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

Ladies and gentlemen, good day, and welcome to the IIFL Capital Services Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to the management for their opening remarks. Thank you, and over to you, sir.

Thank you. Good afternoon, and welcome to the First Quarter FY '27 Analyst Call of IIFL Capital. This is R. Venkataraman. I'm the Co-promoter and Managing Director. Along with me is Ronak Gandhi, who is our CFO. We are living in interesting times. The global environment remains uncertain. Geopolitical developments, commodity price volatility continue to influence investor sentiment and capital flows. With crude touching $100 a barrel, it is to be seen how India is affected in the days to come. Coming to our results, consolidated operational revenue for the quarter was INR 631 crores, virtually flat quarter-on-quarter and a year-on-year basis. On a quarter-on-quarter basis, that is this quarter, Q1 FY '27 versus Q4 FY '26, retail broking revenue was INR 297 crores, virtually flat. Institutional and investment banking revenue was up 27%, INR 207 crores versus INR 162 crores in the fourth quarter of last year. Financial product distribution income stood at INR 125 crores versus INR 182 crores in the fourth quarter, which is down 31% primarily because of 2 reasons. One is about the fourth quarter peak of insurance income, which is typically a fourth quarter effect, and the other is because of lumpy transactional income, which was booked in the previous quarter. Employee costs are decreased or is almost flat at INR 179 crores versus INR 183 crores. Finance costs decreased 5% to INR 60 crores. Depreciation flat at INR 17 crores. Fees and commission income decreased to INR 139 crores by 8%, very primarily because of decrease in variable payout, again, linked to the seasonal insurance business. Administrative income was again flat. Operational PBT INR 149 crores was up 4% on a quarter-on-quarter basis. Other income was high steeply by INR 90 crores, and that is primarily because of the mark-to-market gains on BSE shares. This is something -- this is -- the BSE shares is something which we have discussed in the previous quarters also. Coming to year-on-year basis, retail broking -- retail revenues was INR 297 crores versus INR 264 crores, which is up 13%. Institutional broking, investment banking income was flat, INR 207 crores versus INR 204 crores for the last year first quarter. Distribution income, again, was down 14%, as I mentioned earlier, because of certain transaction income, which was booked -- which was big in the previous year. Employee cost flat INR 179 crores. Finance cost decreased 48% to INR 60 crores because -- sorry, finance cost increased to INR 60 crores from INR 40 crores because of increase in MTF book, depreciation flat, fees and commission income increased 4%. Admin income was again flat. Operational PBT INR 149 crores was down approximately 9%. Other income, again, INR 90 crores, mainly because of the gain in BSE shares. Some housekeeping numbers. Average daily turnover was INR 3,15,780 crores, of which F&O was INR 3,12,480 crores and cash was INR 3,300 crores in Q4, which was INR 3,22,886 crores, of which F&O was INR 3,20,011 crores and cash was INR 2,875 crores, which was down almost 2%. And other updates, I wanted to give you an update on the Fairfax investment. During the quarter, Fairfax India Holdings Corporation through FIH Mauritius and its affiliate proposed to increase the shareholding in the company to at least 51% through a combination of (pref issuance -- pref investment) of equity about INR 2,000 crores at INR 350 per share and the mandatory open offer, which is subject to all customary regulatory and other approvals. The shareholders approved the preferential issue of equity shares at the EGM held on June 1, 2026. We are at various stages of approvals from various regulators, including SEBI, NSE, BSE and IRDA. Upon completion of the proposed transaction, Fairfax will become the promoter along with the existing promoters, Nirmal and myself. They will also have a right to nominate 2 directors to the Board. We believe that this investment will strengthen our company's capital base, support growth across capital markets, wealth management, asset management, institutional equities and further enhance our credibility and brand through Fairfax's global reach, brand and financial strength. Coming to the income tax note, income tax department, as you are aware, conducted a search under Section 132, which was done in January 2025. The holding company and the subsidiaries have received a demand of INR 124 crores. The respective companies have filed appeal already against the said orders with relevant authority under the applicable laws. With this, I've come to the end of my statement, and I'll be more than happy to answer any questions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Keshav Karwa from White Pine IVM Capital Limited.

Sir, I have a few questions. First was how much of the AUM growth was organic? And if you see our AUM has always grown faster than the peers for many quarters, but this quarter, it was relatively slower. And why is that? This is my first question.

See, if you look at our AUM growth, net collections were roughly about INR 4,000 crores. I think INR 3,675 crores to be very precise. And I'm assuming you're talking about the FED growth, right? So that we have collected about INR 3,600 crores. And so we have been growing faster. So maybe it's a one-off. And from next quarter, we'll start, we'll catchup.

Okay. And my second question was on the Fairfax transaction. Have you received the funds yet? Or are they yet to be received? And how do you intend to deploy the funds? And if the transaction does not get completed, what would be the next step?

So we have not received the funds. As I mentioned in my opening remarks, this is subject to all regulatory approvals. And at this point in time, the company has applied to various authorities for approvals and the approvals are in process. So we think that maybe in the next 2 to 3 months, we'll get all the approvals. And once the approvals come, only then the preference allotment can take place. So to answer your question, at this point in time, the inflow of INR 2,000 crores has not happened.

Okay, sir. And sir, in this quarter, how many RMs did we add?

I think we added a few RMs-- I think less, single-digit number of RM.

Sir, sorry, can you just repeat?

I think -- I don't know exact headcount, which has added in RM, but it will be very few in single digits.

Okay. And sir, can you please provide me with the breakup for institutional broking and investment banking revenue?

I think institutional equities in this quarter were roughly about INR 200 crores. I'll give you a rough number. I don't -- it will be in the bulk of INR 200 crores.

[Operator Instructions] The next question is from the line of Lalit Mohan Deo from Equirus Securities.

Sir, just one question. So like in the presentation, we have a slide which mentioned about the AIF and PMS AUM of around roughly around INR 4,400 crores. So do you have any income against the same and then? And where is it in the -- where does it get highlighted in the P&L?

So this -- we have, of course, income for this. And I think this is booked in the financial product distribution.

Sure, sir. And like what are our plans to grow this...

I think that's a good question that you have raised. Historically, we have -- in the last 1 year, if you remember my earlier calls also, I was saying that we are going to strengthen and start up our manufacturing. So this is a part of overall manufacturing plant. So we have started AIF, we have started PMS. We have a credit fund, we have a late-stage fund. So we'll continue to -- without losing our overall character of open architecture, we want to invest and grow this business.

The next question is from the line of Neha from Abakkus Investment Managers.

It's on the implementation of the SEBI regulations from 1st July. So are we seeing any impact from that on the broking business in any way?