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

Ladies and gentlemen, good day, and welcome to Geojit Financial Services Q2 FY '22 Post Results Analyst 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 afternoon, 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; and 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 afternoon to everybody. This is Satish Menon from Geojit, and thank you for joining this investor call for the second quarter earnings. I hope everybody would have got the time to go through our investor presentation. But for the benefit of people who have not been able to, I'll just run through the broad figures and give the key highlights of the second quarter, and then we can get into Q&A. In terms of operating income for the second quarter ended September, we had INR 127 crores, which is up 17% Y-on-Y. In terms of expenses, we were 14% up to INR 74.06 crores. PBT was at INR 53.18 crores, which is up 22% Y-on-Y and PAT at INR 40.47 crores, which is up 22%. In terms of split of income, brokerage and brokerage related was INR 90.3 crores, which is up 8% Y-o-Y. And if you split that into different areas, INR 74.63 crores from pure brokerage, which is up 4% Y-o-Y, though there is a dip of 14% in the cash market volumes, ADTO, but the yields have been better for us. The second component of the brokerage income is depository services, INR 6.95 crores for the September '21 ended, which is minus 2% Y-on-Y. And the third component is interest income from clients INR 8.72 crores, which is up 88% Y-o-Y. We added 20,000 new clients last quarter. In terms of SmartFolios, this curated portfolio, which we offer to the clients as a brokerage service. We have INR 200 crores of AUM now there compared to INR 50 crores in March. We offered 10 portfolios, and we have close to 6,200 clients who have taken such curated portfolios. In terms of active clients, growth compared to September of '20, we have 225,000 clients active as per NSE data, which is 26% up from last year. The second main product -- second main income is also from financial products, that is distribution of insurance and mutual funds. INR 19.71 crores for the last quarter, which is 45% up from the September '20 quarter. It is split into 2 major portions. One is mutual fund. Mutual fund is INR 15.25 crores of revenue for September quarter, up 47% from last year and up by 18% from the June quarter. Geojit Mutual fund AUM is 7%, INR 572 crores compared to 4%, INR 946 crores a year back, 53% growth in AUM. Mutual fund holding clients have also gone up; it is 219,000 clients. Gross inflow has been good for us in the last quarter, INR 535 crores of gross inflow and INR 144 crores of gross inflow in equities. Insurance also did well last year, INR 3.52 crores of income compared to INR 2.99 crores a year back and compared to INR 1.31 crores in the June quarter. So that is a broad -- software income has also seen growth compared to last year and compared to the June quarter, 3% growth. So overall, operational income INR 127 crores and PAT at INR 40.47 crores, which is 22% up from last year and 5% from the previous quarter. I hope these figures people have known. I have nothing more to say in terms of the opening remark. We will open it for Q&A, and then we can answer questions. Operator, over to you.

[Operator Instructions] We have the first question from the line of Vijay Karpe from Bryanston Investments.

I have a question at the company level. So we have seen Geojit evolved over the last 5 years from being a pure broker to going into...

Mr. Karpe, your audio is fluctuating. Could you...

Is this better?

Could you use the handset, sir?

I'm using [ Monty's ].

Management, are you able to hear the participant?

Not really.

No, Vijay, you are not clear, Vijay. We are not able to hear you.

I'll try. I'll try to reconnect.

[Operator Instructions] We have the next question from the line of Chander Bhatia from Seers Fund Management Limited.

Good evening, everybody, and many congratulations to the management for wonderful set of numbers during this slow quarter in terms of volumes. So I have a couple of questions. First question is regarding -- there is one other distribution income of INR 94 lakhs in this quarter. So can you give some color on that, what is it?

Okay. Mr. Bhatia, that is coming from -- so we have given 3 main products: one is mutual fund, other is insurance and other is other distribution income. This is coming from the income received from bonds, AIF and all those things, which is not coming under the first 2 categories.

Okay. Sir, how do you see it panning out in coming quarters and coming years?

Can I step in? We are seeing growth in terms of the number of clients, particularly for these bonds and AIF, if that is what your question is. The other side is it also depends on the market activity. Today, we are seeing a lot of interest from our clients, particularly from our natural markets. So we are seeing growth in that number, there is no doubt about it. And it is basically long-term investors who are coming and investing today, not the short-term flippers. So that is one good thing we are seeing in terms of the quality of the business that is happening today.

Okay, sir. Okay. And sir, there's one income of INR 2.99 crores, which is the dividend income. So what is all this income?

It is stand-alone books, you will see this income. This is the dividend received from our joint venture in Dubai Barjeel Geojit.

Okay, sir. Okay. And sir, one question is about the total overall volume. In terms of delivery volume, has increased tremendously from -- if I see from last year, it was 35%; last quarter, it is 40%, now it is 49%. So how do you see it is panning out because it, I think, is gaining higher yield? So therefore, yield is also going up. So if you can comment about the percentage, which is likely to be gained or it is likely to remain same in terms of delivery volume and yield?

Satish, I will just give the introduction, and then you could step in and reply this in detail. I must tell you this is also because of the deeper relationships that we have with our clients in the natural market where largely investors are our clients who -- that's why the delivery business is high. So the kind of clients that we get, although the number is relatively small compared to the market, these are basically long-term investors coming and investing. Of course, the market has also attracted them. And you know the alternate investments are today limited. So people are attracted to long-term investments in mutual funds as well as stocks. So this is why you are seeing some part of this increase in the delivery business. Satish, you could add.

Yes. That is absolutely true. It is also a function of the market. The market was quite active in the last quarter. And of course, it was a little bit similar when you look at this September quarter of last year. The September quarter of last year also had a slightly higher delivery absolute volumes compared to other quarters. But what we have seen in this financial year or post September quarter, the delivery volumes have continuously grown. I think it is more of a function of the market where many investors who are coming new to the market are doing delivery business and other clientele where people have started getting noticed in the market movement are trying to be active in the market. This is also a function of the SmartFolio product we have, where we have, like I said in my opening remark, the curated portfolio where people can buy any of these 10 portfolios, and we give suggestions on what is to be bought and sold. It's also a function of that. But it's primarily a market movement. When the market is active, delivery volumes, per say, become active.

[Operator Instructions] We have the next question from the line of Mitesh Gohil from Ambit Capital.

I just have one data-keeping question. So what percentage of brokerage revenue is coming from speculation and what percentage is coming from delivery business?

Okay. I'll take that, sir.

Yes, yes, please.

So out of INR 100 of brokerage revenue, INR 72 comes from delivery, INR 8 comes from day trading and INR 20 comes from futures and options.

And what is the percentage of delivery in the cash market?

Percentage delivery in the cash market to the total volume, in the last quarter was 49%.

In terms of the brokerage revenue, he is asking. That is roughly 80% of the brokerage.

Okay, sir. Got it, sir.

Yes, 72 plus INR 8. INR 72 is delivery brokerage, INR 8 is the day trading brokerage in the cash market and INR 20 is F&O.

Okay, sir. Got it, sir. And what percentage of brokerage is coming from the partnership, which we have done with [ Y-to-Y ]?

With whom?

With partners.

B2B.

B2B.

No, you're asking about B2B partners or franchisee business?

B2B partners.

B2B partners...

In terms of the professional partners -- your question is in terms of the total brokerage?

Yes, yes, total brokerage.

It is roughly coming to around 5% to 8%.

5% to 6% should be.

5% to 6%. Okay. Got it.

[Operator Instructions] We have the next question from the line of Vijay Karpe from Bryanston Investments.

Yes. Am I audible?

Yes.

Yes, please go ahead.

Yes. So my question was, so if you've seen Geojit over the past 5 years, it has evolved from a pure broker to a distribution of mutual funds and insurance. So how do we see Geojit 5 years down the line?

So let me tell you, we are not calling ourselves as a brokerage company today. We are calling ourselves an investment services company. So in terms of investor as a client, if you look at, we will be there for all the products where an investor is investing in terms of our distribution as well as advisory services. This is how we are positioning ourselves. See, for example, mutual funds and we started the distribution. Our objective was very clear. Although there is one customer from a household who is having trading account with us, the other members of the family are potential candidates for mutual funds, SIPs, et cetera. So all members of the family are potential candidates for insurance, both life and general. So the idea is basically to give all the life cycle products to our customers. So that is what is our positioning.

Got that. My next question is, I actually missed some MF flows numbers. Am I right, the gross flows were INR 535 crores and net flows were INR 144 crores?

Yes, you're right. You're right, Vijay. The gross flows for the quarter was INR 535 crores and the net inflows was INR 144 crores.

And what were the insurance premium for the first quarter and the second quarter?

Insurance premium for the first quarter and the second quarter, first -- second quarter was close to INR 11 crores. In the first quarter, there was hardly anything because insurance business doesn't happen mostly in the first quarter. The first quarter, if I remember right, I don't have the exact figures. It should be around INR 1.5 crores, INR 2 crores.

Got that. My next question is on the STEPS business, which we have started. So the Kochi STEPS branch which we have started currently is profitable. So I just wanted to understand the unit economics over here. How is the core structure and how many clients do we have presently over here?

It is still very small, Vijay, to talk about that. Basically, our plans got impacted also because of the COVID situation and the lockdown. So we couldn't scale it up. But this quarter, we will see more branches coming up for the financial planning business that is the advisory business called as STEPS. So end of this quarter, we will be able to give you some numbers. But the first branch that we have opened is breaking even. It is actually making marginal profits at the moment. So we are very positive about it. This is a business where we also interact with the customer in detail and there is an interview process, and that is why we thought of going slow during the COVID situation. The COVID situation is improving. And initial branches that we are planning are in Kerala and Kerala COVID numbers are still relatively high. So I must tell you, we are ready with the people and we are ready with the resources. We are now organizing offices. I'm of the view that by the end of the quarter, we will see half a dozen more branches.

Okay.

That's a long-term business.

Okay. Can you just take me through how the unit economics works over here? What is the fixed cost, what is the variable cost? How many clients will be required to break even?

These numbers -- final numbers are not with us at the moment because since the business is relatively small, we did not prepare ourselves for this question. We could take this question offline.

Okay. Okay. And we are planning to open half a dozen branches by the end of the quarter, right?

End of the quarter, yes.

Okay. And any update on loan distribution business? Have we started loan distribution now?

Satish?

So we have a small loan distribution business, which comes in the other product distribution income, which is too small as of now, Vijay, to talk about any numbers.

Okay. Got that. And best of luck.

Thank you, Vijay.

[Operator Instructions] We have the next question from the line of [ Ajan Kopan ], an investor.

My question is whether -- I mean, any split up on the IPO income. When the IPO market was active for the last 3 months, do you have any split up for the IPO income?

So IPO income is not a major sum. So it is a part of the other distribution income, which comes in this INR 94 lakhs. And I don't have the exact figure, but it is not so material in terms of the total of the financial products income.

Okay. Okay. And the second question is the development about -- I mean, going through our GIFT City development, I mean, the membership and the developments over there.

Yes. So this is progressing after our plan and possibly in this quarter, we will set up an office over there. This is -- again, this is a new venture and new business model. What we are doing is we are planning to connect all our NRI. As you are aware, we have a large number of NRI clients. We plan to connect the NRIs into the GIFT City venture. That's the whole plan through the brokerage business as well as the AIF business. So this is going as per the plan.

Okay. Do we have any plan to set up -- I mean, to own any, I mean, premises over there or renting like, there are...

I think there is some regulatory requirements and we will go by the regulatory requirements, and we will go for the minimum possible fixed costs.

Okay. Okay.

[Operator Instructions]

Operator, I presume the questions are over.

Sir, we have a participant in queue, sir.

Okay, okay.

We have the next question from the line of Chander Bhatia from Seers Fund Management.

Yes. Sir, I have observed after many quarters, the company has increased the manpower by around 100. So there are 2 questions on this. What is the plan for the current year? How many more manpower used to be recruited? And on which vertical this manpower is being utilized?

I will take this question. So basically, we are hiring these people largely in the sales area and basically the customer interfacing area. We are also opening some small branches, around 25 of small branches will -- this will be manned by just a couple of people. And again, this branch just initially will be in our natural markets for deepening -- further deepening of the penetration. So it will happen in Kerala as well as Tamil Nadu in the suburban areas. So altogether, we will look at another 300 more people during this year.

Okay, sir.

Sir, there are no questions in the queue. But would you like to repeat -- me to repeat the announcement one last time to check?

I think you have repeated it quite a few times.

Yes.

Sure, sir. Would you like to make any closing comments?

No, I have none. If Mitesh wants to make something?

So even after the call, if somebody wants to contact us, feel free to contact us. We'll be very happy to interact with any of these investors, analysts who are present in the call. Thank you very much.

Thank you, members of the management. Ladies and gentlemen, on behalf of Ambit Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.