SMC Global Securities Limited (SMCGLOBAL.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to SMC Global Securities Ltd. Q3 and 9M FY '25 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Ms. Rasika Sawant from X-B4 Advisory. Thank you, and over to you, Ms. Sawant.

Thank you. Good evening, everyone, and welcome to the Q3 FY '25 Earnings Conference Call. Today, on this call, we have: Mr. Subhash Chand Aggarwal, Chairman and Managing Director of SMC Group; Mr. Mahesh C. Gupta, Vice Chairman and Managing Director of SMC Group; Dr. D.K. Aggarwal, Chairman and Managing Director of SMC Capital; Mr. Ajay Garg, Director and CEO of SMC Global Securities Ltd.; Mr. Anurag Bansal, Whole-Time Director of SMC Global Securities; Mr. Himanshu Gupta, Director and CEO of Moneywise Financial Services Pvt. Ltd.; Ms. Shruti Aggarwal, Whole-Time Director of SMC Global Securities Ltd.; and Mr. Pranay Aggarwal, Director and CEO of Stoxkart. Due to an unforeseen family emergency, Mr. Vinod Kumar Jamar, President and Group CFO, is unable to join today's conference call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations as of today. Actual results may differ. The statements are not the guarantees of future performance and involves risks and uncertainties that are difficult to predict. A detailed safe harbor statement is given on the second page of earnings presentation of the company, which has been uploaded on the stock exchange and the company's website as well. With this, I now hand over the call to Mr. Subhash Aggarwal for his opening remarks. Over to you, sir.

Thank you, Rasika Sawant. Good evening, and a warm welcome to all the participants. I hope all of you got an opportunity to go through our financial results and earnings presentation, which have been uploaded on the stock exchanges as well as on the company's website. Before we dive into our financial performance, let me take you through the key developments in the industry and our perspective on the evolving landscape. Industry outlook. The broking and financial services industry witnessed several significant developments in the last quarter, driven by regulatory changes and sustained market dynamics. India's capital markets are witnessing strong growth, driven by increasing retail participation and regulatory changes aimed at improving transparency and investor confidence. Recent updates such as [indiscernible] have made it more predictable for investors. While these changes have impacted certain revenue streams for brokers, they ensure a more stable and trustworthy market in the long run. SEBI's continued focus on market stability and investor protection led to key regulatory reforms. One of the most impactful changes was the tightening of trading norms in the derivatives market. As a result, December 2024 saw a 38% decline in derivatives trading volumes in BSE and NSE. While [indiscernible], they have posed near-term challenges for brokers and traders alike. However, we believe these changes will contribute to a more stable and transparent market in the long run. The last announced Union Budget introduced several growth-centric initiatives for NBFC and fintech firms. With an emphasis on financial inclusion, digital expansion and credit accessibility, these measures align well with our focus on enhancing basically financial services and expanding our reach to underserved markets. In response to these industry shifts, SMC Global has taken proactive steps to adapt to changing market conditions. Our focus remains on offering competitive pricing, strengthening our technology platform and enhancing client experience to maintain long-term growth. The phased introduction of new regulations in the derivative segments has led to temporary shifts in trading patterns. But as seen in the past, [indiscernible] leading to market stability and renewed growth. We remain committed to expanding our product offerings, deepening client relationships and leveraging our industry expertise to drive sustainable business growth. With a strong foundation and a client-first approach, SMC Global is well positioned to navigate the changing landscape and create lasting value for all stakeholders. Company highlights. Now let me take you through SMC Global Securities' highlights. We have delivered a steady growth across two business segments. Despite [indiscernible] headwinds, our Broking, Distribution & Trading and Financing business have continued to perform well, contributing [indiscernible] to our financial portfolio. In the quarter, our overall revenue increased by 6.5% year-on-year basis to INR 455.5 crores while our 9 months' financial '25 revenue grew up by 20% Y-o-Y basis to INR 1,354.3 crores. Our expansive network of 2,270 APs across 437 client cities reinforces our strong presence. In financial distributions, our financial distributors stand at 6,850 and our mutual fund AUM now stands at INR 4,347 crores. In our NBFC segment, the AUM has grown to INR 1,285.8 crores, marking a 20.9% Y-o-Y increase compared to 9-month financial year '24. The company operates 40 branches across 10 states, 32 major cities, strengthening our lending footprint. In the Insurance Broking business, we remain focused on expanding our market presence despite a revenue dip in this quarter. SMC Insurance continues to operate through several branches nationwide, leveraging a vast network of 15,959 points of sales and engaging with 343 motor insurance service providers. Despite regulatory changes impacting certain segments, our diversified business model, continued network expansion and investment in technology position us well for sustained long-term growth. Now I hand over to Ms. Shruti Aggarwal, Whole-Time Director, SMC Global Securities Ltd., to take you through the financial accomplishments of quarter 3 financial '25. Over to you, Ms. Shruti.

Thank you, Subhashji, and good evening, everyone. Talking about financial performance for Q3 FY '25 of our company on a consolidated basis, the operating income for the quarter was INR 455.5 crores, which grew by 6.5% year-on-year basis. Operating EBITDA was reported at approximately INR 111.8 crores and the EBITDA margin stood at about 24.5%. Net profit after tax reported was INR 43.9 crores while the PAT margin stood at 9.6%. For 9 months FY '25, the operating income stood at INR 1,354.3 crores, which grew by 20% year-on-year basis. Operating EBITDA was reported at approximately INR 355.4 crores, an increase of approximately 24.3% year-on-year basis and EBITDA margin stood at 26.2%. Net loss after tax was reported at approximately INR 142.7 crores while the PAT margin stood at about 10.5% approximately. Let me now take you through quarterly segmental performance on a consolidated basis. In the Broking, Distribution & Trading segment, the Q3 revenue stood at about INR 244.4 crores, which grew by 2.3% on year-on-year basis. Number of branches increased to 205 as on 31 December 2024. Coming to the Financing division. Revenue for Q3 was around INR 71.2 crores, which grew by 33.8% on a year-on-year basis, and EBIT for Q3 was around INR 49.3 crores, which grew by 45% year-on-year basis. Our loan AUM increased to INR 1,285.8 crores, an increase of 20.9% year-on-year basis. The gross NPA/net NPA was at 2.27% and 1.16%, respectively. Lastly, in the Insurance Broking vertical, revenue for Q3 stood at about INR 148.2 crores and EBIT stood at about INR 2.5 crores. With this, the floor is open for the Q&A session. Thank you.

[Operator Instructions] The first question is from the line of [ Rajesh ], an individual investor.

Can you hear me? Hello, sir?

Yes, we can hear you, Rajesh.

My question is on the NBFC segment. So what I could see is the AUM has not grown in the past 3 quarters or so. So that's the question. And how do we expect the AUM to grow in the next few quarters? That's question number one. Question number two is also on the leverage ratio. The leverage ratio currently stands at 1.6. Do we expect the leverage ratio to grow? And what kind of targets do we have [indiscernible] to achieve it? [indiscernible] NBFC to be having a return of equity quite low, like a single-digit -- mid-single-digit kind of a number. So do we have any targets there to increase the [indiscernible] of NBFC business?

Rajesh, so I could not get your last question. Can you repeat?

Okay, the last question was on ROE, return on equity. I think return on equity, according to me, is mid-single-digit, probably at 6% to 7%. So do we expect ROE, return of equity, of the NBFC business to grow higher?

Okay. Rajesh, I am Himanshu. As you pointed out that the loan book has grown not much during the financial year. So there are a couple of factors I'll explain in detail. So number one, we have tightened our underwriting policies during the year. [indiscernible] higher than other NBFC and banks. So as a proactive measure, we have been continuously tightening the policy. And we have reduced our approval rates during the year. So though the inflow of the new proposals has increased during the year, but the throughput and the expansion has gone down. So that is the number one reason. Secondly, look, as I discussed in last quarter's earnings call also, we have shifted our focus from LAP to micro LAP. A couple of reasons behind this change in strategy, because we are able to charge higher yield in micro LAP and we believe it is more scalable and granular portfolio and there is lesser competition from the banks, particularly in terms of pricing. So we have been building the micro LAP team since almost a quarter now. And though the disbursements have been very less because of the new team and new business setup being set up as of now. On the other side, the LAP disbursements have already gone down. Just to give you some flavor, last year, we did disbursement of around INR 250 crores under the LAP product. But during this year, 9 months, we have disbursed almost INR 65 crores. And almost INR 60 crores of LAP book is also foreclosed during the current year. So there is a degrowth, which was supposed to come in the LAP book, which we had assumed last year some risk. That has not happened. And the loan book has remained flat on that front. So these are two reasons why the loan book has not gone up during the current year. Coming to your second question on the leverage. You are right that currently, we have leveraged only 1.6x in terms of debt to equity and there is a huge headroom for us to further leverage. And we as a management, we believe that we are comfortable at around 3 to 3.5x leverage. So there is much headroom. And I think for the next year or a couple of years, we have enough equity to grow for that. And thirdly, coming to your last question, which is return on equity. So look, if you look at our 9 months' number, so ROE is around -- just give me a minute. So ROE would be around 15% on the reported numbers. But as we look [indiscernible], we believe we would be able to get better ROE because there are a few products which are still at matching phase like micro LAP, which will yield us higher ROE -- IRR as well as ROE. And also as you said, the leverage is already very low so that we also don't give any operating leverage in terms of ROE. I hope this was clear.

Yes, understood, sir. Just one follow-up question on the leverage, so in case we try to grow our loan book because our leverage is quite low here, we don't need any equity, right, like with the existing equities because it kind of increases our leverage from 1.6 to 3. That means that we could double our loan book without any increase in the equity?

Yes, without any further equity infusion, we can do with 3 or 3.5x leverage. We reach a loan book of about INR 2,400 crores or INR 2,500 crores because by that time, we will also have additional internal approvals.

Understood, sir. Just on the leverage part of it, right, so our leverage ratio is hovering around 1.5 to 1.8 over the past, let's say, 2.5, 3 years, right? So why is that the case? Like why are we not able to increase the leverage even though our AUM has grown significantly over the past 1.5 years?

So if you look at the numbers for the last financial year as well as FY '23, the leverage has been going up between [indiscernible]. It is only during the current year, given regulatory headwinds in the sector and the economic situation, we have been cautious in terms of growth in the current year. If you look at last couple of years, that has been improving.