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

Ladies and gentlemen, good day, and welcome to Geojit Financial Services Q4 FY '21 Earnings Conference Call, hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mitesh Gohil from AMBIT Capital. Thank you, and over to you, sir.

Good morning, everyone. I welcome you all for the call we have with us Mr. C.J. George, Managing Director; Mr. Satish Menon, Executive Director; Mr. A. Balakrishnan, Executive Director; Ms. Mini Nair, Chief Financial Officer; Mr. Liju Johnson, Company Secretary. So I welcome the management team on this call. And without further ado, over to you, sir.

Thank you, Mitesh. Good morning to everybody. This is Satish Menon, Executive Director of Geojit Financial Services, and welcome to this full year call for the financial results of FY 2021. Thank you very much for joining. I would just take you through the broad numbers, which is already disclosed in our shareholders' presentation uploaded to our website as well as to the exchanges website. And then we can open for Q&A. It was, of course, the best year for Geojit, in the history of Geojit, in terms of revenues also in terms of profits. Speaking about the last quarter as well as for the full year, I will just say that there has been a good increase in terms of income and profit. Last quarter, the operational income grew by a 47% Y-on-Y. And for the full year, the operational income was up by 39%. For the full year, the total income, including other income, is INR 426.81 crores, which is 39% higher than FY '20. In terms of expenses, for the full year, the expenses up by 13%, primarily coming in from fees and commission expenses, which is a variable expenses directly linked to the brokerage and employee benefit expenses. So expenses up by 13% to INR 261.64 crores. Profit before tax of INR 165.7 crores, which is 123% higher than what we declared in FY '20, that was INR 74.11 crore. Total comprehensive income, it is INR 126.8 crores for FY '21 compared to INR 50.56 crores, which was in FY '20, which is shown as 151% growth. Broadly talking about the different sets of income. Equity and equity-related income, we closed the year at INR 319.66 crores, which is a 49% growth from FY '20. Financial product income overall saw a 15% growth, of which mutual fund income was INR 43.18 crores, which is 13% growth. Insurance income of INR 13.52 crores, which show this 18% growth. Software also grew by 10% to INR 9.68 crores. Broad aspects of the income. Expense, I've already said, the increase in expense have come from employee benefit expense. Last year, we closed INR 119.49 crores, which is up 9% from FY '20. And fees and commission expenses of INR 69.36 crores, up 53% from FY '20. So this is in terms of figures. Otherwise, in terms of statistics, of course, we have covered a lot of things in our presentation. I hope that people listening to this call have gone through the presentation, but just for the benefit of everybody, I'll just touch upon few numbers. So as I said, this is the best year in terms of income, in terms of profit, in terms of income across categories also, that whether you call it brokerage, whether it's called mutual fund or insurance. In terms of the year went by, of course, you all would be knowing that COVID had impacted the physical movement of people. In spite of that, the financial markets were quite steady, and we were able to increased income in the volumes. That is, in fact, true for the whole industry. In terms of Geojit, quite a few percentage of our volume move towards Internet. For the financial year '21, 74% of our volume, total volumes came online and 57% of the brokerage came online. Of which a larger, larger percentage is through mobile. In terms of account opening also, since clients were not able to visit our branches and the branches were closed on and off, we went to a digital mode of acquiring client. In the last quarter of the last financial year, 80% plus account opened were through digital mode. Our mutual fund equity AUM also grew. We grew 70% AUM end of March '21 compared to March '20 compared to 60% of the industry. In terms of brokerage market also, our delivery percentage -- the delivery market share has gone up in the industry, which is, again, coming back to our clientele, which is more of long-term investors and less of speculation. In terms of active clients, including all products, we have close to 3,76,290 clients, compared to 3,76,000 compared to 3,26,000,which is also a good growth. So this is as far as the broad numbers are concerned, we will be happy to answer questions if there are any. Mitesh, over to you. We can now take Q&A.

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

Sir, can you give me the breakup of the pure broking income depository and the MPS revenues for Q1 and for FY '21 separately.

Okay. I'll just give you that in a minute. Since it is financial figure, we will take it and give it. By the time, if there are other questions, Vijay, we can answer that.

Also on the MPA book, what was the end period number and the average for Q4? How should I...

I will give it to you in some time.

Okay. My next question is, what is the new client addition target for FY '22? How will the tie-up with PNB benefit us? And also what is the cost of customer acquisition for Geojit?

Okay. I would request MD, Managing Director, Mr. C.J. George. Broadly about the client acquisition. Numbers, of course, we cannot get into.

Yes. We are not going to give any figures at the moment. But at the current time, I can tell you that all our branches, of course, this -- how COVID is unfolding. We'll be very active in acquiring clients, and they also used the digital onboarding platform for digitally onboarding clients, but there will be 2 basic routes which we will concentrate on, one is the branch initiatives and the other one is digital marketing initiatives. So these are the 2 ways we are looking at. We are not going to share the numbers at the moment, but we are going to be very aggressive. But I can also tell you that we are looking at clients basically who are people having this possible income and good savings in place, looking for some advise relationship so that is the kind of customer category we are focusing. That is in line with Geojit's existing customer base. So we will be focusing on that particular profile of customers. They have many to invest, serious money to invest. We value relationship a lot. And they are looking for also some advise. So this is going to be the customer profile we are going to focus on. And we have been getting fairly good dividend out of this customer profile. So that is what we are going to focus. Of course, digitally, we'll be very happy to onboard anybody who is coming through digital marketing initiatives. So this is what I wanted to say. We are not going to share the numbers with regard to projections at the moment.

Okay. And what...

Okay. Sorry, Vijay, can I answer the other question?

Yes, sure.

Yes, Vijay, we started the quarter with a INR 49 crores margin funding book and ended with INR 100 crores.

INR 49 crores and INR 89 crores.

INR 100 crores.

INR 100 crores, sorry.

In terms of the revenue split up, you had asked, Vijay. It is uploaded already in our shareholder presentation. 64% of the income comes from gross brokerage, 66% from depository and 12% from interest.

12% from interest. And what was the client acquisition cost for FY '21?

For FY '21, the total client acquired was 65,585?

Sorry?

65,500?

No, no, no. What I'm asking is what was the cost of customer acquisition for FY '21.

Cost, we will come back, Vijay.

Okay. Okay. Can I ask a few question also...

Vijay, let me come in between, we are all working from home because there is a total lockout in the city. So we are operating from different places.

Can I ask a few more questions? Or should I get back in the queue?

I leave it up to the moderator. Mitesh, should we give a chances to other and Vijay can come back in the queue?

See, Mr. Vijay, you can proceed.

Okay. Also I wanted to know what is the cash that belongs to the company at the end of month of March?

As of March end INR 568 crores belong to the group.

Okay. And what was the insurance premium for Q3 and Q4, if you have those numbers?

It was close to -- no, I don't remember the -- I can't get you the numbers as of now, but the last quarter was the best quarter for insurance. In terms of insurance, in terms of income also in the last quarter, we had an insurance income of 3.97 -- sorry, insurance income, INR 6.26 crores income. INR 3.27 crores the previous quarter.

But could you share the insurance premium number later on?

I will come back to you, Vijay, on that.

And also...

Granular number, Vijay, I'm not sure whether -- okay, let me see.

Okay. My next question is on the mutual fund distribution part of it. Are you seeing any of your clients which are experienced moving on to the direct mutual fund route? Are those numbers alarming? And also, what is your view on the competition, which is building up in the distribution space? Because these days, everyone is wanting to get into distribution.

Okay. Mr. George will answer.

Yes. I can take that question. Your second question I will answer first. We are seeing competition. What you said is right. But largely, if you are talking about the competition from the Barrett space, we are seeing some traction in that. But basically, this is coming from these people who are financially well educated, who can take their own decision like the employees of financial services organizations, for example. So these are the people what we have seen moving to direct plans. But at the same time, the market is so huge. Such a very big opportunity. We are getting clients who want some advice, who wants some handholding for investment, some risk profiling for them. So we are basically active in that particular space. At the moment, we are not seeing a significant competition affecting us. And what was your first question? Sorry.

First question was on the...

clients move to direct model.

No. So I answered that question, but that number was not very big.

Vijay, in terms of insurance collateral, I'll give you the full year's number. 2021, it was INR 45 crores of premium compared to INR 38 crores for '19/'20. And in terms of the last 2 quarters, INR 22 crores and INR 10 crores. INR 22 crores for the last quarter and INR 10 crores for quarter 3.

Okay. And then one last question. I think in the presentation, the total stand-alone mutual fund AUM has not been mentioned. So I wanted that number one. And second...

We already -- so we mentioned, Vijay, 5,000, I'll tell you -- Oh, yes. Okay. We have mentioned only the equity AUM. INR 5,606 crores, that is the equity AUM. And the debt is INR 546 crores, Vijay, so total makes it INR 6,154 crores end of March '21.

Okay. Okay. And lastly, the last question. Any update on the loan distribution business? And have you done anything for Q4?

I will answer that question. The impact of COVID was relatively large on this particular business because this also needed some meetings with the clients et cetera. So this business is now taking -- in this quarter, taking some shape. But otherwise, there was no number to talk about. But let me, once again, tell you that depending on how the lockout is withdrawn or the lockout spending -- so depending on that, this -- because it's a new business, and that needs some amount of discussions and meeting with the clients. So we cannot digitally get the clients onboard and do a loan distribution business. So this is something that we will not comment any numbers at the moment.

[Operator Instructions] The next question is from the line of Shaleen Seth from Seers Fund Management.

Congratulation on these stellar. Finally, after a lot of years, you have started to see such traction. Sir, it's a heartening to see this that we have started to make a brand will ESG cautious? So I just wanted to understand why are we actually projecting a brand as ESG? Do we have any interest on such funds coming up?

I did not understand the question.

We have started to show our brand as ESG cautious in a presentation. So is there any thought process behind it?

Basically, let me tell you, we have been very ESG conscious over a period of time, but we never basically that to the public or the investors. So this time onwards, we have decided that -- the general thought processes in line with understanding more about the ESG positioning of corporate. So we will continue to present all the initiatives hereafter.

Okay. That's very heartening to see. Sir, my second question is related to the B2B partnerships that we do with banks. So I just wanted to throw some light on it as to are these branch specific? Or are these -- they're completely related to us because just now in March, Federal Bank has also announced a partnership with ISEC, So how exactly do these partnerships work?

So [indiscernible], sorry?

Carry on. Carry on, Satish.

Yes. Shaleen, basically, this is a partnership where the banks tie with 1 or more brokerage houses to provide a 3 in 1 facility for their clients. Most of these banks are -- all of them whom we have tied up do not have a direct brokerage membership with the exchanges. And they -- and their clients, and they would like to provide even brokerage services to these clients. So these banks enter into partnership with brokerage houses like us. And we, together, provide a 3 in 1 account to these clients, where the brokerage account is provided by the brokerage arm, depository and the banking services is provided by the banks. It is never an exclusive contract between a broker and a bank. So a bank is free to tie up with brokers as they want. And the brokers are free to tie up with as many banks as they want. Ultimately, what it depends upon is end of the year, what is the contribution from both the sides to get the services on the table. So we have been doing B2B partnership for a long time. And now we have tied up with 7 branches -- 7 bank branches, banks, which gives us access to close to 20,000 bank branches. It all depends on bank to bank, they can have 1 or more tie up also with a broker.

Okay. So if I...

We recently tied with the PNB, Punjab National Bank. And then very soon, we will announce union Bank also the work is going on for integration of the system. So we will very soon announce that also.

All right, great. So sir, my follow-up on this would be, currently, if I talk about the brokerage income, how much in percentage is really coming from these kind of partnerships, just as a percentage?

So should be...

It is around 5%.

5%. 5%.

5% total brokerage. 5%. Total brokerage.

Okay. Okay. That's great. Okay. Sir, my last question would be related to the new products that we had launched, the steps and smart portfolio. How are they really performing?

I will answer this question. SmartFolios is doing well. This is basically modern portfolios. We have seen significant traction over a period of -- this also needed some kind of handholding. So currently, the total AUM to say is around -- how

INR 60 crores. Yes. INR 60 crores.

INR 60 crores. Okay. I must tell you that we have -- it's only 1 branch that we started in the that was started along with the last lockdown of COVID. So in that, it's basically a meeting based -- largely meeting based business, but that is now shifted to online platform. So we have around 100 paying clients at the moment. So 1 branch. We want to slowly increase the capacity and increase the number of people as well as the number of branches. We will see a few more branches adding up this year.

Okay. Okay. That's very interesting. So sir, in both of these, our source of revenue is through the brokerage? Or you're charging any other fees also?

In steps, we are always charging fees. There is no other commissions or brokerage from the clients of . It's basically financial planning business advice and so on.

Financial planning. Go it.

We are not allowed to charge any other commissions.

Right. But in case of smart portfolios, we would be just .

These are basically model portfolios and hence, the income is reflected in brokerage.

[Operator Instructions] The next question is from the line of Mitesh Gohil from AMBIT Capital.

Sir, if I go on Slide 17, which is asset-light, the mutual on AUM has reported a strong growth, but the mutual converting clients have came down. So what is the reason basically? Is it just ticket size?

So basically, you have seen, even for the industry as well as for Geojit, for the financial year 2021, there has been redemptions in the whole industry. So basically, what has happened is some clients would have redeemed their mutual funds and gone out. So the number of holding clients came down from 2.20 lakhs to 2.13 lakhs. So basically, 7% net client have actually redeemed their mutual fund and gone out of some of the mutual fund market for Geojit. In spite of that, we have grown 70% Y-on-Y compared to the industry 60%. We have seen 8 months of negative inflow for the industry in equity mutual fund as well as for Geojit to be around 5 months. Because of our SIP culture, we were a little bit better than the industry in terms of convincing clients to stay put with their investments compared to the industry?

Okay, sir. And second, on the other income side, so there's a huge bump up in other income quarter-on-quarter as well as Y-o-Y. So what has led to that?

Can CFO answer this?

Other income which 1 basically the 60% . So this was the interest income reduction through on the year, whereas volume has gone up, the interest rate has gone down. That is versus a reduction in the impact.

I would like to answer, Mitesh. That it is more of an appreciation of the investments in terms of margins and all those things. When free cash, which is available with the company's investment in FD, it comes in other income. Am I right, Mini?

Yes, yes.

Okay. sir lastly, on the employee count side. So the number of employees have reduced by around 9,200 right if I'm not wrong, during the year?

So Mitesh, you are asking other income of that INR 1.18 crores [at the quarter]?

Yes, yes, yes.

That is basically -- it's not -- it's a other income, which is more an operational income. It includes some income tax refunds or some sales impact. It is not actually operational impact. The operating income is part of the first line. So which is basically we would and then some payment .

Mitesh, with overall INR 1.82 crores for the full year, very small. I don't think .

I just wanted to know the reason. Okay. Lastly, on the employees count side, the number of employees have read is around 9,200, I guess, during the year. So any reason behind that? Is it to do with digitalization?

No. Digitalization, of course, have helped in terms of account opening, like we said that 80% of our accounts are opened digitally in terms of volume. More than 70% for the full year and 80% plus for the last quarter are happening digitally. That gives us savings in terms of infrastructure. Also, most of this reduction has come from this sales kind of concern where people are not performing, they tend to go. But digitalization effect -- sorry...

Also, let me add one more point. Last year, we saw some people leaving the organization basically because of lockouts, who were operating away from home, et cetera. So we saw some resignations due to that also.

The next question is from the line of Chandar Bhatia from Seers Fund Management.

Congratulations for the great set of numbers. I have a couple of questions. First question is on the employee cost in quarter 4. In 3 quarters, the employee cost has not gone up much, but in fourth quarter the employee cost has gone up from INR 28 crores compared with the last quarter to INR 25.78 crores. So can you give some color on this? Is it anything in one-off or something else?

So this is primarily coming from the variable expenses, Mr. Chander Bhatia. So last -- the last quarter was the best quarter in terms of brokerage. Even if you look at the increase in the operational income quarter-on-quarter, 17% growth, Y-on-Y this quarter, so 47% growth. Compared to that, of course, the employee benefit expenses will go up. This is -- we have brokerage going up in the last quarter. We have insurance income going up in the last quarter. We have mutual fund income also going up in the last quarter. So this is -- most of these expenses are directly related to the income. It's mostly on the incentives paid to the employees.

Okay. Okay. And sir, other question is about AMC license as AIF managers under international financial services center. So how much investment do you foresee is to be required to be done and what is your objective or a target to do business there?

Yes. At the moment, what we are looking at is not more than INR 10 crore of investment to start with if we get the license, et cetera. And we have this joint mine outside, and we have significant NRI business. So we are looking to some kind of business getting attracted from NRIs through the because we are in a position to compete effectively with other competitors in the market when we have an AIF that is operating out of good city. So that's the whole idea.

Okay. And sir, there are incentives in terms of taxation and others, and that's the reason of going to Gift City?

Yes. That's right.

Okay, sir. And sir, my third question is about peak margin, which you all introduced in the month of December. Two phases have already been done up to 50%, and the third phase will start in June and the fourth phase will start in September. So how do you foresee for macro phases and what happened in last 2 phases? Does it impact the volume in any way or it is just normal?

So the first phase, penality started in December '20, the second phase started in March '21. So these 2 phases were lower. In the first phase, you had 25% compulsory, then you had 50% compulsory. The third and the fourth phase, which will come in June and September, where you need to have 75% and 100%. If you look at the volumes, if you look at volumes as well as the industry volumes, the first and the second phase doesn't seem to have any major impact in the volumes. In fact, in some of the cases, the volumes have gone up. I'm not sure what is going to happen in the third and the fourth phase. My personal feeling is in terms of the leverage volume, it could see some reduction. But like I said, the first and the second phase, there has been actually not major impact in terms of volume both for the industry as well as for Geojit, including in terms of number of clients as being active.

And the impact for the year it will be relatively less because of the customer profile that we have. These are basically largely long-term investors. So the impact could be relatively less in our assessment.

The next question is from the line of Kopin, an individual investor.

This is Ajain. Yes, first of all, congratulations on the best number in the history. And my question is about the -- what are the opportunities are we looking for gift with the AMC registration and membership? And second question is about the same, but about the international exchange operating from the city. And do we have a membership? Or do you have any presence through different channels at the moment? Or what are our about there.

At the moment, we are taking this AMC license to set up areas in each city. The idea is to take advantage from the tax benefits that are available so that the industries will benefit out of it. So we plan to have mostly NRI investors who have been our clients for a large number of years. We have significant presence there in Middle East. So we plan to offer products to them from the Gift Winsen . We will also be offering portfolios in international entities. So that is part of our plan at the moment. So we just decided to apply for this license, and that will be the beginning. And then depending on how this developing, we will look for other businesses.

Okay. That's good. And we are expecting, like almost like, I mean, no conversion U.S. dollar investment, we can come back and return the money without converting to Indian rupees .

That's right. That is right. Okay. All right. And also I -- today, there is an income tax incidents on that income for NRIs who are investing directly through the PAS route when they come through the Gift City route, there will be some benefit to them. So we wanted to take advantage. Also, we have, grow our joint ventures across 50,000-plus clients from the Middle East alone. So we thought it's an opportunity we must provide to these investors. So that's the whole idea.

Okay. Because it's the free trade area, I think the duty -- like tax-free zone, something like that?

Yes, it is.

Okay. Okay. So what kind of business you are expecting from, I mean, in the near future?

We are not giving any projections at the moment because it's a new business we are starting. And we are of the view that -- I must also tell you that we have received a request from our clients Solvay why are we not looking at these opportunities. So it's basically coming from the inquiries from clients. So I'm not going to share any projections with regard to potential revenue size or business size at the moment.

Next question is from the line of Vijay Karpe from Bryanston Investments.

Sir, what was the growth include a net inflow and that was the first question. And the second question is, what was the sale for the revenue and the also the ?

Vijay, in terms of inflows and outflows for the last quarter, quarter 4 FY '21, we had a total inflow of INR 359 crores and an outlook of outflow of INR 522 crores.

INR 522 crores.

Okay. And what was your next question, the yield, right?

Yes. The yield flow cash and total and also the cash .

Okay. for cash was INR 734 crores and , it was INR 3,087 crores. Cash market yield is -- okay, for the cash market delivery, the total yield was 0.03% for FY '20 -- quarter 4 FY '21.

0.03%.

Yes. Of which, equity was is 0.132.

0.132. Okay. I just wanted to confirm. So the growth from outflow .

Yes.

[Operator Instructions]

I think, Mitesh, the questions are over.

Yes, sir, we don't have anybody in the queue. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to Mr. Mitesh Gohil for closing comments.

Yes. Thank you so much, everybody, for joining us for the call. I also thank the management for their time in taking us to the quarterly performance. So thank you so much, and looking forward to have back with us. Thank you so much.

Thank you, Mitesh, and thank you, Ambit for organizing this call. Thank you very much have a nice day.

Thank you.

Thank you.

Thank you very much, sir. Ladies and gentlemen, on behalf of Ambit Capital, that concludes this conference. We thank you all for joining. You may now disconnect your line.