IIFL Capital Services Ltd — Q4 FY26

IIFL Capital Services Ltd Q4 FY2025-26 Earnings Conference Call https://www.youtube.com/watch?v=6EGptbjuE-Y Published: 8 days ago

0:02 2 seconds Ladies and gentlemen, good day and welcome to Capital Services Limited. Q4 0:08 8 seconds FI26 earnings conference call. As a reminder, all participant lines will be in the listen only mode and there will 0:16 16 seconds be an opportunity for you to ask questions after the presentation concludes. 0:20 20 seconds Should you need assistance during the conference call, please signal an operator by pressing star then zero on 0:27 27 seconds your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to the managing 0:35 35 seconds director of ISL Capital Renautan. Thank you and over to you sir. 0:42 42 seconds Thank you. Good afternoon and welcome to the Q4 FI26 analyst call of Capital. Uh I'm 0:50 50 seconds accompanied with my colleague Wak who is our CFO. 0:54 54 seconds Uh recent geopolitical events have triggered a sharp rise in volatility. uh they have disrupted energy supplies. Uh 1:01 1 minute, 1 second they have pushed oil prices above $100 and both these have uh directly uh impacted inflation and inflation expectations. 1:10 1 minute, 10 seconds Uh this has resulted in uh increased volatility uh especially in Indian capital markets and we saw record SPI 1:18 1 minute, 18 seconds outflows in the month of March and the trend seems to continue. Uh despite these measures, India shows uh relative 1:26 1 minute, 26 seconds resilience and we have strong domestic institutional flow domestic flows uh which cushion the foreign selling. As we 1:35 1 minute, 35 seconds speak, growth outlook remains relatively strong and uh I just want to give a caveat as of now we have to wait and 1:44 1 minute, 44 seconds watch for the monsoon progress to take a fullear GDP uh growth estimates and call. On a lighter note, uh the new 1:52 1 minute, 52 seconds definition of EIDA seems to be earnings before interest, earnings before Ian and Trump's daily announcement. Uh coming to 2:00 2 minutes uh full year number, our consolidated uh results for FI26. Uh operational revenue for the full year stood at 2,439 2:08 2 minutes, 8 seconds crores, virtually flat uh on a yearon-year basis. uh retail revenues for equities were 1,121 crores which is 2:18 2 minutes, 18 seconds down 9% majorly due to the impact of uh regulatory changes allowed by FE which came into effect in the first quarter of last calendar and hence we had the full 2:27 2 minutes, 27 seconds year impact uh institutional and uh investment banking revenues have increased 11% 712 crores versus 639 2:35 2 minutes, 35 seconds crores um financial distrib distribution income 2:43 2 minutes, 43 seconds has increased by 16% which is now standing at almost 590 crores close to 600 crores. Employee cost they have seen 2:50 2 minutes, 50 seconds a steep increase in employee cost to 687 crores and that is basically a combination of both headcount variable pay provisioning as well as a onetime 2:59 2 minutes, 59 seconds charge of 7 crores due to change in labor laws. Uh finance cost increased 17% to 210 crores because of increased working capital requirements and that is 3:07 3 minutes, 7 seconds directly linked to the growth on our MPF book. uh depreciation increased 20% on account of investment in branches and technology. Uh fees and commission 3:15 3 minutes, 15 seconds expenses increased 8% that is because of partner payout. Admin expenses are up 9% due to branding and technology. 3:23 3 minutes, 23 seconds Operational PBT was down 22%. And that is basically primarily driven by increase in FYI expenses. 3:32 3 minutes, 32 seconds uh other income was about 164 crores that is that includes a gain of almost 90 crores on account of sale of real 3:39 3 minutes, 39 seconds estate which was held in ISL facilities a subsidy of the holding company we also saw NTM due to price movement in BC 3:48 3 minutes, 48 seconds share coming to quarter 4 FI26 versus quarter 3:56 3 minutes, 56 seconds 4 FI25 which is a quarter on quarter uh year on year for The last quarter numbers operational revenues was 644 crores versus pike 37 crores up 20%. 4:08 4 minutes, 8 seconds Retail revenues was up 22% at 298 crores. Institutional and IB revenues was about 162 crores versus 97 crores 4:17 4 minutes, 17 seconds and primarily because of both increase in uh investment banking as well as booking income. FD income was 182 crores 4:24 4 minutes, 24 seconds which is down 4% because last quarter in in Q4 FI25 we had increased brokers due to 4:34 4 minutes, 34 seconds due to certain transactions on NFC chair employee cost increased 12% to 183 crores again because of uh headcount 4:43 4 minutes, 43 seconds increase and pay variable pay increases finance cost increased 45% keep increased to 63 course because of MP book depreciation was in up 6%. 4:55 4 minutes, 55 seconds And uh because of uh because of commening of new branch and again technology costs have gone up. Fees and 5:03 5 minutes, 3 seconds commission incre expenses are increased by 40% because of subrecord payout and uh and admin expenses was 8% 5:11 5 minutes, 11 seconds increase again due to branding and marketing expenses. Operational PBP before MTM changes have got up 14% in last on a year basis. If you compare 5:20 5 minutes, 20 seconds quarter on quarter, this is Q4 FI26 versus Q3 FI26. Operational revenue was up 10%. Uh retail revenues was up 3% 5:29 5 minutes, 29 seconds which is virtually flat. Including institutional working was virtually flat at about 160 and 162 crores which is 5:36 5 minutes, 36 seconds virtually unchanged. FPD increase was up 36% 182 crores. 5:41 5 minutes, 41 seconds Uh employee cost was flat roughly increase of four 4% 183 versus 175. uh finance cost again increased 18% because 5:50 5 minutes, 50 seconds of growth in NPR book and working capital requirement flat depreciation fees and commission expenses increased because of higher subroker payoff admin 5:58 5 minutes, 58 seconds expense reduced to uh 86 crores and operational PPC again it was up 21% on a quarter on quarter basis 6:07 6 minutes, 7 seconds uh now coming to some housekeeping numbers average daily turnover for was about 3 lakh 22,886 6:14 6 minutes, 14 seconds crores which is roughly 3 lakh 20,000 crores in C FNO and cash was 2875 crores 6:20 6 minutes, 20 seconds and which was 314 660 crores uh in Q3 and again a split of 2 three lakh 11,000 6:28 6 minutes, 28 seconds cr three lakh roughly 12,000 crores in FO and cash was about 2685 crores and uh 6:35 6 minutes, 35 seconds and which is basically 3% growth or which is virtually flat 6:45 6 minutes, 45 seconds uh we also as I mentioned Earlier we have also started getting into uh manufacturing. We launch we closed our first credit capital we 6:54 6 minutes, 54 seconds closed our capital credit opportunity fund. We raised about 100 crores. Uh and this is basically a risk adjusted highend kind of uh fund. 7:04 7 minutes, 4 seconds Uh coming to income tax notices I just wanted to give all of you a heads up. 7:08 7 minutes, 8 seconds The income tax department has conducted a search under section 132 uh of the income tax act. uh and certain basically 7:17 7 minutes, 17 seconds what had happened was uh I think we were also uh from our own side because of the block assessment we had filed we had adoc amount of 27 crores approximately 7:26 7 minutes, 26 seconds was paid was paid in water. Um now what has happened is that we have got a notice which uh for roughly for both ISL 7:35 7 minutes, 35 seconds management and facilities for roughly about 56 crores combined for the block period from April 1, 2018 to April to 7:42 7 minutes, 42 seconds February 13 February 3, 2025. The restrictive companies are in the process of filing appeal against the send order. 7:49 7 minutes, 49 seconds Uh in case of the holding company the assess assessment proceedings are still in progress and we have not got any orders or demand notice till date. 7:57 7 minutes, 57 seconds We believe after considering all valuable all available facts and records and also consulting the advisor there 8:05 8 minutes, 5 seconds won't be any material adverse impact on the financial position of the group and hence we have not made any uh adjustments. 8:12 8 minutes, 12 seconds Uh with this I come to the end of my talk. Thank you so much and we are open to answer any questions that you may have. 8:21 8 minutes, 21 seconds Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, we press 8:28 8 minutes, 28 seconds star N1 on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 8:37 8 minutes, 37 seconds two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question assembles. 9:19 9 minutes, 19 seconds First question is from the line of KF Carva from Right investment please go ahead. 9:26 9 minutes, 26 seconds Uh thank you for the opportunity. I had two three questions. Uh one is on the underlying growth for FPD AUM which look 9:34 9 minutes, 34 seconds uh strong and what is driving this growth. 9:38 9 minutes, 38 seconds See we have seen a growth in our uh assets because it was about 31,000 crores and it has now become about 9:45 9 minutes, 45 seconds 52,000 crores and we have seen all growth both in mutual fund and other assets also and including fixed income assets. 9:55 9 minutes, 55 seconds Yeah because if you see their mutual fund assets have grown from 14,000 to about close to 21,000 crores. 10:01 10 minutes, 1 second So I think uh basically all products AI, PMS, mutual fund and also fix income products are some good. 10:09 10 minutes, 9 seconds Okay sir. So my second question was could you please provide how many RN you have added this quarter and overall RN 10:16 10 minutes, 16 seconds count in FI26 and incrementally how many RNs do you plan on adding for FI27 and any target for FI27? 10:29 10 minutes, 29 seconds We have currently about 50 bels and we have close to about 300 odd 350 or 300 10:35 10 minutes, 35 seconds we have about 300 300 old that affluent or PCB broking RN our focus is that we we should we should increase the head 10:44 10 minutes, 44 seconds for well RMS this year I don't have a specific number in mind but we because last year had been increasing last year 10:53 10 minutes, 53 seconds had been had been a difficult year for recruitment but our aim is to add to our wealth uh uh the cohort of wealth ar and 11:01 11 minutes, 1 second coming to asset growth I think we have about we are close to about 50,000 52,000 cr and I don't have a number in mind but we have to increase it 11:12 11 minutes, 12 seconds okay so my third was uh that we have seen a sequential decline in the MTS book uh what led to the decline and going forward how are you planning to 11:20 11 minutes, 20 seconds improve the growth also could you please provide the a break up for institutional equities and investment banking your revenues for this quarter 11:30 11 minutes, 30 seconds See the okay the basic broad reason for the correct broad reason for the decline of EMT group is primarily because of uh 11:40 11 minutes, 40 seconds the last quarter last quarter increased market volatility in the last quarter due to which MPM impact was also there 11:48 11 minutes, 48 seconds and uh coming to your other question about institutional booking investment banking roughly I'm giving you a rough number roughly this this is about 11:56 11 minutes, 56 seconds roughly about 700 close is there and out of which roughly it will be about 450 and 250 still between and 12:06 12 minutes, 6 seconds okay sir and uh so you're doing a country approximate huh so there might be 10 here and there but 12:14 12 minutes, 14 seconds okay okay sir so so uh you are doing a fundra so can you throw some light on your 12:20 12 minutes, 20 seconds plans to use this fund See actually you know the at this point 12:29 12 minutes, 29 seconds in time I just want to say that uh as a company the the board continuously evaluate opportunities to enhance shareholder value uh whether it's in 12:38 12 minutes, 38 seconds terms of potential acquisition projects and other such and combination. So at this point in time I can't share more with you because there's no event that 12:46 12 minutes, 46 seconds require disclosure under regulation as and when they have something very definitive we will make uh all appropriate disclosures of the soft as for regulatory guidelines. 12:57 12 minutes, 57 seconds Okay sir thank you so much. Thank you so much. Thank you. 13:06 13 minutes, 6 seconds Next question is from the line of P Jane from Motila Lwal. Please go ahead. 13:12 13 minutes, 12 seconds Yeah. Hi sir. Uh sir first how are you? I'm very good sir. How are you? 13:18 13 minutes, 18 seconds All well just you know there is this RBI regulations getting implemented 13:24 13 minutes, 24 seconds uh from 1st of uh July right. uh what do you see the impact of that on your 13:31 13 minutes, 31 seconds broking business in any form and also if you could throw some n if not so much for us how much what would be the kind 13:38 13 minutes, 38 seconds of impact uh for the industry per se uh see actually you know what uh my view 13:46 13 minutes, 46 seconds is that uh there will be a short-term impact for sure because of increased working capital requirements and margin requirements and uh then over a period 13:54 13 minutes, 54 seconds of time the market find its own levels and and and and uh uh and goes back to that trend. So short-term impact will be 14:02 14 minutes, 2 seconds there for sure. For us also there will be marginal impact because we don't do top trading ourselves. So there's no 14:08 14 minutes, 8 seconds impact and uh so for clients the clients they'll have to I would say the cost of 14:16 14 minutes, 16 seconds overall trade in the fender will increase. 14:18 14 minutes, 18 seconds Okay, got that. And secondly sir from you know 1 of April again the there are on the institutional equity side there 14:25 14 minutes, 25 seconds has been a reset of uh you know yield uh that has come in because of the Chevy regulations. Uh so what kind of impact 14:34 14 minutes, 34 seconds do you see on your realizations on the institutional equity side actually you're talking about the domestic mutual funds right? 14:40 14 minutes, 40 seconds Yeah. Yeah. Yeah. Yeah. So my opinion is that uh we okay our opinion or our our 14:48 14 minutes, 48 seconds learning is that the the uh the impact will be marginal because already effective was 14:56 14 minutes, 56 seconds plus minus the yield as suggested by the regulators. 15:00 15 minutes Okay. Okay. Got it. And and second is that when you kind of give that distribution assets is about 52,000 odd 15:08 15 minutes, 8 seconds crores u you know uh this would be this would include all your customer base today but you know is it uh it would it 15:16 15 minutes, 16 seconds be appropriate to kind of segregate this into the ultra chennai wealth management that you would be setting up and you are 15:23 15 minutes, 23 seconds you are in process of setting up what would be kind of aum that you would have got from those kind of see the to answer your question about 15:30 15 minutes, 30 seconds the hi segments which the the new channel which we have set up. So roughly we'll that will be roughly about 12,000 15:38 15 minutes, 38 seconds cr if our memory is correct. [music] Got and the product mix will be similar to what you have shared. 15:45 15 minutes, 45 seconds This will be got that. Thank you. I'll come back in the queue if I have more questions. Thanks. Thank you. 15:54 15 minutes, 54 seconds Thank you. 15:56 15 minutes, 56 seconds Next question is from the line of Nina from Abacus Asset Manager. Please go ahead. 16:03 16 minutes, 3 seconds Uh thank you now for the opportunity. Uh so my question is on the MTF uh income. 16:08 16 minutes, 8 seconds So out of the FY26 income of 439, can you give us a split of how much of that is the interest on on the MTF book and 16:16 16 minutes, 16 seconds how much is the interest on deposit of banks? 16:21 16 minutes, 21 seconds See roughly income roughly it'll be more roughly 50/50. 50 is 50% is the MPM and 16:28 16 minutes, 28 seconds 50% is from big whatever the exchange deposits okay okay and larger are in metric 16:38 16 minutes, 38 seconds margin almost into about 18 19% so uh what what sort of do we expect to make 16:45 16 minutes, 45 seconds on a sustainable basis I mean uh uh how how do we see that going into Y can you repeat the question please? 16:59 16 minutes, 59 seconds Your voice is not uh clear. You're talking about net interest margin. 17:03 17 minutes, 3 seconds Yes. The net interest margin I think last year in 25 the total net interest margin for 25 was about 18 19%. Uh so so 17:13 17 minutes, 13 seconds is it lower this year and how do we see that going on a sustainable basis? What set of margins are we expecting to do on a sustainable basis? 17:21 17 minutes, 21 seconds Net interest margin 18 no 18 19% I think the interest rate will be net interest 17:27 17 minutes, 27 seconds rate is roughly about 4% four to five uh so it's 173 crores of interest on the 17:35 17 minutes, 35 seconds MGF done last year uh on last last year was 200 plus I thought 17:43 17 minutes, 43 seconds okay you're trying to you're trying to deduct interest cost from intersections No sir. I was talking about the interest earned on the NDF on the margin book. 17:55 17 minutes, 55 seconds This is about 173 crores. 17:58 17 minutes, 58 seconds Uh so this is part of the 419 crores of total interest uh which we did last year. 18:05 18 minutes, 5 seconds Last year we had approximately 420 crores of income and the LPM book interest was slightly higher. It will be about 160 170 160 times and interest 18:15 18 minutes, 15 seconds expense we paid out was about 180 crores. 18:18 18 minutes, 18 seconds But this interest is very difficult to attribute how much of that is attributable to MTF and how much to other things. That's the reason I'm not 18:25 18 minutes, 25 seconds able to give a precise answer. See how much of this is interest and how much of that is non-interest. 18:33 18 minutes, 33 seconds Okay. Okay. So, and just lacking on the distribution income. So our assets have grown uh but the income has grown 18:43 18 minutes, 43 seconds relatively higher to 120 182 crores for the quarter. So is it largely uh insurance related revenue any other 18:52 18 minutes, 52 seconds products that have also contributed because the AU means largely remain the same for us. So what exactly has led to this jump or 19:00 19 minutes basically there are some components of insurance some component because of placement of NCDS and fixed income. So that's the reason why we had a 19:08 19 minutes, 8 seconds disproportionate increase in last quarter. 19:12 19 minutes, 12 seconds Got it. Thank you. That's it from my side. 19:14 19 minutes, 14 seconds Thank you so much. Thank you. Actually, you know, maybe we should be face to face. So then I'll be able to answer your other question on interest correctly because you I'm not able to 19:23 19 minutes, 23 seconds hear you or maybe it's better if you need. 19:26 19 minutes, 26 seconds No, I'll I'll connect with you. Uh that's helpful. I'll definitely connect with you for this. Thank you so much. Thank you. 19:36 19 minutes, 36 seconds Thank you. 19:38 19 minutes, 38 seconds Next question is from the line of Aksha Bajad from A Penok Private Native. Please go ahead. Yeah. Hi, thank you for the opportunity. 19:47 19 minutes, 47 seconds Uh any color on further acquisition by Fairfax. There was a news around that it is going to increase by 10%. 19:57 19 minutes, 57 seconds I can't offer any comment on this. Thank you. 20:04 20 minutes, 4 seconds So as and when there is something definitive, we'll surely make appropriate disclosures as per listing guidelines to the exchanges. 20:11 20 minutes, 11 seconds Okay. Thank you. Thank you. 20:18 20 minutes, 18 seconds Thank you. Next question is from the line of Abijit Shakare from KC Security. Please go ahead. 20:25 20 minutes, 25 seconds Good afternoon sir. Uh thanks for taking my question. Um sir a slightly hypothetical question uh looking at our 20:33 20 minutes, 33 seconds network of close to 3,000 crores how do you see it uh in terms of you know supporting our growth ambitions over the 20:41 20 minutes, 41 seconds next three years on the broking side and potentially on the wealth management side as well. 20:49 20 minutes, 49 seconds Actually uh we think that uh we are well capitalized and we have enough uh dry 20:56 20 minutes, 56 seconds power to grow. So, so I'm uh so I don't know how how to answer your question 21:04 21 minutes, 4 seconds because we are last years last four years I think our network has gone from 1.4 plus and basically all all of it. 21:16 21 minutes, 16 seconds So I think uh we are running a profitable franchise and we have enough uh we are we are uh all the cash has been used to reinvest in the business. 21:24 21 minutes, 24 seconds So we think that we have enough amation to grow. 21:28 21 minutes, 28 seconds Understood sir. Uh sir, initially you had given a comment around the um in terms of the break up between IB and I 21:36 21 minutes, 36 seconds revenues. Um that was I think close to about uh 700 cr. That was for the full year FY26 right? I just reciring that number. 21:45 21 minutes, 45 seconds Yes. Yes. Yes. You got correct. The full year revenue was about 512 cr. Understood. Okay, that makes sense. 21:54 21 minutes, 54 seconds Got it sir. That will be all. Thank you so much. Thank you so much. 22:00 22 minutes Thank you. Next question is from the line of players chain from motal fund. Please go ahead. 22:06 22 minutes, 6 seconds Yeah. So just an extension of the previous question. The current network of 3,000 odd crores. How is that utilized across a broking wealth 22:13 22 minutes, 13 seconds management um and you know alternates that you're setting up that would also need seed funds. So how has been the utilization of this network currently across the business lines? 22:25 22 minutes, 25 seconds Actually the bulk of the business has been put in broking MTS and exchange margin. So that has been a big cons 22:33 22 minutes, 33 seconds though allocation of capital. So you know uh with the with this current network and say the borrowing limits 22:39 22 minutes, 39 seconds that we can still have uh you know do you think that we have enough capital or headroom to grow another 20% 22:48 22 minutes, 48 seconds uh in the next couple of years or we would need more capital I think we have enough to grow in the next for by 20% in the next 22:57 22 minutes, 57 seconds Got that got that answer and sir you know with respect to uh the uh you know uh any plans on new other categories 23:06 23 minutes, 6 seconds like uh you know full AMC or any plans there any thoughts with respect to new product categories that we want to get 23:13 23 minutes, 13 seconds on to I think as of now we think that we have all the elements that can help us to succeed in our businesses which is 23:21 23 minutes, 21 seconds investment banking issues equities and uh I would say wealth management uh as you know in the earlier in the slide also we have said that we have started 23:29 23 minutes, 29 seconds manufacturing inhouse manufacturing both on the PS platform and the air platform from including early stage, late stage as well as a credit fund. Uh we will 23:39 23 minutes, 39 seconds evaluate opportunity uh to enhance value and improve our competitive positioning. 23:45 23 minutes, 45 seconds So as and when something happens uh we'll make all the necessary decloes. 23:50 23 minutes, 50 seconds Got that sir. Thank you. Thank you so much. [clears throat] Thank you. A reminder to all the 23:58 23 minutes, 58 seconds participants, anyone who wishes to ask a question, please press star and one. 24:17 24 minutes, 17 seconds Participants, you may please press star and one to ask a question for joining us on the call. Thank you so 24:23 24 minutes, 23 seconds much. And uh and uh and should you should you have 24:33 24 minutes, 33 seconds any further questions, please feel free to reach out to either me or Ron and we'll be more than glad to answer all your questions. Thank you so much and have a nice day. 24:44 24 minutes, 44 seconds Thank you very much on behalf of Capital Services Limited that concludes Wisconsin. Thank you also joining us 24:51 24 minutes, 51 seconds today and you may now disconnect your lines. Thank you.