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

Ladies and gentlemen, good day, and welcome to Q2 FY '23 IIFL Securities Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to the Managing Director, Mr. R Venkataraman. Thank you, and over to you, sir.

Thank you. Good afternoon, friends. At the outset, I take this opportunity to wish all of you a very happy Diwali and best wishes for a very prosperous new year. I'm R Venkataraman. I am the Chairman and Managing Director of IIFL Securities. And along with me are my colleagues, Ronak, who is the CFO; and Veenashree, who looks after Investor Relations, the entire IIFL Group. Thank you for joining the second quarter FY '23 analyst call. I hope all your near and dear ones continue to remain safe. Just as we seem to have come out of the COVID pandemic, the world has entered into a volatile phase once again, this time driven by economic and geopolitical events, which are affecting market sentiment. We're also entering into an era of high interest rates, which central banks across the globe are doing to rein in inflation. Although Indian markets have shown resilience, still external shocks may keep the market volatile. Broking as a business has started gaining momentum and also IPO activities have picked up as stock markets are stable. Our strategy continues to be built on research, technology and talent. We have an edge in capital markets because of our research and understanding of the economy and corporates that helps the business lines since all our business lines are centered around capital markets. We have 3 revenue streams: retail broking targeted at affluent tech-savvy customers where we offer not only broking, but other products like mutual funds, insurance, PMS on an open architecture model. The other is institutional broking. We are one of the leading domestic institutional brokers. And third is investment banking where we are focused on the equity capital markets. Coming to the September 30 numbers. Consolidated revenues for the quarter came at INR 323 crores, up 10% quarter-on-quarter. Quarter-on-quarter growth has been in brokerage 12%. We have -- brokerage income was roughly about INR 163 crores. Distribution income again increased 33% on a quarter-on-quarter basis to INR 54 crores. Investment banking declined 16%, INR 24 crores against INR 29 crores in the previous quarter. And that is simply because of the nature of the business because income is booked when deals are closed. On a year-on-year basis, brokerage income has decreased 14% and distribution income has increased 6%. And investment banking again has decreased because, if you remember, the last year -- quarter was quite good. Other income has increased by 100% quarter-on-quarter and -- at about 6.8% and it has decreased 65% year-on-year basis. I'll be coming to expenses. I think the big -- expenses was flat, which is the employee cost was flat on a quarter-on-quarter basis, but has increased 17% on a year-on-year basis because of increase in headcount as well as increase in normal pay hike, which happened last year -- which happened during the course of the year, sorry. Finance cost at INR 19 crores flat quarter-on-quarter reduced 37% on a year-on-year basis simply because of -- last year, we had borrowed highly for IPO funding. This year, this line item was not there. Admin cost is INR 123 crores, which has increased 11% quarter-on-quarter, 23% year-on-year, primarily because of sub-brokerage payouts as well as increase in technology and marketing costs. Assets under management and custody stood at 1 lakh, 18,000 crores. Average turnover for the quarter was 1 lakh, 35,000 crores, BSE and NSE combined, which was INR 1,700 crores in cash and about 1 lakh, 33,000 crores in derivatives. Previous quarter was 1 lakh, 26,000 crores, which was INR 1,500 crores in the cash segment and 1 lakh, 25,000 crores in the derivative segment. With this, I have come to the end of my remarks, and I'll answer any questions that you may have. Thank you so much.

[Operator Instructions] We have a first question from the line of Dhvanil Shah from Motilal Oswal Financial Services.

This is Prayesh Jain from Motilal Oswal. So just a couple of questions. Firstly is more on the industry front. So firstly, what happened at the time of the payouts that changed the rule change? Did you face any challenges out there? Or how was the thing implemented?

Prayesh, thank you. This payout of money, which happened I think October 9...

7th [indiscernible]

7th October, I think this was an industry-wide phenomena, and it happened smoothly. So I think that although everybody was sharing that the banking system will come underload, but I think all -- given currently, almost all brokers have the technology systems in place, and this payout happened smoothly. I don't think there's a big challenge. Ronak, anything -- yes. It happened smoothly.

Payout will happen smoothly.

Okay. And within how much time the customers' money would have come back to us?

That's a good question. I think money is slowly coming back. So it took almost 3, 4 days to come back.

So 80%, 85% would have come back in 3 to 4 days, that is right?

No, I think by now 80%, 85% would have come back. Are we already -- 90%?

We have received 80%, 85%.

By now, 85% has come back. But in the first 2 days, I think the number would have been close to 40%, 50% instead of 80%. [Foreign Language] That's your question, right? I assume that was your question.

Yes.

Yes.

Yes. And sir, how many of your customers would have chosen 1 month versus 3 months payout?

[ Go ahead. ]

Mostly -- many of the clients are on the 3 months only. Very few numbers are on monthly settlement.

Okay. Okay. Okay. And sir...

[indiscernible] many of them have updated on the quarterly settlement to get their money.

Okay. And so quarterly settlement is somewhere where we would be earning higher float income, right? So is there a trend that the float income would reduce substantially going ahead? Because...

My guess is that what you say is directionally correct. So float -- there is a probability of reduction of float income for sure.

But due to increase in interest rate and once -- money is kept for 3 months earlier. The regulation was like from the trading day, you have to do the settlement. But now you have to do only once in the quarter. So that money will stay with you for at least 3 months if the client is on the quarterly settlement.

Okay. Okay. Okay. And sir, this is a broader industry-level question possibly, if you can answer this for me. What happens if the broker-wide limit hits and you -- so you cannot do it on a separate card?

I think if the broker-wide limit is -- card -- is linked to the card and not to promoter. So that's a technical question. I think I have to check and get back to you. You're talking about broker-wide positions at F&O being hit, right?

Yes, yes, yes, sir.

Yes. So that is a technical question. I think I should check and give you a correct answer technically. We are saying that if I take multiple cards, can I multiply it by -- so increase the market-wide limit. I think I'll have to check back so -- because I don't know -- this is a technical question.

Okay. Okay. Okay. Yes. That's the exact thing I'm looking for because some of the market participants are talking about Zerodha having a ceiling in their terms, and that's the reason there are some issues on Zerodha. So that's the thing -- what I wanted to understand, whether -- if they have another entity or another group entity, which has another card, whether they can [ try and shift ] customers there or whether the incremental customers can be brought in on that card and those individual customers can also trade on Zerodha app. So those are the broader questions which I wanted to...