Q1 23/24

Jul 26, 2023

Summary

Q1 revenue rose 39% YoY to INR 411 crores, led by brokerage, distribution, and investment banking. Management is focused on affluent clients and cash preservation; the SEBI client-onboarding order remains stayed pending proceedings.

Ladies and gentlemen, good day and welcome to the IIFL Securities Limited Q1 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, please signal an operator by pressing * and then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. R. Venkataraman, Managing Director, IIFL Securities. Thank you, and over to you, sir. Thank you and good afternoon, everybody. Thank you for joining us on this Q1 FY 2025 analyst call for IIFL Securities. I am R. Venkataraman, and I am accompanied with my colleague, Ronak Gandhi, who is the CFO. Once again, thank you for joining us today. Despite the continued headwinds in the global markets, India's macroeconomic stability is quite reassuring. IMF has also increased India's GDP forecast for FY 2024 from 5.9% to 6.1%, which is basically reflecting the strong macroeconomic situation India is in compared to rest of its peers. We also have favorable demographics coupled with the focus of the government on building physical, financial, digital, and administrative capacity through the mantra of reform, perform and transform. All this augurs well for India on a long-term basis. This is reflected in the performance of the stock market indexes also. Nifty within kissing distance of 20,000, which is a lifetime high. At IIFL Securities, our focus is to capitalize on these market opportunities by making investments in strengthening our research capabilities, technology capabilities, and also making sure that our talent is protected. We also expect in the days to come, the affluent segment will grow very fast and hence our renewed strategy is to focus on catering to the needs of the affluent segment. We are pleased to inform that our investment banking capabilities are getting recognized. We are yet again the number one banker for equity IPOs in India as per Prime Database. Our investment banking division completed nine deals across capital markets, debt, and private equity. Overall, our performance for first quarter has been quite good. Business also is positive. Coming to specific numbers, consolidated revenues came at INR 411 crores, 39% up year-on-year and flat on a quarter-on-quarter basis. On a year-on-year basis, brokerage income has grown 22%, INR 206 crores versus INR 171 crores. The financial products distribution income has doubled, INR 85 crores versus INR 41 crores. Affecting the key drivers are obviously sale of AIF, PMS, health, and insurance. Our insurance business continues to show traction. Investment banking has been, I would say, icing on the cake. INR 55 crores in this quarter versus INR 30 crores approximately for the last year. On a quarter-on-quarter basis, again, investment banking has grown 21%, INR 55 crores versus INR 32 crores. Our financial product distribution income has fallen down 11%, INR 85 crores against INR 95 crores, primarily because of seasonal peak of insurance in the last January, February, March quarter. Brokerage income has been virtually flat. Other income has decreased to INR 1.91 crores because of mark to market losses on investments. Coming to expenses, employee cost was virtually unchanged quarter-on-quarter and has increased 4% on year-on-year basis. The balance cost has been up 8% quarter-on-quarter and 12% year-on-year, basically because of increase in the interest overall borrowing cost. Admin cost has increased 15% quarter-on-quarter, 63% year-on-year, basically because of increase in sub-broker payouts and also increase in technology cost. Our assets under management and custody is INR 1,37,000 crores, which is approximately INR 20,000 crores in FD and INR 1,21,000 crores in custody assets. Average daily turnover for the first quarter was INR 2,30,000 crores, which was about INR 1,655 in cash and INR 2,29,061 crores in derivative segment. Corresponding figures for the previous quarter was INR 1,95,604, which was INR 1,600 approximately in cash and INR 1,94,000 in derivative segment. Coming to other updates. One is the update of scheme of arrangement between IIFL Securities and 5paisa. The board of directors on 6th of December 2022 has approved transfer of IIFL Securities online retail trading customers to 5paisa Capital. As of now, we are awaiting for NOC from exchanges and SEBI. As and when happens, other steps in the process will take. Second thing is about the order of SEBI. SEBI, by this order dated 19th June, prohibited the company from onboarding new clients for two years as a stockbroker. This was pertaining to inspection carried out for different periods from April 2011 to 2017. Our view was that the Enhanced Supervision Circular dated 26/9/2016 was made effective on 1st of July 2017 and we are seeking application which was unfairly applied to us on retrospective basis. Securities Appellate Tribunal, SAT, has stayed this order and currently this matter is sub judice. More importantly, we would like to reiterate SEBI's own assurance in its very own order, it told its jurisdictions that even SEBI has not found anything wrong subsequent to the Enhanced Supervision Circular dated in October 2017. I know instance of misuse of client funds by the noticee firms before SEBI, which has occurred subsequent to the implementation of the Enhanced Supervision Circular dated September 26, 2016. The second was in the matter of NSEL, IIFL Commodities was a member of the National Spot Exchange. In 2013, if you remember, NSEL had defaulted in its settlement obligations to investors, and our clients' money, about roughly INR 279 crores, was held. As you are aware, the matter is under investigation by EOW, ED, SEBI, SFIO, and other people also. IIFL Commodities acted like a broker for the investors of NSEL and just facilitated execution. As a registered broker, as per the byelaws, rules, and circulars of NSEL was a counterparty which guaranteed settlement of trade, and the same was confirmed by the erstwhile regulator FMC also by this order dated December 17, 2013. The sessions court on 6th of May directed attachment of properties of IIFL for repayment. We are pleased to say that the Hon'ble Bombay High Court has stayed this, and now again, this matter is also sub judice. We would like to reiterate that the company had transferred funds received from clients to NSEL and has not retained any part of it, and hence we have not accepted or taken any deposit from customers. NSEL is responsible for repayment and refunds, and the entire obligation is towards them. With this, I come to the end of my opening remarks, and I will be more than happy to take any questions that you have. Thank you so much for giving me a patient hearing. Thank you very much. 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. To ask a question, ladies and gentlemen, you may press star and one. Participants who wish to ask a question may press star and one on their touchtone phones at this time. Ladies and gentlemen, if you wish to ask a question, you may press star and one. Actually, if any of them have any questions later also, they can send an email to our investor relationship. We will be more than happy to answer all questions. We do have one participant in queue, sir. Pranay from J&J with the next question. Please go ahead. Thank you so much for the opportunity. Two questions. One is regarding this, how quickly do we expect the transfer to happen through 5paisa and allotment of that share? Is the ratio basically fixed, like we are supposed to receive one share of 5paisa for all 50 held? Is that fixed or? Yes, that is fixed. That is not going to undergo a change. As of now, we are waiting for approvals, and I don't know how long it is going to take. So once the approval comes, then within six months that should be happening. Okay. Another question is, can you throw some light on the real estate piece, basically in terms of sale or in terms of valuation? No. So actually, as you know, always we have been saying that we have properties across, and we have been trying to sell the properties. So the Mumbai properties and Delhi properties, they have an interest in it. So if you remove these two, then the big property to sell is in Chennai, Hyderabad, and Pune. We are not getting a good price for it, and we are not going to be distressed sellers. So anything that we can foresee in FY 2024 or? See, actually, to be honest, we have been trying to sell for the last one year. We are not able to get a good deal. Frankly speaking, at this point in time, the management has opted that we should not panic and sell it at a bad price. Because we are anyway getting rent and all these properties are being maintained, so they are just staying. Okay. Last one question. Seeing the cash flow and our balance sheet, what is the thought process on buyback from the management's view? See, as of now, what has happened is that we are taking conservative view to preserve cash. We have an attractive dividend payout policy, so we are thinking to pay 30%-35% out. Apart from that, I think the board can decide on the buyback part of it. As of now, we are at a wait and watch. Okay, sir. Thank you so much. Thank you so much. Thank you. To ask a question, ladies and gentlemen, you may press star and one. Participants, if you wish to ask a question, you may press star and one at this time. Sir, we have no further questions from the participants at this time. Okay, I think thank you so much. As I said in the beginning also, we are available to take any questions that you will have over a period of time. Thank you. Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.