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

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call of Geojit Financial Services Limited. Before we get started, I would like to point out that some statements made or discussed on today's call may be forward-looking in nature and must be viewed in conjunction with the risks and uncertainties that we face. A detailed statement and explanation of this risk is included in the earnings presentation, which has been shared with you earlier. The company does not undertake to update these forward-looking statements publicly. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Satish Menon from Geojit Financial Services. Thank you, and over to you, sir.

Good evening. Operator, is my voice clear. .

Sir, your voice is clear, but you're sounding distant. If you could come closer to the microphone, it would help.

Okay. Thank you very much, operator. Good evening and thank you for joining us today. This is Satish Menon from Geojit. On the call with me today, we have Mr. C.J. George, Chairman and Managing Director; Mr. Jones George, Executive Director; Ms. MinI Nair, CFO; Jaya Sasidharan, CIO; Mr. Rahul Roy Chowdhury, CEO of Private Wealth; and Mr. Liju Johnson Company Secretary. Before I turn on to the quarterly performance, let me briefly touch upon the operating environment during the quarter. Despite intermittent volatility arising out of global geo political developments. -- investor participation in India financial markets remain resilient. For a franchise like ours, with deep relations across Tier 2, Tier 3 cities and a differentiated assistant led approach, we believe this opportunity in Indian financial markets remain significant. Geojit focuses on building life-long customer relationship through advisory, wealth creation and cross-selling across multiple products. We continue to guide our transformation from a transaction-led booking franchise into a diversified recurring revenue led wealth platform. The transformation, which I had covered in my last call -- last investor call, contains 3 strategic pillars. One is expanding our recurring revenue through wealth management, AMS insurance. Second is strengthening our NRI business in GCC countries and other countries, including GIFT in the DIFC initiatives. And third is the technological transformation to enhance customer experience. I'll now turn to the quarter 1 financial performance. Revenue for operation in quarter 1 stood at INR 160.40 crores, which is 11% Y-o-Y growth. Profit after tax -- sorry, profit before tax stood at INR 25.99 crores, while profit after tax stood at INR 19.83 crores. On a sequential basis, PBT grew by 4%, and PAT increased by 14%. The company continued to maintain disciplined cost structure while investing in capabilities that are expected to strengthen productivity, customer engagement and operating leverage or a medium term. As you would all recall, which we had stated in our last call, FY '26 was a year of deliberate investments across technology, distribution and brand building. These investments have continued at quarter with a clear focus of building long-term capabilities rather than near-term profitability. One of the highlights of quarter 1, which I would like to mention is that employee cost is up by INR 18 crores, primarily driven by expansion of our sales force, recruitment for our DIFC, addition to our technology team to support IT transformation and higher employee incentive aligned with the growth in the distribution business that we saw in the quarter 1. We believe this investment will be -- will support improved productivity and operating leverage over the medium term. Other highlights. The total customer assets increased to INR 1.11 lakh crores. Our mutual fund distribution continue to outperform with equity market inflow market share improving to 0.473. It had increased in the last quarter also. And our equity mutual fund AUM increased INR 18,501 crores. Our A&T business asset management business also continue to scale -- our asset management business has an AuM of INR 1,778 crores. Insurance distribution was a highlight of the last quarter we have collected the gross premium INR 103 crores, reflecting a continued cross-selling among our clients. Our lending portfolio margin funding and loan against shares mutual fund increased to INR 755 crores in quarter 1 of FY '27. To conclude, the quarter reflects the continued execution of the investment we initiated last year. While we continue to invest in technology, distribution capabilities and people, the underlying business indicators remain encouraging. Growth in customer assets, client acquisition, improving mutual fund market share and continued expansion of our revenue -- recurring revenue business reinforce our confidence in the long-term direction of the business. We believe the investment undertaken over the past year has created a stronger and more scalable platform positioning us well to benefit from the India's long-term financialization opportunity while creating sustainable value for our customers as well as our shareholders. With that, I would like now to open the floor for questions. Thank you.

[Operator Instructions] The first question comes from the line of [ Jitu Panjabi with EM Capital Advisors. ] I'm sorry to interrupt Jitu, you're not audible. Could you please use your handset on your handset mode? Okay. You are not audible your voice is breaking. I'm sorry, Jitu, you're not audible, would request you to fix the issue at your end and get back in the queue. The next question comes from the line of [ Arvind Singh with Maitree Investment. ] So Maitree's line has dropped. We'll move on to the next participant. Nimish Pandya and Individual Investor.

Sir, my first question is, sir, recently, we have added around 30,176 new clients during the quarter. despite industry-wide online moderation in met additions. So, are you seeing higher productivity from your branch network, stronger referrals or better digital acquisition?

Okay. So we will take the second question after I reply to the first question. So most of the -- most of this addition of the 30,000 clients have come through the branch reference only. Not much through the digital acquisition. .

Got it. Sir, my next question is -- my next question is, sir, MSF AUM has reached around INR 117 crore -- sorry, [ INR 17,078 crores. ] Given the strong performance of plus. Are you seeing any increased interest from HMI investors? And could you put this business scale faster than originally anticipated. What's your thought on this?

So you are absolutely correct. Yield plus MicasenAF scheme under our asset management business has done fantastically well. And I understand that there is no other comparison in the market. As of now, this product has been sold only to in-house clients of Geojit. We have not yet upped any third-party distributors to distribute this product. It is now 11 months of performance. In some time, we will go up to the market to get new clients outside of Geojit also post which we see this as a fantastic product for us to penetrate into markets where we are either not there or very insignificant. .

Got it. My last question, can I ask? .

Yes, sure. .

Sir, this is regarding revenue. So as you see, sir, revenue from patients grew 11% Y-o-Y, roughly around INR 160 crores while PAT has increased 14% sequentially. Sir, would it be fair to say that the benefits of these investments made during FY '26 are beginning to reflect in the financial performance, your view, sir?

Yes, it has started to reflect. But as we said in our last call, we have invested hugely in people and IT -- and these people are primarily there to acquire recurring assets. Insurance, of course, is an upfront income. So you get the benefit of that. But largely, the KPIs for these new people is to build mutual fund recurring assets, mutual funds, PMS and AIS, which will go into tray. So some of shoots have been seen in terms of productivity. But in terms of covering the cost, it will take slightly longer time because most of the other recurring assets are on train based revenue. .

The next question comes from the line of [ Jitu Panjabi from EM Capital Advisors. .]

Sorry for the earlier mishaps. So I have 3 questions. One, you talked about the cross-sell across the recurring asset categories. Can you calibrate that on how successful it's been? And two, if you were to look out over the next year or 2, where do we do it? Does this -- does this part of assets actually go up to 3, 4x? Or does it go up much less? That's question one. Question 2 is a....

I'm sorry to interrupt Jitu your voices is breaking again.

Okay. Can you hear me now? .

Yes, it's okay. .

So...

You're breaking up again Jitu could you please change your location if that would help? You're not audible, Jitu.

Is this better? Just on the partnerships in the Gulf and the Middle East, can you just calibrate what percentage of revenues comes out of that? And how much is that growing and how are those partnerships scaling up? And what's the direction you're going to do more on that side...

You're again breaking up Jitu. Sir, were you able to pick up anything from his question that you would like to answer? .

I've got the first and the second question. .

Okay...

So I'll go to the third question. Can you talk a little bit about succession policy where C.J. is there, Satish is there, Jones is there. So I'd just love to hear if there's some thoughts on succession?

Okay. I will try to answer your first question on cross-selling. So Geojit primarily started as a stock broker so all those clients from 1987 until 2016 primarily came into stock broking. 2016 is when we started trying to get into mutual fund distribution through SIPs. And 2025, '26 and when we started aggressively pushing mutual fund. So in terms of penetration, when we talk about active clients in broking, when I say active clients, it means 1 trade in the last 12 months as per records, -- it is close to 2 lakh plus clients. When we look at mutual fund, we have close to 3 lakh plus holding clients. So these are the 2 largest products we have, and there is a definite cross-sell between people who are holding a brokerage account and people who are actually traded in the last 12 months who are giving us mutual fund revenues. I think it was closer to 38%. But on the other 2 products, which is health and life insurance, the penetration is too low and is in lower single digits. So we see a lot of scope in selling the insurance product as well as still 62% gap in selling mutual funds. So we definitely feel our cross-selling prospects are very good and we will continue to concentrate on cross-selling. On the question #2 on JVs, I will request Jones to take up this question.

Yes. So regarding the JVs, at this time, we are only booking our share of revenue in the respective JVs, except for Oman with subsidiary, Burgel, which is the biggest JV that we have, we only own 30%. So we only book that share of revenue. And same applies for Kuwait as well as for DIFC with a subsidiary. Sorry. Regarding growth prospects for the Middle East, there is a lot of potential there, which is why we continue to invest. However, since March, there has been a lot of pressure in the business due to the Middle East conflict and also very recently, Government of India has encouraged CNR as a product line. So that has also affected inflows. But largely, the mood in Middle East is wait and watch considering the conflict at the moment.

I will add 1 more point on this -- George is here, Bajil after getting this license to start a mutual fund in UAE, came out of the first fund during this difficult time and the IPO -- the MF is around [ 20 million plus. ] Currently, what we also see in the Middle East in the short times. Another pressure due to C&R these deposit rates have gone up and the leverage that is happening. . So in next couple of months, it will be a slightly kind of a difficult situation as far as the Middle East based and AI business is concerned. With regard to succession, as we announced the market I will be stepping down from the office of Managing Director and Jones will I'll take over our MD of the company from first of October. Satish Menon continues as the MD of Geojit Investment Limited. And the next line as far as the company is concerned on all verticals, we have competent professionals who have joined and groomed to take over. So we have a formal succession planning policy and this is happening as per the plan. Thank you. You're again, breaking.

[Operator Instructions] The next question comes from the line of [ Dhawal Pandya with Arisa India. ]

So sir, as we know that you're dominating the Tier 2 and 3 cities, which is the most strongest geography of yours in the Tier 2 and 3 cities?

So we are based out of Kerala. We started our office -- the first office, the first branch in Kerala, headquartered in Kerala. So Kerala on -- as of now, all cities would be in B30 and can be considered Tier 2, Tier 3 cities. So we are pretty strong in Kerala. The second comes to us, the second state, which contributes the second largest is Tamil Nadu-- so its Kerala, Tamil, Maharashtra, Karnataka. The doesn't -- I mean, it's very -- it will be not correct for me to get into cities because there are the main many cities in Kerala. .

I understand. And sir, looking at the current Middle East crises, what will be your view on it and looking for what the things that you will consider while expanding Middle East?

So Middle East, as I said earlier, right now, investors have a hold in a wait-and-watch approach. So there is no real investment decision being made at the moment. We are also not investing in expansion because of the uncertainty. However, we understand that as our Chairman earlier mentioned, but deal has set up an asset management company on its own and that is able to offer a different kind of product basket that has seen quite a bit of traction in the UAE. The other investments, we will not be pushing for expansion at this time.

Okay. And can you also tell us like what is the opportunity size in the Dubai market that we operate right now...

Yes. So if you look at just the UAE alone, even within the nonresident Indian segment, the investment appetite is quite global. So in a way, it's only half of a client investment share that comes to India. So there is -- if you -- our JV in UAE offers different kind of products or has to begin offering a variety of products to grow their business. So that is what they are looking at right now through the AMC. That is an example of UAE market. The rest of GCC market is also quite similar.

Okay. And one more question. Geojit has been investing has been in an investment phase for several years with the continuous spending on technology sales for expansion and distribution capabilities. And what tail do you believe the business has reached sufficient scale for investors to see a meaningful operating leverage -- leverage or a strong earning growth?

So we will continue to invest, particularly in technology and people for 2 more years. And with regard to the results from the investment, I must tell you that once there is some amount of stability in the market, particularly in the global market as a result of this global uncertainties arising from Middle East conflict. We will see significant progress. So maybe it will take another couple of quarters for us to see, but we will continue to have these investments done. . I must clarify one point that we only started the serious investment last year, not long before. it's not many, many years that we started this kind of investment in people. This is a new initiative started in '25 to 26, and we will continue to invest in people as well as technology. You will have to wait for a couple of more quarters because of the -- particularly because the Middle East development. Thank you.

Okay. So 1 last question. If it's fine with you.

For the operator to decide.

Yes, you may go ahead yes.

Yes. So the GCC continues to be an important market for Geojit. So could you share how clients' assets and client addition from the gen broader region, have you all over past few years and whether the pace of the growth has picked up from the following launch of BIC business?

So all put together from the GCC, our AUM would be a little shy of $1 billion. In terms of DIFC, we have just very recently started booking some business, but it is still quite early stages. As I said, there are some challenges because of the conflict there. But otherwise, in the long run, we continue to be optimistic because it is still the GCC still continues to be a lifestyle destination for -- especially the HNI segment. So there continues -- there is a story there and there's a potential that we will pursue once there is stability in the market.

The next question comes from the line of Yogesh Shroff with Magnus Hathway Investments. .