IIFL Capital Services Limited (IIFLCAPS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the IIFL Securities Q4 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to the management. Thank you, and over to you.

Good afternoon, friends, and thank you. Thank you for joining the Q4 FY '22 analyst call for IIFL Securities. I am R. Venkataraman, Managing Director and Co-Founder. Along with me are Ronak Gandhi, CFO; and Anup Varghese, who helms the Investor Relationships for the group. I also take this opportunity to wish and hope that all your near and dear ones continue to remain safe. The Indian economy is slowly gathering momentum as it came out with relatively less virulent COVID wave 3. Although there are fears of a wave 4 and wave 5 also on the anvil, we have seen increased activity in equity markets since the beginning of the pandemic, driven by favorable liquidity in both international and domestic markets, higher Internet and digital penetration and increased retail participation. As we speak right now, global uncertainties like Ukraine, Russia, higher inflation, fears of higher interest rates continue to cast a shadow on equity markets, not only in India, but across the globe. A quick word on our strategy, which continues to be built on research, PropTech -- investment in technology and human resources. We have an edge in capital markets because of our strong research, understanding of capital equity, economy, corporate sector, which helps our business lines. We continue to scale our efforts for the digital transformation of our retail broking business with the focus on providing customers state-of-the-art digital experience which is device-agnostic. As you are aware, we have 3 revenue streams: retail, targeted at mass-affluent, tech-savvy customers. We offer not only broking with other distribution of products like mutual funds, insurance, PMS, et cetera, and that is primarily on an open architecture model. Institutional broking. We are one of the leading institutional brokers domestically, and we have the port of first call for many domestic and foreign institutions based upon execution capabilities and research credentials. And last, but not the least, is investment banking. We are focused on equity capital markets, which is IPO and QIP, and -- where we have a unique capability of filling all the buckets on the IPO construct, be it retail, [indiscernible] institution on its own distribution segments. Coming to the quarterly results of March 31, 2022, consolidated revenues was INR 360 crores -- INR 362 crores, up 41% Y-o-Y and down 2% quarter-on-quarter. The increase in revenue on a year-on-year basis is primarily because of growth in brokerage income of INR 156 crores against INR 124 crores on a year-on-year basis. Investment banking grew to INR 66 crores versus INR 36 crores. And product distribution income was INR 56 crores versus INR 27 crores. Coming to our -- coming to -- on a quarter-on-quarter basis number, brokerage increased both on a quarter-on-quarter [indiscernible] at [ 8% ], INR 156 crores against INR 145 crores. Investment banking increased again sharply, INR 66 crores against INR 32 crores. And distribution income was virtually flat at INR 56 crores for both the 2 quarters. Other income was down quarter-on-quarter to INR 15 crores primarily because the previous quarter, we had other income because of sale of our investment in [indiscernible]. Full year numbers for your quick reference. Our total income grew 52%, primarily because of 36% growth on brokerage income, INR 574 crores versus INR 423 crores. Investment banking almost doubled INR 150 crores against INR 73 crores, and distribution income again grew 73%, INR 211 crores versus INR 122 crores. And our PAT, as a result, grew 28%, which is INR 305 crores versus INR 222 crores. Coming to expenses. We have seen a growth in expenses primarily because of employee cost increases, both in terms of number and people, as well as variable pay -- increase in variable pay and investments and sub-broker payouts and also investments in technology as well as marketing for higher customer acquisition. So finance cost was down 53% on quarter-on-quarter basis primarily because of decrease in IPO funding activity, and it has increased year-on-year simply because we have borrowed more for margin funding. Admin cost is up 10% quarter-on-quarter, 63% year-on-year, as I explained, because of the increase in sub-broker payout, increase in technology expenses, lead generation and marketing costs. Coming to the big other headline number. Assets under management and custody, INR 1,30,479 crores. Average daily turnover for the quarter was INR 1,11,535, BSE and NSE combined, which was [ INR 188 crores ] for cash and 1 lakh 9,651 crores for derivatives. Corresponding figures for the previous quarter was INR 83,554 crores, which was [ INR 1,835 crores ] in cash and [ INR 81,790 ] for derivatives. Our technology investments, we have spoken about, IIFL Markets app and AAA, which are used by both our [indiscernible] customers and -- for uninterrupted service. We have invested and launched in the DIY account opening [indiscernible]. 63% of our accounts are opened digitally. A large number of accounts are opened under [ DIY ] structure. And customer acquisition efforts are [ aiming results. ] We have acquired over 2 lakh customers, 2 lakh -- 2 lakh 8,000 for the previous last quarter. With this, I come to the end of my talk, and we'll be more than happy and glad to answer any questions that you have. Thank you so much.

[Operator Instructions] The first question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

Sorry, I was on mute. Mr. Venkataraman, congratulations on good performance. You had spoken about margin funding. I just want to know what percentage of your customers avail of margin funding? What are the volumes which are there typically? And how important is it when you acquire customers that -- do they automatically ask for margin funding? So I just wanted to understand that part of the business.

So if you look at our broker margin funding, I think, which is [indiscernible] -- which is about 8 -- 5 35 crores, right?

Gross...

Gross [ book... ]

5 38 crores.

5 38 crores. And so effectively, what has happened is that we have tried to make the entire margin trading journey user-friendly. So we have now launched a BNPL, buy now, pay later, which millennials understand because most of them are buying on these -- on various e-commerce websites. And we believe that margin funding is a good tool to have to engage with customers. And also, it has been -- customers taking position in reference to in the cash segment.

Okay. And -- but if...

The percentage of customers who avail of margin funding, I don't have it right now, but I'll get this data and get back to you.

That's great. And so then the key thing would be -- the only collateral they have is a stock, right? If the customer defaults and so [indiscernible]...

[indiscernible] 50% is loan to value and the stock is collateral.

[Operator Instructions] The next question is from the line of [ Modhi Danahar ] from [ Abacus Asset Management. ]

Sir, how much would be the yield on the margin book?

The yield on the margin book is roughly about 14%, 15%.

Okay. And sir, what would be the mix between the retail brokerage and the institutional growth rates, sir?

Retail brokerage and institutional is roughly about 50-50. I think it's 48-52, it moves on quarter-to-quarter. But I think broadly, you can take 50-50.

And sir, are there any impacts on the yield front and the brokerage side?

Brokerage yield actually, it has been continuously trending downward. So it is -- as of now, it is about cash, this cash -- cash is about 7%, and derivatives -- derivative will be about 0.09. So it's quite low. And it has been virtually unchanged for the last 2 quarters.

[Operator Instructions] The next question is from the line of [ Kartik Sunny ] from [ Idade Asset Management. ]

My question is around your major tie-up that you have done. I think that for this quarter, you added about 2 million clients. So I just wanted to know what percentage of those clients were added through these tie-ups?

No, no. Sorry, I'll just stand -- I'll correct one figure because the total number of clients we acquired in last quarter was 2 lakh, not 2 million. I would be very delighted if I acquire 2 million customers. And so coming to the tie-up, I think the -- we have these tie-ups to -- these tie-ups are not helping us to acquire customers. But to be really honest, they are more at giving a more holistic and superior digital experience to the customers. So I cannot say whether the customers are coming because of these tie-ups. I think these tie-ups are, of course, joining us so that they engage with us more and spend more time with us.

The next question is from the line of [ Nagi Jejenof ] from [indiscernible] Family Office.

Very happy to see the top line growth. But however, equally concerned with the equally aggressive expenses growth. Now the question is how do we see the future as we go forward through the next couple of quarters? Do you see the expenses growing in line with the revenue growth? Or would there be any changes?

See, actually, to be very honest, the question you have raised is very correct because what has happened for us last year is that we saw an increase in manpower. The number -- because -- employee cost went up because -- both in terms of actual headcount gain because the headcount went up from roughly 1,928 to 2,529. Then we also had to take wage inflation because actually we get cost -- employee cost going up and also get an increased employee variable payout because we had a good year. Then we also saw some increased expenses because of marketing and technology. Marketing was primarily because -- lead retention and marketing cost went up because we invested to acquire a large number of customers. Our admin costs went up because of higher sub-brokerage payouts, and technology, I already spoke about. So I hope that in the days to come, we should see revenue growing at faster pace than expenses.

Looking forward to the revenue growth ahead of expenses in the coming quarters.

Thank you so much.

[Operator Instructions] The next question is from the line of Parin Jhaveri from JNJ Holdings Private Limited.

If you can just throw some light on the real estate portion and the progress on that.

See, if you look at our real estate situation, I'll just give you the latest position. We have about 6 lakh 23,000 office space, which is spread across Ahmedabad, Andheri. Even in Andheri, we have in -- Andheri, Chandivali, [ Dabad. ] We have an office in Pune. We have an office in Thane, Gurgaon, Hyderabad, Chennai, et cetera. So if you look at the total space, I think our rental income -- we are generating rental income from it roughly about -- it's about 30% of outsiders and 70% is consumed in-house. So we are carrying it at a book of about [ INR 243 crores. ] We expect the market value to be higher, but it's very difficult for me to give a figure on it. So we have been making efforts to sell. So last -- in the last 2, 3 quarters, we didn't have any success. And the last sale, it was in last quarter, in April, May, June quarter. So we are continuing our efforts to sell some of the properties, and we hope that we should see some results. But there is -- another deal is on its way, difficult [ to kind of say. ] But yes, our aim is to sell.

Sorry, I didn't get that figure. Did you say what is the approximate market value? And out of that, what is the aim? What percentage would be sold off maybe in another 2, 3 years?

See, in 2, 3 years, apart from Mumbai office, we look to sell everything else -- sorry, Mumbai and Delhi office, we look to sell everything else.

And what is the approximate value that you have?

See, actually, they're carrying a book -- book value, I can tell you, is about [ INR 243 crores. ] Some time ago, when we did an external agency, it was roughly about...

INR 650 crores, INR 670 crores.

650 -- INR 600 crores [indiscernible]

Out of this [ INR 650 crores, ] if you exclude Mumbai and Delhi, what would be the sellable portion?

Difficult to say. Chennai is a big property because Chennai is about 2 lakhs and 3,000 square feet. So I don't have the number right now in front of me. So one thing, I'll -- can you send me an email so that -- we'll try to contact you with some approximations.

Yes, sir.

The next question is from the line of [ Sumit Dhankar ] from Motilal Oswal Financial Services.

Sir, I've gone through the numbers of active clients. So last year, it was around 3 lakhs, and now it has been around 11 lakhs. So -- and if you go through the total number of addition in total clients, so as compared to that, the active client has grown -- has shown a good growth. So what helped in making that client active -- I...

You know what has happened is that if you see -- there are 2, 3 reasons for this. One is we are -- we were obviously benefited from the buoyant capital market. Second thing is that we have a large set of government customers who we try to activate using a call and trade facility. So we had a call center agent trying to reach out. We also try to nudge them digitally. We also -- to make sure that we activate them. We also leverage on the IPOs to make them active. So I think it's a combination of all these things and plus -- which help them to make them active.

The next question is from the line of Rishikesh Oza from RoboCapital.

Sir, my first question is any outlook on customer acquisitions? So like how many do we plan to acquire for FY '23?

See, we don't have a target like this, but what has happened is that we play it by the ear. So hopefully, we should be in the [ 150 to 2 lakhs ] [ first quarter ] number.

Okay. So we should continue the current acquisition [ you're having, ] right?

Yes. But obviously, as the market conditions change, we'll [ have to change the target ] -- the number.

Okay. And what revenue growth are we seeing for this year since we are also increasing our manpower and all?

See, it's very difficult to give a figure on revenue growth. So I don't want to guess.

The next question is from the line of [ Kartik Sunny ] from [ Idade Asset Management. ]

So my question is on your tie-up with Stockal. So that gives access to around 3,500 U.S. stocks. Can you share the pricing of this?

Sorry, I don't have it. It is like basically helping India customers to trade in overseas stocks. So I don't have -- we don't have a standard pricing structure. I don't remember it offhand. So I'll get it for you. You are just [ knowing what rupees is that, ] right?

Yes, exactly.

Yes. I'll get it [ to you. ]

[Operator Instructions]

If there are no further questions, we'll come to the end of this call, and I thank the participants for their questions. And our IR, at iifl.com -- [email protected] is the email. And if you have any questions, please feel free to ask so that we can address all those questions. Thank you so much.

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

Thank you.