everyone, and welcome to the Q3 FY 2024 earnings call of IIFL Securities. Along with me is Ronak Gandhi, who is our CFO. Wishing all of you a very happy and prosperous new year. Coming to the global macro, India remains the fastest growing economy, with real GDP expected to grow upwards of 6% over the next two years. Monetary policy easing across the globe is expected to start somewhere in the second half of calendar 2024, which will support business investment and discretionary household spending. In an Indian context, government investments will continue to remain high. Downside risks remain due to heightened geopolitical tensions. Coming specifically to Indian markets, calendar 2023 ended on a high note for the domestic mutual fund industry. AUM crossed INR 50 lakh crores. Also in the end of December 2023, mutual fund ownership of Indian markets was about 8.7%. Retail and other individuals hold another 9.7%, which is marginally above the FII ownership of about 18.2%. These data points point out to a deepening of the Indian capital markets. Coming to IIFL Securities, we are pleased to announce another strong quarter, primarily driven by an investment banking business, where we completed about 17 transactions in this quarter. Coming to results, numbers, consolidated revenues for the quarter came at INR 582 crores, which was up 68% year-on-year and 9% on a quarter-on-quarter basis. The reason for this steep increase on a year-on-year basis was that brokerage income increased by 73% to INR 268 crores in this quarter versus INR 155 crores in Q3 FY 2023. Distribution income also increased significantly, INR 100 crores for this quarter versus INR 53 crores for the quarter last year, primarily driven by sale of products like AIF, PMS, and insurance. Investment banking increased by 32%, INR 55 crores in this. Coming to a quarter-on-quarter basis, brokerage income was virtually flat at about INR 268 crores. Distribution income increased by 18%, INR 100 crores versus INR 85 crores, and investment banking increased 45%, INR 55 crores versus INR 38 crores in Q2 FY 2024. Other income was INR 24 crores, increased by 373% year-on-year and reduced 12% on a quarter-on-quarter basis, primarily driven by mark-to-market gains in DF shares. Coming to expenses, employee cost was down marginally 7% on a quarter-on-quarter basis. And if you look at finance cost, finance cost was up 42% on a quarter-on-quarter basis, up 134% on a year-on-year basis because of increased borrowing. The borrowing was done primarily to support our margin trading book. Our admin cost was down marginally 9% and increased 49% due to increase in our sub-broker payout as well as increase in technology expenses. Our assets under management custody, INR 1,81,582 crores, out of it, roughly about INR 24,000 crores in cross sell. Our average daily turnover for this quarter was INR 2,71,309 crores, which is about INR 2,495 crores in cash segment and INR 2,68,815 crores in the derivative segment. Corresponding figures for the previous quarter was INR 2,49,979, which was INR 2,445 crores in cash segment and INR 2,47,533 crores in our derivative segment. With this, I come to the end of my remarks, and I am available along with Ronak to answer any questions that you may have. Thank you. Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask questions may please press star and one on their touchtone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. You may please press star and one. We will take the first question from the line of Hiten Boricha from Sequent Investments. Please go ahead. Yeah. Thanks for the opportunity, sir. So I have two, one bookkeeping question, and the other one is on customer acquisition. Can you just give me the breakup of the cash we have in the books, the breakup of cash of the company and cash of the clients or the margins we have for the actual cash in the books? See, our own cash is roughly about ₹430 crores. ₹430 crores. And clients will be? 3,500. Will be above 3,500. Okay, sir. Okay, thank you. My question is on the customer acquisition. As we can see in the presentation, we are adding like 50,000, 55,000 customers per quarter since last three, four quarters. My question is, what are we doing to get the customer acquisition more? We used to do around 2 lakh, 2.5 lakh, couple of quarters back, I believe, four, five quarters back. What are we doing to add more customers? Are we going to do that to 1.5 lakh customer acquisition per quarter again? Okay. As you are aware, on December 2022, we had a strategic decision we have taken because earlier we used to acquire a large number of online retail customers. That was the time we were acquiring in lakhs. We have a strategic shift because we have a sister company called 5paisa where these online retail trading customer acquisition were happening. As of now, we are concerned, we are more looking at more the affluent customers, and hence the pace of customer acquisition has slowed down. Going ahead also, we will continue to focus on acquiring customers with bigger wallets rather than acquiring online retail customers en masse. So that 2 lakh kind of numbers, which earlier was the number, that was because of 5paisa, right? No, no. 5paisa is separate company, but we are also acquiring customers similar to them. Okay. Which is online retail customers. No, I didn't get that, sir. Can you please explain me again? So sorry. No, no. Hamare usne customer acquisition was quite large because we used to acquire a large number of online retail customers. Okay. Spending money on digital channels and social media, et cetera. Okay. So as of now, we are focused on acquiring more affluent customers, hence the numbers have come down. Okay, understood. Customer acquisition, 5paisa is acquiring in lakhs, which is again. Okay. Sir, any rationale behind changing this strategy? It is very simple because, in the group, we are two companies. Which is online retail customers, which is catered to by our sister company called 5paisa. Here, we are more focused on the affluent customers, which are retail customers with more disposable or higher investment customers. Okay, understood. Thank you so much. We have done this shift. Understood. Sorry. Okay, sir. Thank you so much, sir. Thank you. A reminder to all the participants, anyone who wishes to ask questions may please press star and one on their touchtone phone. The next question is from the line of Narendra from Rubicon Capital. Please go ahead. Hi, sir. Thanks for the opportunity. My first question is regarding- Thank you. margins. What do we take as the steady state margin going ahead? You know, like this quarter it was above 40%. Was there any one-off or just wanted to get an idea what is the steady state? Actually, it is difficult to give a number like a steady state margin for a cyclical business like us, because when the markets are good, then things look good. First of all, there was no one-off. But you have to remember that there has been huge activity in capital market for the last two, three months, and we had lot of block deals, lot of activities like this, which are boosting brokerage income. Okay. What kind of deal pipeline are we seeing on the investment banking side for the next- Investment banking, I cannot tell, but the investment banking deal pipeline looks very good. Okay. Are we seeing a visibility? How much visibility do we have? You know, three months- I think it is like, obviously, I will give a standard disclaimer the state of capital markets, but visibility looks very good. Okay. Got it. Regarding the, what kind of traction are we seeing on the BSE derivatives segment? Does your- Yes ADTO growth Yeah. BSE derivatives. We are seeing traction on BSE derivatives for sure. Okay. Got it. Thanks so much, sir. Thanks and all the best. Thank you. Krishna. Participants, to ask questions, you may please press star and one. If you wish to ask questions, you may please press star and one now. The next question is from the line of Rishabh Nahar from Swan Capital. Please go ahead. Hi, sir. Thank you for the opportunity. Just one question in terms of the customers. The kind of customers that we're acquiring, like it's more from the affluent segment. What is the life cycle of these customers? Is it very different from the retail discount broking, like the 5paisa and the other discount brokers? Because those customers seem to be pretty secure and their life cycle is three months, six months, one year. Are our customers a lot longer in terms of their retention there, the revenue that they're contributing to? See, actually, that's a good question. We believe that our customers have got higher disposable income and more inclined to invest rather than trade aggressively. But we have not done any psychographic or analytical modeling of this, so I'm not in a position to give you a very scientific answer. Okay. Is it also like, are we focusing on some sort of trading community? Like for example, Zerodha has a strong- No, what you said could be correct, but there is a segment of what we call the algo traders or the large volume, high volume trader. Historically, we have not done very well in that segment. Primarily because of very low yield. That is one segment which is growing very rapidly. I would say as a full service broker, we need to improve our offering there. Okay. Thanks, sir. Just one last question. What kind of brokerage model do we offer? Because- I am sorry to interrupt. Sir, your voice is breaking. Maybe- I cannot hear you. I think you have to speak closer to the mic. Yes, sir. Yeah. Can you hear me now? Sir, your voice is breaking. Actually, if you are using a Bluetooth, I would request you to remove your Bluetooth and use your handset to ask questions. Yes. Am I clear now? Am I audible? Yes, sir. Please continue. Yeah. Just one last question, sir. What kind of brokerage model do we provide? Because, from whatever ground research that we have done, we see that you also provide a discount brokerage model, which is telling me the number, which is very confusing. Just wanted to understand that. No. Actually, if you remember, we have also had this, I would say, the flat brokerage Z20 pricing scheme which we used to have. Now we have discontinued it. Very rarely on special cases we give, but otherwise we are on that ad valorem brokerage rate. You are right. Actually, historically, we were offering that. Okay. So now any new customers that are coming in, we are not offering that anymore. We don't offer but suppose in the market, suppose somebody comes and says so it is on a case to case basis that happens, but it is not such a big thing. Okay. All right. Who decides that? Does the sub-broker decide that, or is that within the company? No. It is controlled by HO level. Okay. All right. Thank you, sir. I think the person previous to you have also asked this question. I was trying to explain to him that online retail customers who use a discount pricing model, we are more or less trying to exit that space. Right. Okay. All right, sir. Thanks. Thank you. Thank you. Before we take the next question, a reminder to all the participants that you may please press star and one to ask questions. The next question is from the line of Tushar Salda from Athena Investments. Please go ahead. Yeah, thank you for the opportunity. I wanted to understand break up of your revenue. I can find three items in the presentation, retail brokerage, fixed income product distribution, financial product distribution, and investment banking. But it doesn't add up to the total. What are the other items? There is your investment banking income as given in the presentation. Yeah. Retail brokerage is INR 448 crores for nine months. Right. Financial product distribution is two. Investment banking is INR 148 crores. Okay. Total income is INR 1,400 something. What is the break up? I am not able to reconcile these numbers. I will tell you what. The components of income are broadly investment banking income, financial product distribution income. There is something called other income, where this mark to market and other interest income happens. Then there is something called interest income, rental income, and in brokerage-related income, there are a lot of things apart from retail brokerage, institutional brokerage, DP income, DDP income, etc. Your point is taken. Next time we will- You can refer to the results. The result table has all the details, but we will show it properly so your concern is addressed. Okay. Is there any plan with respect to 5paisa? Will that continue a separate entity or any plan to- No, it has to continue as a separate entity. It will continue. So there is no plans to merge or take over- Yes. Okay. Thank you. Thank you. Thank you. Participants who wish to ask questions may please press star and one. The next question is from the line of Rishabh Nahar from Swan Capital. Please go ahead. Hi, sir, just one question in terms of the 5paisa. We were going to transfer the retail clients and then I think there was a notification from 5paisa that has been withdrawn. Is that true? Is that- No, that's true because we also given a similar notification. I'll just tell you what is happening. As you know, in December 2022, we had done a scheme with 5paisa where we were transferring our online retail customers to them. We had made the applications after all those approvals to stock exchanges and SEBI. SEBI had a number of observations. Basically what has happened was that since there was a lapse of time because almost it's now close to one year or more. Basically, the exchanges said that we have to refine the scheme with additional clarification, documentation, including valuation. Now we had a board meeting yesterday. The board decided, given the fact that base of customers, valuations, market conditions, trading conditions, everything has changed substantially in the last 12 months. The board says that we have to revalue and then come back to the board and reevaluate the scheme. That is the reason why both the partners, which is BYJUS and us, we have decided to go back to the drawing board and reevaluate the scheme. Okay. Thank you, sir. Thanks. Thank you. To ask questions, you may please press star and one. The next question is from the line of Tushar Salda from Athena Investments. Please go ahead. Yeah, thanks for the follow-up. How much is your institutional brokerage? Because you mentioned that you had lot of large block deals and all that because of huge activity. Yeah. Roughly about 60/40 split of brokerage, retail, and institutional. 60/40? 40. Okay. Last quarter, what was it? Still 60/40. Total. Okay. Thank you. Thank you. Participants who wish to ask questions may please press star and one. A reminder to all the participants that you may please press star and one to ask questions. Okay, since there are no further questions, I take this opportunity to thank all of you for taking the trouble in joining us on this call. As you know, we are, of course, available, so you can send an email to what is my email? Investor relations. investor.relations@iifl.com and we will be more than willing to answer any questions that you have. Thank you once again, and have a nice day. Thank you, members of the management. Ladies and gentlemen, on behalf of IIFL Securities Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.