Anand Rathi Share and Stock Brokers Limited (ARSSBL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Anand Rathi Share and Stock Brokers Limited Q2 and H1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Diwakar Pingle from E&Y for the opening remarks. Thank you, and over to you, sir.

Thank you. Good evening, and welcome to the Q2 and H1 FY '27 earnings call of Anand Rathi Share and Stock Brokers Limited. The company has published its results and uploaded Investor Presentation Stock Exchanges and website. Before we begin, a disclaimer. Some statements during today's call will be forward-looking in the nature. These statement are subject to risk and uncertainties to [indiscernible]

I'm sorry to interrupt you, Mr. Pingle, but your voice is low.

Such statements are based on management's current beliefs and assumptions and on information presently available to management. Participants are cautioned not to place undue reliance on these forward-looking statements on making investment decisions. To take us through the results and answer your questions today, we have with us Mr. Pradeep Gupta, Chairman and Managing Director; Mr. Roop Bhootra; Wholetime Director; Mr. Tarak Shah, Chief Financial Officer; and [indiscernible] the management team. I will now hand the call over to Mr. Gupta for make remarks. Thank you, and over to you, sir.

Thank you, Diwakar. Good evening to all, and a warm welcome to our Q2 and H1 Financial Year '27 Earnings Call. We all experienced an important environment of a capital market due to geopolitical tension, rising interest rates, persistent inflationary pressure and impact of [indiscernible] global economies. As a result of this, market sentiment in our country has remained relatively subdued. Before discussing our performance for the period, the secondary market -- sorry, the secondary market continued to exhibit some turbulence during the reporting period. The 50-50 declined by 5.22% on a quarterly basis and 1.3% on a half yearly basis, including a 6% correction in September. The weakness was more pronounced in several large cap and sector indices, reflecting a more cautious risk environment and softer market sentiment. However, Beneath this short-term volatility, the structural drivers of India's capital markets remained firmly in set. The quarter witnessed significant deepening of India's capital markets supported by rising investor participation across the primary market, direct equity and mutual products. IPO activity remains [indiscernible] during the quarter with 108 companies raising over INR 90,000 crores, reflecting stronger issuer confidence and healthy pipeline of business seeking access to public markets. The Mutual Fund industry quarterly average assets under management increased by approximately 3.5% from INR 84.2 lakh crore in Q1 '27, to INR 87 lakh crore in Q2 FY '27. While closing AUM moderated to INR 82.64 lakh crore in September, largely reflecting debt fund outflow and market movement, it reman to 9.3% higher year-on-year basis. Investor commitment through systematic investment plan, which is SIP, also remained exceptionally strong. SIP contributing across the INR 10 crore milestone in August '26 with monthly SIP inflows reaching to INR 32,490 crores in September '26, extending the trade of sustained retail participation and reinforce the growing [indiscernible] for long-term wealth creation through financial assets. The primary market presented an even stronger picture after a major Q1 '27, which witnessed 46 mainboard and SME IPO raising approximately INR 6,567 crores accelerated sharply in Q2 FY '27, with a bit as many as 108 IPO, raising absolute approximately INR 90,000 crores during the second quarter. Consequently, first half of '27 recorded 154 main gold IPO, which raised almost INR 96,585 crores, which is compared with 186 IPs raising INR 71,000-approximate crores in first half, representing almost 36% growth and capital raises. Finally, it is encouraging to see that entail investor participation in capital markets continue to strengthen, which is net addition to 31.1 lakh Demat account during September '26, with overall Demat account base in India, nearly about 24 crores versus 22.5 crores at the beginning of the year, which represents almost 7% growth in the interim period. This broadening investment base is also driving increased adoption of financing led investment solutions with industry margin trading facility book growing by almost 41% year-on-year to INR 156,261 crores as on 12th October '26. Together, these trends underscore the growing maturity of India's capital market. These developments reinforce the long-term opportunities for Anand Rathi Share and Stock Brokers company or investors increasingly seek integrated broking finance and distribution solution. During the quarter, our MTF book grew by 38% year-on-year basis to [ INR 1,499 99 crore ] assets under management, which has increased by almost 29% year-on-year. Our Asset Management has grown by 29% to INR 99,990 million, while under custody grew by almost 13% year-on-year, to almost INR 1.15 trillion. This metric reflects deeper client engagement and continued trust in our platform. We also continue to witness a gradual evaluation in our revenue mix, while broking and related services remained a significant contributor to overall revenue. Nonbroking business has steadily increased in their contribution over the year, improving the diversification and resilience of our earnings profile. Our investment in technology and digital [indiscernible] continued to deliver a strong outcome. Digital platform contributed 36% of [indiscernible] in first half of '27 continues to focus on building a seamless scalable digital ecosystem. Looking ahead, we remain focused on the scaling of our financing and distribution business, increasing engagement with existing clients and further strengthening the contribution of recurring revenue streams. We continue to target margin trading book size for approximately INR 1,750 crores to INR 1,800 crores by the year financial year '27. And there is going to be a growth of about 40% in AUM of our distribution business by the end of the current financial year. With that, I would now hand over the call to Mr. Roop Bhootra, whole-time Director, who will take you through all the detailed financial and operating performance of the company. Over to Mr.Roop.

Thank you, Pradeep ji. Good evening. So building on the healthy business momentum highlighted earlier, our company delivered a steady financial performance during the quarter. Revenue from operations increased 20% year-on-year to INR 2,732 million in quarter 2 of financial year '27. While first half revenue from operations grew 21% year-on-year to INR 5,193 million, PAT grew 50% year-on-year to INR 419 million, in quarter 2 of '27 with a margin of 15%. For first half PAT before exceptional items increased 60% year-on-year to INR 810 million, while profit after tax after exceptional items, it stood at INR 653 million, representing growth of 29% year-on-year. The growth came from continued momentum across our broking and non-broking businesses. Broking and related services revenue increased to INR 1,551 million. During the quarter, from INR 1,158 million in quarter 2 financial year '26, reflecting a Y-o-Y growth of 34%. While first half broking and related services income grew to INR 2,831 million from INR 2,267 million in the first half of '26, reflecting a 25% Y-o-Y growth. Equity cash continue to account for a majority 52% share of broking revenues during the quarter and half year period, reflecting our focus on delivery-led and client-centric participation. Within the Nonbooking segment, interest income from margin trading facility increased 36% year-on-year to INR 496 million during quarter 2 of '27, while first half of '27, MTF interest grew 43% year-on-year to INR 924 million. Distribution income stood at INR 327 million during the quarter 2 of financial '27 and INR 603 million in first half of '27, respectively. Further, our distribution AUM has increased to INR 99,990 million with a Y-o-Y change of 29%. The continued expansion of these businesses is improving earnings visibility and strengthening the quality of our revenue profile. As of 30th September '26, we have achieved an MTF book value of INR 14,993 million against our year-end guidance of INR 17,500 million to INR 18,000 million. So on overall basis, we have already achieved almost 57% of our target in the first half of the financial year. Further, our distribution AUM grew by 29% as of September '26, compared to, again, the March '26 overall guidance of 40%. So in both these segments, we were able to do better than the target, whatever we have set for ourselves. Client engagement remained healthy during the period. Total clients increased to approximately 10.5 lac, as of September '26. Around 55% of our clients have been associated with us for more than 3 years, reflecting the strength of our relationships and the trust report in the Anand Rathi brand. Additionally, 71% of our active clients are located across Tier 2 and Tier 3 cities providing us with a broad and diversified franchise. As of September 30 '26, our pan-India network comprised 99 branches and 171 authorized persons across 314 cities. This extensive distribution network continues to support client acquisition engagement and servicing across geographies. We remain focused on maintaining a prudent rate management temper, while supporting business growth. Our debt equity ration stood at 1.02, as of September 30 '26, and we continue to maintain disciplined leverage and adequate liquidity as we scale our MTF and other growth initiatives. Going forward, our priorities remain clear, deepen client relationships, increased product penetration, strengthening technology-led services delivery and maintain a balanced mix of broking and non-routing revenue. I'm happy to share with all of you that the last quarter, we have achieved our highest ever revenue as well as higher ever profitability. Thank you. And now we can open the floor for the questions. Thanks.

[Operator Instructions] First question comes from the line of Saket Kapoor from Kapoor & Company.

Sir, firstly, with the hardening of the bond yield in the government securities market, what exactly is our book and the thought process being debt market participant, our participation in the debt market? And any time line you want to share or any idea of how we are going to take advantage of -- since the yields are very attractive, and there are a good set of investors that have investments or have the nature to invest in these products. Now the government needs 10 years in [indiscernible] so what is the thought process and our current book? If you could share color on the same.

Thank you, Saket. Saket, as you know, our company is largely driven towards equity and equity-related products. very smaller amount of investments towards that is being recommended or probably being invested by various investors into debt and debt product. So in a segment of customers that is where we are talking about asset allocation, that is one of the parts for those customers. And within that, in these kind of debt instruments, the investment of those customers are very, very municipal. So it doesn't matter to us, number one. But number two, having said that, in terms of market scenario, since interest rates are on a rising trend, markets are uncertain and overall global scenarios suggest that in future also, due to inflammation pressure, I think interest rates are further going to strengthen. Probably you may see the certain interest rate hike scenario globally as well as probably as it is in our country also. So I think investing in government security, allocation towards the government security from a 1-year perspective by getting that yield interest yield benefit is good. But I mean in the short term from next 3 to 6 months, one has to constantly watch what is going to happen because if the interest rates are going to rise, your yields are not going to be that much. So I think this is a cash situation. And based on that, I think I would ideally suggest on a short-term period, to invest or one want to invest can look at it. But from a long-term perspective, they have to still wait and watch, something from a debt perspective. However, our always advice is going to be -- from a long-term perspective, mid- to long-term perspective, one should look at equity because equity is something is going to grow. And we believe the kind of growth which is happening in our current, I think the returns in equity investment in equity going to yield much better return than that. And post-tax return on equity side is always going to be better. Thank you.

Yes Yes, sir, the [indiscernible] is correct. But on the longer part of the yield curve and investors having 4, 5 years horizon, and particularly, as you alluded to the allocation part, I think so these are very good times for investing community to allocate money also to the market. Secondly, when we see that our broking firm as organized, I think so various events, I think the G200 was the last one that was held in the month of September. So just a small request on the part of being an investor, in the analysis community, if some details -- if some further details it could be shared or uploaded through your website in terms of the participating company our coverages on the same and some synopsis of the same of the G20 -- G200 that would suffise a lot of interest and that will give us more color and more thought process to review our investment. I think so that was a very strong gathering that happened sometimes in the month of September last week. So if we can provide further updates through our website or through the exchanges medium, that will create the interest for the investing community and your clientele at large.

Thank you for bringing to our notice. I believe a note on the G200 Summit has already been shared. We always -- we keep on doing lots of investors seminar, investor education program and this kind of [indiscernible]. So surely, we will -- if not available, then I will surely make a point that we should share after completion, whatever of our inputs, which we are getting and definitely inform to you guys.

Our next question comes from the line of Rajesh Mantri with Fortune X.

I had two basic questions mainly. I wanted to understand that, but distribution income has just grown by 4% whereas our AUM has been growing had grown at around 29%. So just wanted to understand what's the vision for the divergence and how should we see it going forward?

Yes. Mr. Rajesh, since you are seeing and comparing this on Y-on-O basis, last year, there are certain revenue, which is coming from an upfront [indiscernible] or upfront revenue perspective, right? -- where probably we have done a few [indiscernible], we have done certain businesses where we got an upfront businesses, and trail incomes were not happening. We are moving towards trail businesses or trail income constantly, and that's the reason there is an aberration of kind of a thing which you have noticed in terms of revenue side. This is not going to be a continuous phenomena over a period of time. As you have seen, our AUM is constantly increasing. And second, another factor which one should consider, whenever you see there is a growth in AUM, the impact of growth is coming over a period of time. So constantly, we see the revenue will start ticking in, because we are generating revenue based on trail income on a trail basis. I'm happy to share one more data point that as on today, our distribution income -- our trail income, which is coming, which is a non-broking -- coming from a Nonbroking businesses has already started covering our 75% of salaries as of now. Our endeavor is constantly how we can see that our revenue stream should be static. Our revenue team do not have any kind of a volatility of market and to do that, we are constantly looking at it that our trail income should constantly cover first to our salary and then post that, how we can start generating that revenue to expand that revenue to cover our overall cost of the company. Once it will start happening automatically our dependency or our volatility of revenue on the market process is going to reduce to a greater level.

Just to add to this, in mutual fund side, actually, the regulator had changed the rule in last financial year. Where earlier for any ARM transfer. So transfer of the mutual fund from any other distributor, the income credit was not available for 6 months earlier, and rules has got changed now the rolling period is 12 months. So that has also impacted because our collection is comparatively better. And out of that particular connection, whatever the year-end transfer is taking place, there is some time -- the time period which increased because of that also the commission has reduced on a partial basis. But now since that particular policy is on since last, I guess, almost a full year. So automatically, the revenue has started for the increasing in terms of that revenue going forward.

Okay, so that was quite helpful. Just wondered another, like I understand on like employee senses have increased by around 31% in this quarter. Like can you let us know like what are the drivers for the increase in -- was it like just like onetime or such as increase in salaries resource or something like that? Or there is dispose relatively high competitive going forward?

So there are two things which are happening. One side, naturally, we are expanding our RM base on a continued basis at one time. Second side, we are strengthening our product team also because we are keep on adding the multiple products. But one important change which took place in the last quarter where a few of the employees where the services were opting from the [indiscernible] also we have taken at our own payroll. And because of that, in last quarter, you find a number of tons in major [indiscernible] but on overall basis, we are keep on adding almost in 150 employees, almost we are keen adding on a continued basis. So that to grow our -- this particular business going forward also.

So in this, the change in salary side, which you are seeing is largely onetime kind of impact which is happening over here, over a period of time, it will subsidize. But as Mr. Bhootra said, constantly, we are increasing our RM base. Constantly, we are increasing our employee base. So that impact will constantly come in, which is to grow our businesses largely.

Our next question comes from the line of Johi with Arm Capital.

So congratulations for number part. I have couple of questions. Sir, first question is that October has seen an improvement in margin sentiment. So have trading volumes recovered versus quarter 2 levels?

Yes. So far, equity market -- cash market-related volumes are concerned, you see that is a constant consistent growth. So far, derivative capital market-related volume, if you really see, they are aesthetic or lower than earlier time. So obviously, our company is more tuned towards cash market volumes, and as and when these cash market volumes are better and we're doing good, our broking revenues are also improving constantly, and that's what is happening in our side.

The other side is one more important part there. On pentoside, at exchange level, the volumes all were particularly higher because of the changes in RBI circular towards the capital market exposure, many proprietary booking also volumes for trading. But overall, since we don't have any proprietary related volumes, so we were able to actually improve in terms of our total volume versus the exchange on the [indiscernible] also other than the cash market. So in fact, last quarter, if I will say, on a Y-o-Y basis, as well as from the previous quarter, on broking side, competitively better as compared to the industry, we were able to do that particular part.

Okay, sir. So I have another question, which is that any new business segment that management is looking forward to the next 2 to 3 years?

Juhi, I think so far new business segment is concerned. I think we are constantly strengthening and consolidating our existing business lines. As we have disclosed in the past that we have started insurance, that's what we are stabilizing and strengthening that. In estimation side, we are constantly bringing products. So we are already there in mutual fund and BMS. And now we have started looking at AI as a product. So we keep on looking at product but not a business segment. So our business segment is concerned on other area which we are looking at, we have already and we were working on that particular side is and NRI kind of businesses. And that is the segment we are constantly strengthening at our level. So this is the game plan. Till the time we reach to a specific level, these segments, we are growing continuously and constantly.

Okay. Sir, got it. I'm following up on the same that if you're saying that on product part you are divergence. So at the same time, you could give me guideline about the segment mix for next 2 to 3 years?

Segment mix you're saying? I didn't follow. Can you just repeat it again?

Yes. Today, you mentioned the products you are trying to diverge and [indiscernible] so what is your guideline for that product mix by next 2, 3 years, that how much share or how much on what product would help you?