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

Ladies and gentlemen, good day, and welcome to the Q4 FY '23 Earnings Conference Call of Geojit Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Satish Menon, Executive Director. Thank you, and over to you, sir.

Thank you very much, and welcome, and a warm good evening to everyone who is attending this fourth quarter earnings as well as the full financial year '23 earnings call. With me on my -- on this call, I have my Managing Director, Mr. C.J. George; my colleagues on the Board, Mr. A. Balakrishnan; and Jones George and our CFO, Ms. Mini Nair. I would just like to take you through the synopsis of the fourth quarter earnings as well as the full year, but some broad numbers, and then maybe we can open for Q&A. In terms of total income for the fourth quarter, we have done INR 116.83 crores, which is similar to what we did in the third quarter and a 5% drop from the previous year. In terms of the full year, the total income stands at INR 447.62 crores, 11% drop from the previous year. When you split the income equity and equity related that is primarily the brokerage services, we have done in quarter 4, INR 62.42 crores, which is 16% down from the third quarter and 25% down for the full year -- from the fourth quarter last year. And for the full year, it was INR 282 crores, which is 21% down from the last year. In terms of financial products income, we have done INR 32.97 crores in the fourth quarter, which was 39% up from the December quarter and 31% up from the similar period last year. And for the full year, INR 98.78 crores which is up 21% from FY '22. And financial product distribution expenses are primarily 2 items; mutual funds, a full year income of INR 71 crores, which is up 16% compared to the last year and an instrument income of INR 23.95 crores, which is 33% up from last year. [indiscernible] INR 2.13 crores for the quarter and INR 10.48 crores for the year, which is down by 13% compared to FY '22. Total income INR 447 crores, 11% degrowth. In terms of expenses, total expenses is INR 87.89 crores for quarter 4 which is 2% up from the December quarter and 14% up from the same quarter last year. For the full year, it was INR 328 crores, which is 10% up from the FY '22. PBT is 5% down for the quarter compared to December. And for the full year, it was INR 118.93 crores, 41% down from FY '22 PBT. In terms of PAT, INR 30.15 crores, which is up 20% in the December quarter and for the full year, it is INR 100.96 crores, 35% degrowth from FY '22. In terms of stock market volumes, cash market volumes was down by 36 percentage Y-o-Y. And in terms of [indiscernible], 70% up. The cash market yield remained more with the same at 0.163 percentage. 83% of volumes and 57% of the brokerage comes through online that is Internet as well as mobile. Geojit mutual fund AUM, more or less the same as to last year in spite of INR 643 crores of debt inflow compared to INR 490 crores for the previous year, was up by 31%. So this is the broad numbers. Now we can open up for Q&A. Operator, up to you.

[Operator Instructions] Our first question is from the line of [ Varun Bang ] of [ Bryanston Investments ].

I'm audible?

Yes, sir.

So I have a couple of questions. Firstly, what we are seeing is off let the larger brokers are gaining market share at the expense of smaller brokers and smaller brokers, they have higher cost of capital and thus they are unable to offer? Funding at competitive rates and they are also unable to keep pay [indiscernible] rising compliance. So what I'm hearing is some of them are shutting down. And while others are becoming sub-brokers of the larger brokers. So how are we looking at capitalizing this opportunity given our strengths in the current and -- given our strength in the current environment, what is our strategy? And how are we executing? That's my first question.

Okay. Satish, can I take this question? I'm C.J. George here, Managing Director the company. I agree with the observation that a significant number of brokers are in a mood to quit the kind of stock of [indiscernible] acting membership due to the reasons that you have explained. We are in touch with the many small brokers. We are also planning to offer attractive terms to these colleagues who have been in this business for last many decades in a few cases. So we are also going aggressively and conducting them, and we'll be very happy to work with all these potential partners. This is my observation with regard to this. I have to make one more point in addition to what Satish said, which is also relevant to the question that you have asked. Last year, we had declared and paid INR 3 per share dividend. This time, this dividend is now change to INR 1.50 per share of INR 1 share value. So this is the current information by the two-sided view. I hope this is fine, if you have any more questions I can take that later.

What was your next question?

So Varun may I request you to unmute your line?

Hello, Am I audible?

Yes, you are audible now.

So the second question is in the context of previous question. So how easy or difficult it is to consolidate acquisitions in this industry? Is it very difficult? I mean just trying to understand.

Varun, thank you for the question. It was very difficult in the past. But in terms of at least relatively speaking, process is eased a little bit. It's also because due to a lot of regulatory changes. The customer stickiness is probably something which is very, very important in this kind of a transition. But what we have started noticing is that this is probably the right environment at the moment, unlike the past because many of these smaller brokerages are offering personalized service, personalized credit, et cetera. So none of these will -- personalized service will work, but personalized credit, that may not work in the new environment. So because of that, it is relatively easy compared to the past to transfer the customers. So this is something that we have observed in the recent past.

Okay. That is helpful. And what I've seen is in the previous down cycles, we have always proactively brought strong control on operating expenses. But what I'm seeing differently in this down cycle is that Geojit is expanding branches and also adding employees. And there is steep rise in employee costs as well as operating expenses. So just to get a sense of what is happening and what are we doing differently in this down cycle versus the previous ones?

Satish, I will take this question also. So let me be very frank with you. If you look at '22 [indiscernible], the first post-COVID year. So all those customer relationship activities that were postponed in 2021 and '21, '22 were taken up in '22, '23. So we have active customer relationship kind of engagement through 350-plus [ bandwidth ] So it's slightly different from probably the [indiscernible] that we have in mind. So because of that, travel cost [indiscernible]. And then if you ask me the major increase in the cost are basically in connection with some investments that we are making, for example, arbitrage cost has gone up. Investment in technology, the CapEx as well as the OpEx has gone up. So these are -- apart from the employee cost, even in a large market, we thought of increasing the number of branches. We then have -- are the 25 more brands in the last 18 months or so. These bundles are -- many of these cases, these are in rural area. So we go ahead and start developing the relationship in the deeper interiors of the country. This is also part of our policy. This is, definitely, for the shortage increasing the cost that we are very confident that we can manage our mid-term to reach. Thank you.

Okay. Okay. Just 1 last question, sir. I was looking at the business model of Charles Schwab. They too started as a broking entity, but eventually, they diversified into wealth lending, asset management and so on. So 1 thing, whatever they did, they thought of doing it at a scale and they offered everything at a lower cost, and they always focused on acquiring larger number of clients, and they also acquired a lot of companies. So -- and this ensured that irrespective of the market scenario, they grew. So I'm sure you would have looked at their journey. So my question is in Indian context, how do you think the situation is different? Can something similar be worked out in India? And like Charles, I think Geojit also has been pioneered in doing a lot of things for the first time. So from our perspective, is it possible to do something similar at a size and scale what Charles Schwab did? If you can just share your thoughts, that would be helpful.

I will only make 1 remark because of this largely general, the regulatory environment is definitely different in India. Most of those leading brokers in the United States are also banks that means brokers can get -- brokers can get the bank license on top, unlike in India. So their ability to hold customer cash and then basically to offer various products to customers is very high, and it is scalable, whereas we have significant limitations. In India, brokerage don't shipping offers, even to be on the board of the bank, whereas the approach is likely different in the U.S. market. So it is not comparable in my view. Probably, I'm very sure over a period of time when there is consolidation, then there is institutionalized business development, et cetera. Maybe a regulatory changes will also happen. So at the moment, in my view, these are not comparable. But we'll be very happy and we are very keen to offer all the investment products that we can offer to customers.

[Operator Instructions] Our next question is from the line of Mr. [ Pratish Nair ], individual investor.

I got 2 questions. First question is on the insurance premium collection. So what would be that for the quarter and for the full year? And my second question is on the net inflow of mutual funds for this year compared to the last year, sir?

I will take this. So insurance premium collection for the January, February quarter was INR 38 crores. And for the full year, it was INR 78 crores compared to INR 57-odd crores for FY '22. So of course, thanks to the tax announcement made by the FM also helped us in the January, February, March quarter. Net inflow pick up, I already covered in my beginning -- in my first talk, we did INR 643 crores of equity mutual fund net inflow compared to INR 490 million for financial year '22, which is a growth of around 31 percentage.

[Operator Instructions] Our next question is on the line of [ Sumit Jankar ] from [indiscernible]

My question is regarding the cash market ADTO. I am seeing in the PPT deck that the cash yield has dropped and also the ADTO has dropped but as the ADTO dropped, the insured slightly increase as we're looking to derivatives, the ADTO is increasing [indiscernible] is dropping. So when ADTO drops, H2 usually showed increase yield. So can you put some light into this?

So I did not understand the question clearly, but the cash ADTO is INR 304 crores which is compared to INR 477 crores. So there's a drop there. But the yield at 0.163 percentage is more or less similar to 0.167%, 0.168%. So it doesn't mean -- so you should understand this is the blended yield of cash, it is not the delivery business holding. It is a blended yield of cash, which includes day trading as well as delivery. So as the percentage mix changes, the yield can also change.

Okay, sir. Got it. And my second question is regarding the client acquisition. So are you looking to increase client acquisition in coming quarters? And what would be the reason to drop client accretion in previous quarters?

So this is primarily coming from the market sentiment. If you look at the sentiment and if you look across the industry, even if you look at the growth in the DP account, because the market was subdued in the January, February, March quarter in terms of new clients in the quarter were subdued. So that is what we have seen more or less across the industry. But I can only show you a small change which has happened in the active clients. This is the active clients that NSE publishes every month. There what we see is Geojit has a positive growth compared to most of the other competitors, which have seen negative growth. So -- but what -- to answer your question, it is only because of the market sentiment.

Our next question is from the line of [ Varun Bang ] from [ Bryanston Investments ].

Sir, my question is with respect to implementation of ASBA in the secondary markets. How do you think industry is prepared for this? And how do you think this implementation will pan out?

So ASBA, as of now, it is optional. It is the preference of the client whether to do ASBA or to keep the money with the broker. There are still some challenges in terms of operational, if it is made compulsory. Our feeling is we still need to see how it evolves out. As of now, we -- because there a lot of transactional advantage the client has than he keeps the money with the broker. So till that time, all of them are sufficed in the new ASBA rule, I don't think, as of now, a large chunk of people that is my personal feeling, a large chunk of clients will move to ASBA.

Okay. And would this implementation -- I mean, look -- I mean, make our balance sheet a bit lighter in terms of the overall working capital requirement? Because if the settlement will happen between client and the [ peering ] corporation? So I'm just trying to understand.

I don't think so because it is only a channel. So what today happens is the client keeps the money with the broker and the broker next day pays the exchange is a compulsory even ASBA comes through the direct [indiscernible] clients will pay to the exchange. So I don't think it will have much impact on the balance sheet of the broker. It is only a pass-through vehicles.

No. I [indiscernible] maybe, yes, if the clients are paying in advance,et cetera, the demand for working capital might go down. But we have products like the margin trading et cetera., there we need to basically provide the facilities to client. In my view, the clients, as Satish rightly said, the clients may not opt for ASBA at the moment because we are already getting complaints at the time of quarterly pay outs to the clients -- of the view that it is creating some amount of inconvenience to them, although Citi has done this is the best interest of customers. The retail customers in our experience, they have considered it as more of an inconvenience to them.

Our next question is from the line of Mr. [ Anil R ], Individual Investor.

Can you share the PMS income for this year?

PMS income for FY '23 was INR 8.23 crores. Also, I would like to inform you that the last year we have corrected gross to net INR 100 crores of new PMS subscription amount for Geojit PMS and the book right now stands at INR 450-odd crores, it is compared to INR 8.23 crores compared to INR 17 crores for the FY '22.

Okay. Can you just share the cash in the books also?

Yes. Yes, this Mini Nair, CFO. The cash is INR 655 crores in the books. But more than 1/3 of this cash is being used for MTF funding and also for client funding. And also, we require working capital. So even if we have INR 655 crores of cash, we are using it for the regular business requirement.

[Operator Instructions]

Operator, if there are no further questions, we can conclude.

Got it, Sir. As there are no further questions, I would now like to hand the conference over to Mr. Satish Menon for closing comments.

Thank you, everyone, for joining this call. Our officers are always here if you have any specific queries. Have a nice day. Thank you very much.

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