Geojit Financial Services Limited (532285) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Geojit Financial Services Q2 FY '21 Post Results Call hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Udit Kariwala from AMBIT Capital. Thank you, and over to you, sir.

Thank you so much for joining us for the second quarter results call for Geojit Financial Services. Today, we have the senior management team with us. We have Mr. C.J. George, Managing Director; Mr. Satish Menon, Executive Director; Mr. A. Balakrishnan, Executive Director; Mr. Sanjeev Rajan, the Chief Financial Officer; and Mr. Liju Johnson, our Company Secretary. So without further ado, over to you, sir.

Thank you, Udit. Good afternoon to everybody. This is Satish Menon from Geojit, and thank you for joining this call. I will take you through the overall performance first, then we will open it for Q&A. So in terms of total income for the quarter 2, which ended in September 2020, we have reported a revenue of INR 108.53 crores, which is 19% more than the April, May, June quarter and 52% more than the year before. In terms of expenses, it was INR 64.82 crores, which is 12% more than the April, May, June quarter and 14% more than the year before. In terms of PBT, profit before tax, the profit for September quarter was INR 43.76 crores, the profit before tax, which is 32% more than April, May, June and around 204% more than the same quarter last year. In terms of split of income, for the last quarter, equity and equity-related income is INR 83.50 crores, which is 19% more than the April, May, June quarter and 71% more than the same quarter last year. Mutual fund, INR 10.36 crores of income in the September quarter, which was 14% more than the April, May, June quarter and 12% more than the last year. Insurance, INR 2.99 crores, 200% more than April, May, June quarter, which is normally a dull period for insurance and mutual funds, and 14% more Y-on-Y. Software income is up by 22% compared to the last quarter and 5% compared to year-on-year. Hence, the total operational income, 52% up Y-on-Y and 19% up to the -- from the last quarter. In terms of expenses, employee expenses have gone up by 10% compared to the April, May, June quarter and 7% compared to the year before. Fees and commission expenses, which is directly related to the activity in the brokerage market primarily, is up [indiscernible] over April, May, June quarter and 80% over the last year. The total expense, up by 12% compared to April, May, June and 14% compared to the year before. Hence, the total profit after tax attributable to the shareholders is INR 32.27 crores for September quarter, one of the good quarters for Geojit, which is 35% up from the April, May, June and 252% up from the same period last year. For the full year also, the profit after tax for the -- after minority interest, INR 56.09 crores for the first 6 months of this financial year, which is 357% up compared to the same period last year. So this is what I wanted to say in the opening remarks as far the results are concerned. We are now ready for Q&A. Udit, can you please take over?

Yes. So we'll -- operator, could you just...

[Operator Instructions] The first question is from the line of Vijay Karpe from Bryanston Investments.

My question pertains to the annual report. So can you talk more about steps -- the steps program, which we have rolled out? Any update on that? And also, any update on the opening of branches in the North and East of India? How many branches are we targeting to open over there? That is my first question.

I request the first question to be taken by Mr. George on steps.

Hello. Hope I'm audible.

Yes, sir.

See, we have been waiting for the final guidelines from Citi with regard to the advisory. So while waiting for this, we had a soft launch. And only recently, as many of you are aware, only recently, the final guidelines came out. So we are reviewing the working [indiscernible] the regulatory framework in order to scale up this business. So it is too early for us in view of these recent developments to talk more about it. But we must -- I can only say that we are continuing with the business.

I will answer the second question now, Vijay, on our expansion plan for Northeast, East of India. Vijay, in the last 6 months, as you know, because of COVID, the mobility has been restricted. So we have opened one office in the last 6 months in the East of India. We have certain plans which can be executed, but of course, with COVID situation clear, when people are able to travel and are becoming mobile. We have plans -- I mean there is no strict number in terms of we need to open 10 branches or 20 branches in the East of India. But that is something on the inlay, which we will let you know as and when it comes.

Okay. And my second question pertains to some data points. Sir, can you tell me what's the SIP AUM was the count and the market share? So -- and also what -- how many offices we had, the employee count, as well as the total clients that we have? It has not been disclosed in the presentation.

Total clients is there in the presentation, Vijay. Anyway, I will again tell you. First line itself, 10.7 lakhs total clients, Vijay. And in terms of mutual fund AUM, of which 45% is SIP AUM, so INR 4,000 -- out of INR 4,946 crores of AUM of Geojit, close to 45% is SIP AUM.

All right. And what is the count in the market share?

So in terms of the total AUM, we understand we are the 16th largest distributor in the country in terms of equity and equity hybrid mutual fund AUM schemes from INR 4,900 crore compared to INR 9 lakh crores. In terms of SIP, we have stopped giving SIP book because there has been no relevance of the SIP book compared to the cash [ flow ]. So hence, we are giving the total inflow for Geojit every quarter as well as the net inflow. When you look at the mutual fund inflow for the quarter 2 September ended, we had INR 284 crores of gross inflow for equity and equity-related mutual funds and a net inflow of INR 42 crores. Though slightly more than what we did in the first quarter, in the second quarter, Geojit also faced redemption in terms of mutual fund. Though, of course, in the industry, the net figure for the quarter in equity and equity-related is negative, Geojit has been able to give a small positive of INR 42 crores. And we understand from certain mutual funds that we are the 5th largest contributor in terms of absolute equity AUM inflows in this country for the last quarter.

All right. And the office and the employee count?

Employee count compared to the April, May, June quarter, it is more or less the same. We have maybe reduced 15-odd people. So more or less the same. Office count also remains the same.

[Operator Instructions] The next question is from the line of [ Pranav Tendulkar ] from Rare Enterprises.

Just on the September balance sheet, I have a question that how much of the net cash is attributable to Geojit shareholders?

As of September, [ Pranav ], the cash of the company is close to INR 529 crores, INR 529 crores attributable to the company. We have other cash which is on the plan, which I have not saying in this INR 529 crores. The INR 529 crores is the company's cash.

Okay. So that balance sheet...

Fixed deposits and mutual funds and all those things.

Okay. Okay, sir. Sir, second question is what is your thought about franchisee model for the acquisition of retail broking clients? And their profitability throughout client profitability for the company, is it that those clients are not that profitable in terms of distribution as well the company? That is why you are not that much focusing on that? Or any strategic thought on expanding through franchise model?

Mr. George, would you like to...

Yes. Yes. Satish, I will address the question. [ Pranav ], one reason is that the franchisees are generally not ready to adapt to technology. This is -- so wherever franchisees are building and open to adapt to technology, for example, all online account opening, customer surveys execution and all these, wherever there is some kind of willingness to do that, we are very, very happy to acquire franchisees and happy to develop that business. But what we have said, there is a general resistance coming from their fear, whether the client will go directly to the broker, et cetera. So that is one share that we see. So generally, franchisees clients are relatively aging clients. And the new personalized to service and the clients are happy, franchisees are happy, this is the current situation. But we are open to acquire franchisees. And we have done so in the recent past. We have a few proposals with us from the Northeast also.

Right. Right, sir. The third question is about insurance income. I think this quarter, it is about INR 2.99 crores. Am I right?

Yes.

Yes. So how much is the premium that you are collecting? And what is the general percent that we get? And how much time this -- so weighted average duration of this income is how much? So I mean to say that there will be obviously a split between onetime and recurring insurance, so weighted average.

[ Pranav ], we started insurance business aggressively only a year back. Okay. So most of the income is coming as new income, okay? So our average is 25%, the income. So -- which is INR 3 crores is the income showed, basically INR 12 crores of premium collected.

Right, sir. Right, sir. Sir, also, any thoughts on scaling up health insurance?

So we have started this as a product, [ Pranav ]. There has been some small traction in the last couple of quarters.

Satish, can I step in? I want to add one point that is -- because of COVID, our ability to sell distribution products, that is insurance, both health and life, plus mutual funds, including SIP, that got impacted. I must tell you, much of these are done through meetings, conversations, et cetera. So this got impacted. So whatever number that you are seeing in the second quarter number is better than the first quarter because second quarter, there is an improvement in the COVID situation. So this has impacted us significantly in the current year.

[Operator Instructions] The next question is from the line of Chander Bhatia from Seers Fund Management Private Limited.

Congratulations to the management team for a great set of numbers. So I want to know about this equity yield, which has been increasing since last 4 quarters. Is this sustainable?

Equity yield?

Yes.

Okay. So equity yield is split into primarily 2 portion, Mr. Bhatia. The delivery yield and the speculation yield. So when we look at the yield, we need to look at it 2 separate segment. What we have seen over last 3, 4 years in terms of Geojit, there has been a small dip in percentages over the last 3, 4 years, but still, our yield has not been much affected by what is happening around in the market as of now. Our yield, if you look at the last quarter compared to the same period in the previous year, the yield has not gone down. Actually, if you look at the yield compared to a year back, we have actually improved from 0.029% to 0.043%. But that is a mix of brokerage from speculative business as well as a delivery business. What we have seen in Geojit is our delivery percentage has gone up in the market, whereas speculation percentage has come down primarily because maybe our clientele is like that, we cater to more long-term, serious investors in the market, which do largely more delivery than the market. So even if you look at the equity yields a year back, which was 0.119% has gone up to 0.131% in this period of huge speculation, which primarily says that the clientele with us, what we are servicing, are largely investor-based clients and not speculative-based clients.

Okay, sir. Sir, can you share some detail about the percentage of delivery in a cash market side?

So in cash market, I will tell you. You wanted the delivery percentage, right?

Yes, yes, right.

But roughly 30% of the brokerage comes from the speculation that is the [ funder ] plus the trading. So I can say that 70% of the brokerage income is actually coming from the delivery business.

So to add, 34% of the total cash market volume is delivery.

Much better than the -- what market is doing.

Industry, I understand it is around 18%.

18%. Yes. That's a great number. Yes. And sir, my next question is the impact of changes of rule done by SEBI from September '20 in terms of volume or income or -- how do you see going forward?

Okay. So mid of September, this actually got implemented. We faced -- I mean the whole industry faced [indiscernible] problems for some time. We had to go out and reach out to the clients and tell them the advantages and the mechanism of doing share pledge. Now more or less, the issues has been settled, and we are back to a normal way, more or less, with an increased activity in the last quarter. There has been no major hiccups apart from the first few days of the implementation. Now there's more or less settled. The second SEBI regulation which is going to affect the market, which will come in December and then every 3 months, is the reduction of leverage in trading. For that matter, Geojit would not be impacted because we don't provide those kind of leverage trading. So 2 parts of your question, the new margin mechanism out of pledge is more or less settled and people have understood the way to do it and people have accepted it. December portion, it should not affect Geojit largely because today also, we are not doing that kind of leverage.

Okay, sir. Okay. Okay. Sir, and some detail about the interest income on NPL book or BTST segment?

So for the last quarter, September quarter, INR 4 crores was the interest income on delayed payment, including margin funding.

[Operator Instructions] The next question is from the line of Aman Pereira from Bellwether Capital.

Sir, just wanted to understand, could you provide us with the share of below 30 cities in mutual fund AUM, what percentage share of IMF AUM is from this?

B30, B30, the AUM would be close to about 50%.

1-5?

5-0, 5-0.

5-0 percent. Okay. Wow. And sir, just one more question that -- we've seen at an industry level SIP flows come down and retail accounts opened with brokerages. So just wanted to understand, sir, over a long-term period, do you think that this is sustainable that people will try to go for direct trading and stop SIPs? Or do you actually think that with people going back to work, they may want to open SIPs to continue investing in the markets? Just wanted to understand your thoughts on this trend.

I will expect that question. Interesting question. What we have observed is basically 2 answers to that question. Number one, the -- globally, this lockdown has resulted in some amount of active interest in stock trading or gaming. These are the 2 activities that really grew significantly during the lockdown period. I do not think this is serious investing. So SIPs are used for long-term investing, long-term financial planning, goal-based financial planning, et cetera. So although there was kind of an issue in the recent past, our experience, I can tell you very clearly, our ability to touch base with the customer got impacted. So that was -- and also on the employee side, because of the health care concerns, we've had significant problem. It is not only with us, it is for the whole industry because SIPs are done with some amount of advice, some amount of interactions with the customer. So this has -- had more impact rather than the SIP clients going and opening accounts, trading accounts, online accounts, et cetera. So this is what I have seen at least with our clients.

Got it, sir. So you don't think that in the long term, people may stop SIPs and go to trading, but they will continue with SIPs for their goals?

So let me also tell you that the SIP investing and continuing SIPs, these are also issues with regard to how intermediaries like us educate our clients. So what we have had in the market, I can tell you that we are companies -- that our SIPs got discontinued because the handholding part was relatively much less in that space. So I'm of the view that it's a question of how we solve SIPs and how we continue our relationship with the customers, I mean, how we explain and educate those to clients. So in our case, we are quite confident that we are selling this as a long-term, wealth-creating instrument, and we will continue to do that. And I don't have -- we, as an organization, we don't how worries about it.

The next question is from the line of [ Pranav Tendulkar ] from Rare Enterprises.

Sir, just about the organizational structure and investing in resources. How are we mapping the customer cross-selling? Is there any [ organization ] because I think we were in process of doing this in recruiting and I understand that, that impact -- that process would have not impacted because of COVID. But what is our plan about how to cross-sell to our existing 10 lakh clients. So any color that you can give on this?

Okay. The plan that we had and the plan that we have, I must tell you that's basically cross-sell among our clients and our clients' family members. So SIP for that matter, even an instrument like health insurance, life insurance, et cetera, our advantage is that our ability is not just with the one customer account. We are actually looking at the family of the customer and the extended family. So that is in plan. We are not looking at separate -- entirely separate vertical. So our equity relationship employees are the employees who have trained, certified in all these instruments, and they are selling mutual funds as well as insurance [indiscernible] to those clients. So bulk of our business is -- majority of our business is cross-selling only.

Right, right. But -- so I'm sure that you would be mapping things like what age cohort and what products we hold and what products you hold outside you, something like that, you keep a track on?

We do. We have -- we are in the implementation stage of CRM and we already implemented. So we are doing all that are required, basically all ideas going forward to now take the data of when there is a new birth in the family, when there is a wedding in the family, all this will get recorded and eventually, we will be able to sell instruments that are required by these new members in the family. So that is the way we look at it.

Right, right. Also second question is that other than mutual fund and insurance, there are many products like, say, AIF. And obviously, it requires a different kind of skill set to sell those products. But any view on that AIF or any other things?

We do have PMS. And at the same time, let me tell you, with regard to AIF, I agree with you, we do not have the skill set at the moment to sell this product distinctively. And also the customer segment is slightly different. We have mass affluent customers. To them, we sell PMS as well as we also sell model portfolios. So this is the way we really -- if the client is very small and the client needs information and advice, we sell model portfolio or suggest model portfolios to them and for relatively large clients, equity PMS at the moment. So AIF is not in the radar at the moment. Unless we plan -- we have not decided about it. Possibly, we will take a view over a period of time.

[Operator Instructions] The next question is from the line of Vijay Karpe from Bryanston Investments.

My question pertains to the equity and equity-related segment. Sir, can you give me the breakup of the segment? How much is pure broking? How much is depository? How much is MTF? How much is PMS?

Okay. Vijay, brokerage was INR 72 crores. Depository was INR 7 crores. Interest income was INR 4 crores. Balance comes from the other activities. [indiscernible]

All right. And how much was the MTF book at the end of the quarter? How much was the average?

So MTF book end of the quarter was -- because of the SEBI regulation change, MTF had a big [indiscernible]. So MTF book end of the quarter, that is on 30th of September, was close to INR 12 crores, hovering around that level for the last few quarters.

INR 12 crores?

Yes. Now that -- now in October, as of this date, it is around INR 30 crores. I don't know whether you are aware, because of the change in SEBI rules, you had to take out the share from a particular account, give it back to the client. And then we had to replace the shares to MTF during the end of the September quarter.

MTF is presently at INR 30 crores.

It is presently at INR 30 crores.

And it used to be at INR 100 crores, INR 120 crores, right?

No. MTF used to be around INR 50 crores and other overdue fees, that is BTST, used to be around INR 50 crores. Here I'm talking about -- particularly about MTF. At peak of the time, it was around INR 50 crores a year back.

Okay. Sir, can you give me the combined number for MTF and BTST book then at the end of September?

We don't have it as of now, Vijay. We would like to get it before the call ends.

All right. And also in the annual report, it has been mentioned that we are launching new products of non-intermediation. What was the disbursal amount for the quarter, if any?

Here again, Vijay, the problem was because of COVID, the unexpected health care development, some of our businesses that needed personal interaction got impacted. So at the moment, we have -- we could not scale up that business. We are now -- so many months after the lockdowns, now we are trying to scale up that business.

Satish, by the end of this quarter, you will have some numbers?

In the loan disbursals, yes.

Okay. And also in the annual report, it has been mentioned that we have incorporated mutual fund, a reconciliation process and that has got about reduction in costs. Can you quantify how much we have saved?

Mr. Balakrishnan will answer this.

Overall, 18 months approximately.

We don't have that number at the moment. We could possibly inform them off-line.

All right. And my last question then. We were in the process of launching a platform for enabling online purchase of mutual fund. Is it online now?

Due to this regulatory change with regard to advisory service, we had to go slow on that project, but we are planning to again relaunch it. We have started it, but then we have to go slow on that. The way we designed the whole project and the software, et cetera, was slightly not in agreement with the regulations that came out, so we stopped and then we have to roll out again.

[Operator Instructions]

If there are no further questions so...

We could wind up.

Sir, we have one question from the line of Udit Kariwala.

Sir, I had a question. I would like to hear your thoughts over a long term on the discount broking industry. Yes, that was my question.

Yes. I must tell you in some of these self-directed transaction execution business will grow in this country. I do not have -- as an organization, we do not have any doubt about it. But that is my answer to your question. If your question is connecting with the Geojit business, I can say that our focus always has been the long-term investor. So that focus, we don't want to compromise or dilute this. Having said this, we are closely watching these developments in the discount broking industry and the trends that are emerging. While saying this, we are also trying to discount for the lockdown-related global development also.

Okay. And sir, so I mean, is it fair to assume that almost everybody in discount broking is short term because there would be a large part of customers over there which are actually long term but are going there because it's much cheaper and more efficient?

I mean, from my experience, I can tell you, I do not agree with the observation that these are long-term, serious investors who are going there. Our experience is that the people who are going there are basically people who want to do some kind of -- largely some kind of bet in the market and not necessarily the delivery kind of clients. So that is what we have seen so far. Whereas -- I also know for sure that if transaction execution is the only offer a broker is having, that business will go to discount booker because if there is nothing else, why should the client be with a broker? So I think all that make a difference is going to be the kind of value a broker can deliver to an investor, a long-term investor, in terms of advisory, financial planning, serious relationship. And then holistic view of the firm, we're selling insurance, mutual funds, SIPs, equities, everything together and then how we develop a relationship with them. So that business is -- from our experience, it's intact. Even today, there was a question with regard to the yield that we get. So this is our experience. But having said this, I do not rule out this possibility when the broker has nothing to offer. The price becomes the only offer, then discount brokers are the answer for such traders, and people will go there.

The next question is from the line of [ Shaleen Sheikh ] from CS Fund Management.

Sir, congratulations on these terrific numbers, sir. I have very quick question on the client base. I was just looking at the full-scale brokers, and I was comparing our growth rate in terms of client addition, was a little lackluster. I was just hoping if people share some strategies as to how do we plan to increase that. I'm not comparing this with obviously the discount brokers, but if I compare it with ISEC for that matter, the -- our growth rate is about half of ISEC in terms of client addition.

Satish, are you taking the question?

So when we look at the growth rate compared to the last -- to the April, May, June quarter, when I look at the active number of active clients on ISEC, ISEC has grown 7%, Geojit has grown around 6%. So for that matter, traditional brokers have grown 6%, 7%. But yes, you are right. When you look at the year-on-year, the growth rate is a little less than half. I can only say that -- sorry?

Yes, please continue, sir.

So I can only say that in the last quarter, there has been some traction for Geojit in terms of serious brokerage business also. So we are not -- particularly when you compare the last quarter, we are in line with -- of course, like you said, we cannot compare ourselves with the discount broker, but the increase in client percentage compared to the 6%, 7%, they are at 25% and 50% and all. But last quarter, we are in comparison with the traditional brokers -- other traditional brokers, including that.

Satish, can I also step in and supplement your answer? There is one thing. We have a large number of branches. And the primary acquisition of customers used to be through the branches. So as I told already in the beginning, so that conventional account opening through relationships, references, et cetera, got impacted because of the COVID situation. And then our digital account opening was basically not ready and smooth at that point in time. Currently, it is working well. And we are of the view that there will be a change in our acquisition as well as onboarding strategy going forward.

That was the last question. I would now like to hand the conference over to the management for closing comments.

No, we don't have any further comments, operator. I will request Udit to close this.

So thank you so much, everybody, for joining us for this call. And I also thank the management for their time. Thank you so much. That's it. Thank you.

Thank you, everybody. Thank you very much.

Thank you. On behalf of AMBIT Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.