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SMC GEUBAL SECURITIES LIMITED
SEBI Regn. No. : INZ 000199438 « Research Analyst No. : INH100001849 « Investment Adviser No. : INA100012491 Moneywise. Be wise.
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Date: 08 August, 2022
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Symbol: SMCGLOBAL
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TORS
SMC Global Securities Limited Q1 FY23 Conference Call August 01, 2022
Moderator:
Ladies and gentleman, good day and welcome to the SMC Global Securities Limited June 2022
Results discussion Conference Call. As a reminder, all participant lines will be in the listen only
mode. And there will be an opportunity for you to ask questions after the presentation
concludes. Should you need assistance during the conference call, please signal an operator
by pressing “*” then “0”on your touchtone phone. Please note that this conference is being
recorded. I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank
you and over to you sir.
Anuj Sonpal:
Thank you. Good evening, everyone and a warm welcome to you all. My name is Anuj Sonpal
from Valorem Advisors. We represent the investor relations of SMC Global Securities Limited.
On behalf of the company, I would like to thank you all for participating in the earnings call of
the company for the first quarter of financial year 2023.
Before we begin, let me mention a short cautionary statement. Some of the statements made
in today’s concall may be forward looking in nature. Such forward looking statements are
subject to risks and uncertainties which could cause actual results to differ from those
anticipated. Such statements are based on management’s belief as well as assumptions made
by and information currently available to management. Audience are cautioned not to place
any undue reliance on these forward-looking statements in making any investment decisions.
The purpose of today’s earnings conference call is purely to educate and bring awareness
about the company’s fundamental business and financial quarter under review.
Let me now introduce you to the management participating with us in today’s earnings call
and hand it over to them for opening remarks. We firstly have with us Mr. Subhash Chand
Aggarwal – Chairman and Managing Director, Mr. Mahesh Chand Gupta – Vice Chairman and
Managing Director, Mr. Ajay Garg – Director and CEO of SMC Global Securities Limited, Mr.
Himanshu Gupta – Chairman and CEO of Moneywise Financial Services Private Limited, Mr.
DK Aggarwal – CMD of SMC Capitals Limited, Mr. Anurag Bansal – Director of SMC Global
Securities Limited, Mr. Pranay Aggarwal – Chairman and CEO of stoxkart Moneywise Finvest
Limited and Mr. Vinod Kumar Jamar – President and Group Chief Financial Officer. I, now
request Mr. Vinod Kumar Jamar to take you through the financial and operational highlights
of the company, all over to you sir. Thank you.
Page 1 of 15
Vinod Kumar Jamar:
Thanks Anuj. Good evening everyone. First, let me take you through financial performance
for Q1 FY23 of our company on a consolidated basis. The operating income for the quarter
was INR 291 crores an increase of 13.8% year-on-year. Operating EBITDA was reported at
approximately INR 71 crores, a decrease of 26.3% year-on-year and EBITDA margin stood at
24.4%. Margin declined due to higher administrative expenses in Q1 23 vis-à-vis same period
a year ago, when many offices remain shut and employees were working from home due to
COVID-19 pandemic. Net profit after tax reported INR 37 crores a decrease of 22.6% year-on-
year while PAT margin are 20.74%.
Let me now take you through quarterly segmental performance on a consolidated basis for
this quarter. In the broking distribution and trading segments the revenue for the quarter was
about INR 199 crores an increase of approximately 7% year-on-year. the EBIT for the segment
was INR 47 crores. Coming to insurance broking division, the revenue for the quarter
recorded was INR 74 crores, which increased by around 37% on a year-on-year basis. The
EBIT was approximately 1.5 crores. Company focused on hiring a technology team to
strengthen the IT infrastructure in this division.
Lastly, in the financing division segment, the revenue for the quarter was INR 33 crores an
increase of about 47% on a year-on-year basis, the EBIT for the quarter was approximately
INR 18 crores an increase of about 43% on year-on-year basis. NBFC loan book increase to
INR 716 crores in Q1 FY23 from INR 562 crores in Q1 FY22. Gross NPA and net NPA decreased
to 2.58% and 1.49% in Q1 FY23 from 4.75% and 3.05% in Q1 FY22 respectively. With this, we
can now open the floor for questions-and-answers session. Thank you.
Moderator:
Sir, shall we open for the Q&A?
Vinod Kumar Jamar:
Yes.
Moderator:
Thank you very much. We will now begin the question-and-answer session. First question is
from the line of Saket Kapoor from Kapoor Company. Please go ahead.
Saket Kapoor:
Sir, if you look at your revenue mix for the quarter for the broking distribution and trading
aspect there is a, do we have any mark to mark of our proprietary business what is the key
reason for the lower segment profit for this quarter when we are comparing with the June
quarter and if you could give the breakup or mixed between what was the broking amount,
brokerage and the trading?
Ajay Garg:
Very Good Afternoon, Ideally the quarter one had been a bit dull as compared to quarter four
and broking revenue had been around 153.17 crore and trading revenue had been around
45.97 crore. In the Q4 these figures were 138.61 crore in broking and 50.45 crore in trading.
So, there has been a minor increase of 5% as compared to Q4. Inspite Sensex being down and
the market being dull.
Page 2 of 15
Saket Kapoor:
And sir the profitability front can you provide the break up, the total PBT for the segment is
47.31 crore. The split between broking and the trading part?
Vinod Kumar Jamar:
It is around 75% for broking and 25% for trading part.
Saket Kapoor:
Okay. And sir this also includes the open position being mark to mark for trading purpose all
the positions remain close?
DK Aggarwal:
This is DK Aggarwal, so, we mark to market open positions and whatever mark to market is
there that is accounted for.
Saket Kapoor:
Right Sir, and what should be the book size for the prop book as on 30th June, that remains
open?
DK Aggarwal:
It keeps on changing but it is around 300 crores.
Saket Kapoor:
Okay. And if we take the breakup of the same, this segment are you really tuned into, is it the
large cap part where in the F&O is there to hedge or do we have the cash or the midcap cash
market position also?
DK Aggarwal:
This is basically arbitrage position, which are hedged. These are based on various strategies
like cash future arbitrage, conversion strategies, butterfly trading, volatility based arbitrage,
stastical arbitrage,pair trading, etc. So, whether all the positions are hedged? in that, most of
the positions are hedged.
Saket Kapoor:
And sir can you provide us with the margin requirements. Now the margin requirement
increase and the cash component being introduced. So, to generate these revenue in your
trading book what kind of margin requirement it can be there, if you could quantify on a day
the highest margin which is there in terms of the strategy, which we’re doing since we are
having a hedge position that means you have to incur margin on both sides?
DK Aggarwal:
Yes. So, basically the margin keeps on varying, but generally it is around 235 crore to 300
crore like that.
Saket Kapoor:
Okay. And that is also sourced completely from, that is our self-owned fund on that is also
borrowed at competitive rate?
DK Aggarwal:
In-house fund are there.
Saket Kapoor:
And about the land which we purchased for our new offices, any update on the same, how
are we proceeding?
Page 3 of 15
Subhash Chand Aggarwal: We have already in previous quarters explained that we purchased the land at Mohan-
Cooperative society. it’s more than 3000 yards and we have taken loan against that also. So,
75% as of today we have taken loan and 25% we have invested in our own fund.
Saket Kapoor:
Okay. And have we started work on the same?
Subhash Chand Aggarwal:
Yes, all plans have been taken place. Soil testing has been done and we are soon going to
start the construction.
Saket Kapoor:
Correct sir. Sir on the buyback front out of the total proceeds as on date, how much we have
given the announcement how much have we spent for the tax benefit part, are the
shareholders will be availing that capital gains benefit tax that clarification from the
exchanges has been issued?
Subhash Chand Aggarwal: Any investor who is selling the stock will have the long-term capital gain benefit, long term
and short term both.
Himanshu Gupta:
Hi, this is Himanshu. So, basically as per the exchange notification of last year, any
shareholder who has sold the stock and his shares get matched against the company
buyback, he would get direct communication from the stock exchange on his registered email
id and basis that he can claim the full exemption from the income tax on that particular
transaction.
Saket Kapoor:
And how much have we spent as of now and by what time we will be completing this
buyback?
Subhash Chand Aggarwal: Around 53 crores we have spent and more than 60 lakh shares we have purchased till today.
Saket Kapoor:
And what is the size sir?
Subhash Chand Aggarwal:
75 crore we have to buy back.
Saket Kapoor:
Okay. We will be making use of the full money or after 90% we can also close earlier than
that?
Subhash Chand Aggarwal: We will do up to 75 crores, I think we will spend full 10, 20 lakhs lesser but, otherwise we are
spending full amount.
Saket Kapoor:
Correct. Sir on the cost front which are the line items, any one-off items in your expenses,
whether in the other expenses that has occurred for this quarter or they are all linear subject
to your revenue?
Page 4 of 15
Vinod Kumar Jamar:
Yes, the other expenses office administrative expenses have increased because last year Q1
we had offices closed and working from home. So obviously electricity and all these related
administrative expenses on the presence of staff were not there and this quarter that is
there, but that is a normal thing. It’s not something extraordinary because earlier also full
office was working and the expenses were incurred. Expenses have not increased if we
compare with the pre COVID expenses it’s only with reference to Q1 only which was working
from home.
Saket Kapoor:
When we take this line item impairment of financial instrument how do we derive this, which
instruments are being embedded if you can throw more light on the same, what is the size, I
think so last year total figure was 16 crore and for this quarter it is 3.4 crore?
Vinod Kumar Jamar:
We have NBFC arm so we provide loans to the customers. So out of the loan, there are
certain NPAs also. As we explained this the NPA level has decreased a lot to 2.58% and 1.49%
gross NPA and net NPA as compared to 4.75% and 3.05% in the last year Q1 and apart from
this, there could be few other bad debt provisioning based on ECL model, because we have
large debtors outstanding in the book. So, as per the statistical model, there is some part of
provisioning there also.
Moderator:
Thank you. The next question is from the line of Devansh Mehta an Individual Investor. Please
go ahead.
Devansh Mehta:
So, my first question is on the insurance segment as to why are we seeing a stagnant growth
rate and also margins has come down this quarter?
Pravin Aggarwal:
Yes, Devansh this is Pravin Aggarwal. Yes, your question is right actually insurance business is
a seasonal business, last quarter is always better than previous three quarters. We cannot
compare first quarter to last quarter, we can just see we have grown and if we compare with
last quarter in June 21, or June 22 with June 21 it grew 37% year-on-year basis.
Devansh Mehta:
Understood. So, my second question would be on the NBFC segment. So, the company is
seeing good growth on NII and NIMs, but AUM has not grown much so, can you explain why
so, and what is the company doing to increase the loan book as the competition has seen
very healthy growth in the last quarter across most companies. So, if you have any comment
there?
Himanshu Gupta:
Hi, this is Himanshu Gupta. So, our AUM during the quarter had actually gone up to 716
crores approx. as against 690 crores at the end of March 22. And during the quarter, we have
made a disbursement of about 120 crores. So, the business has actually picked up, but there
is very fast amortization on our existing loan book. On a monthly basis we are having a
collection of about Rs.36 crore. So, there is some part of the book which is amortizing very
fast. So, that is the rub off effect and therefore you see the book is not increased by that large
Page 5 of 15
amount. However, we have seen the credit quality has improved and gross NPA and net NPA
has gone down as Mr. Jamar told while back. And to increase the book further we are actually
increasing our distribution strength in the location that we opened last year by hiring more
sales team and adding some spoke locations around our branches. And we are also starting
with a new product gold loan which we have initially started through a tie up during the
quarter and we plan to add exclusive branches to do the gold loan that will also add to the
loan book.
Devansh Mehta:
Got it. Also, my final question, so can you talk about the Superr app that has been launched
and what is this like, how is it different than Stoxkart?
Pranay Aggrwal:
I will just put a statement, pertaining to this because Super app is a different brand, a new
age brand launched by Stoxkart. I talked about Stoxkart 2.0 in the previous quarter call and I
said that we are going to revamp our technological, from front to back and this is a step
towards Stoxkart 2.0. Our first product is superr and shortly we will launch other products,
which will enhance our customer experience. For that, I will also introduce our group CTO,
Mr. Bhushan, who is playing the pivotal role to drive our technological advancements group
wide. So, Mr. Bhushan will take over and further answer your question.
Bhushan Sonkusare:
So, hello all Bhushan Sonkusare here. To answer your question, just to add to what Pranay Ji
said, the Superr app is launched for Stoxkart business, which is our discount brokerage. And
that is the first milestone of our transmission journey. And it is currently launched in the beta
stage, there are three things which I would like to highlight, which this app will do different
than the previous ones. So, first focus would be lightning fast, super intuitive, and end to end
user experience, the consumer experience. The second is we are going to use a completely
different new digital technology stack so we have now chosen the stack which has been used
by most Fintech firms locally as well as globally. And then the third is, we want to leverage
the legacy and the USP of SMC group into this play rather than just copycatting something,
which is bringing the brokerage distribution and other aligned digital products through the
single app window. So, these three are the key differentiators.
Moderator:
Thank you. The next question is from the line of Karan Bhanushali an Individual Investor.
Please go ahead.
Karan Bhanushali:
Can you tell us what are the revenues for Stoxkart for Q1 and if you could quantify the profit
and loss for the quarter?
Vinod Kumar Jamar:
Stoxkart revenue is 5.97 crores and profit after tax was 64.47 lakhs.
Karan Bhanushali:
Okay. And why has there been a significant increase in interest costs on both Y-o-Y and Q-o-Q
basis?
Page 6 of 15
Vinod Kumar Jamar:
As you’re seen our NBFC loan has increased to 716 crores. So, obviously, our leverage was
very low. So, we borrowed the money from the bankers and distribute it, still we can further
leverage it as our debt equity ratio is quite comfortable. So, the interest cost has gone and
simultaneously interest income has also gone up.
Karan Bhanushali:
Okay. So why is the depreciation coming down in Q1 versus the previous quarter?
Vinod Kumar Jamar:
It’s impact of WDV coming down. First year If you buy a new asset, the depreciation is at say
40% and next year let say it comes from 60, so that is the impact.
Karan Bhanushali:
Okay. And sir in the NBFC segment last quarter, the management said you all are getting into
gold loans. Can you talk about how that is progressing, and what’s is the management
strategy to compete against other large peers who have been into this segment for a while?
Himanshu Gupta:
Sure, this is Himanshu. So, basically, during this quarter we have initially launched gold loan in
tie up with one of the existing NBFC, through a co-lending type of partnership and going
forward we would be opening our exclusive Gold loan branches for building distribution
strength of our own. As you said like competing with the existing peers, we believe the
market is very big and there is a very large opportunity. Being a secured retail loan product,
we are very bullish on this product. And initially we would be opening branches in Delhi NCR
region and in sometime after looking at the progress, we would be expanding to other
locations. We have started with like, added that in tie up with other NBFC we have initially
started with few branches in the West Bengal region as a pilot.
Moderator:
Thank you. The next question is from the line of Atul Prakash, an Individual Investor. Please
go ahead.
Atul Prakash:
Actually, I just wanted to understand we have a full value brokerage business, we have a
discount brokerage business, we have NBFC business in which we are also doing the gold loan
now and buyback introduced at 115. However, if it’s all this and we take the peer valuation of
our company is not at the right place, so what exact reason you see where we are lacking?
Subhash Chand Aggarwal:
I could not understand.
Atul Prakash:
Shall I repeat?
Subhash Chand Aggarwal:
It depends upon the investor, question is market is not in our control, and it depends upon
the investor how much price should be there, we can say that we are doing well and I don’t
want to comment why price is lower, but you can think yourself.
Atul Prakash:
I just wanted to know anything which we should be doing or were market is seeing, that is
likely at our end, because if we take the NBFC business, then also our valuation is low, if we
see the brokerage business then also our valuation is low?
Page 7 of 15
DK Aggarwal:
This is DK Aggarwal. What you can do is do the right thing and being in the industry and being
in different verticals, all our verticals we are putting our best and things are happening as per
our plan. So, in our control whatever is there we are doing that, when you do the right things,
the valuation will automatically happen this is what we believe so, because valuation is not
something where we focus, we focus on our business and our business is doing well.
Atul Prakash:
Just also wanted to add the NBFC part on the gold loan side. So how we are seeing the
market as a lot of players in the gold loan business and what are our strategies to going
forward?
Himanshu Gupta:
Yes, you are right a lot of NBFCs and banks are getting a little aggressive on the gold loan
particularly post COVID era, but we believe that market is very large so initially we will be
opening our branches and we would also be doing digital marketing and the gold loan at
home business going forward. So we would be doing omni channel sales to get the business
from the market. And our cost of fund is also very low so that will help us in competing with
other players in the market, particularly the new NBFCs which are coming in this business.
Moderator:
Thank you. The next question is from the line of Achal Biyani from Yes Bank. Please go ahead.
We have lost the line of Mr. Achal Biyani. In the meanwhile, Mr. Saket Kapoor will ask the
question from Kapoor and Company. Please go ahead.
Saket Kapoor:
Sir, when investors look at the numbers or look at an investable proposition in companies,
especially the ones where the profitability is dependent on the financial market. So, how
should one look at the consistency in your numbers in the different verticals, what kind of
business model have you set up that there would be consistent in barring unforeseen
circumstances, how have you created the model wherein we can expect consistent numbers
from your business because it is entirely dependent upon the financial market and all the
components are linked on the same aspect?
DK Aggarwal:
Mr. Kapoor it’s a very good question because for any organization it is very important that
there should be continuity, there should be sustainability and consistency. So, our business
model is like that, it is a low cost business model where we have a lot of franchises across the
country. Secondly, we have different verticals, like we are into brokerage, we are into
investment banking, we are into insurance broking. So, many of these businesses they take
care of the volatility or fluctuation in the economic cycle of the country. So, what we believe
that our model is quite stable and quite diversified and it is a low cost model, which will
ensure that there will be consistency in the business, of course unforeseen circumstances
nobody can judge but otherwise we believe that we are going to grow consistently and
continuously.
Saket Kapoor:
Sir when you mention low cost model, can you explain how do you define a low cost model?
Page 8 of 15
Subhash Chand Aggarwal: Mr. Sanket this is Subhash Chand Aggarwal. When we say low cost model, basically when we
have franchisee, so we don’t have direct cost all over franchisee we just charge them
brokerage and share them brokerage, and whereas in branch model you incur direct costing.
So, when your volumes are dip, then this branch model and mix of branch and franchisee
model works very well, because at good times you are there to improve your branches you
can increase your revenue, you can increase your penetration and whereas we have arbitrage
system also. So, arbitrage works as balancing of everything, and other segments as DK
Aggarwal said we have NBFC, we have insurance broking, we have real estate broking,third
party distribution and other segments also. So, it works very well in all times. One business
has other business.
Saket Kapoor:
Sir, if you take the geographical distribution in terms of your franchisee model and also the
branches, where are we concentrated and which are the areas where we need to improve
our presence?
Subhash Chand Aggarwal: We have maximum exposure in Northern India after that Eastern part of India and then
Western part of India and the least presence in Southern part of India.
Saket Kapoor:
And what could be the key reason for them having lower penetration or what steps are we
taking to improve our presence?
Subhash Chand Aggarwal: We have various banks tie up also and we are increasing our dealing size in southern parts.
Rest, more specifically Mr. Ajay Garg, who is CEO of our SMC Global Securities.
Ajay Garg:
Last year only we have done tie up with Karur Vysya Bank and Dhanlaxmi Bank and couple of
more banking tie ups are going to be there in the near future. And we are increasing even
number of branches and even number of franchisees in Southern region to strengthen our
Southern part. And besides that, we are doing digital marketing, influencer marketing, so
when you do the digital marketing, the business comes from around India, it is not location
specific, and when our presence would be there in a better way and with this strategist tie up
our image in South would improve day-by-day and our market share in South would also
increase gradually.
Saket Kapoor:
And sir lastly, to forth point, firstly about this government securities market off late, the RBI
has offered this retail participation through their own website, but that is not garnering larger
interest. So, in order to defend the bond market, what kind of role do SMC can play or we can
facilitate so that this market which is nascent and somewhat secured in terms of the stability
part could add value and could be a win-win situation for the government as well as for you
garnering more clients, the ones which you would be addressing to the –35:00 platform for
RBI and thereby offering your bouquet of other products. So, but this could offer a good
proposition since, what I have understood or read about this portal from RBI, it has not
grabbed the attention which it should, it is a big market in terms of government securities
Page 9 of 15
and SGL also state development loan, that gets usually auctioned in the market. So, that was
my small suggestion, if it makes sense for us. And secondly, about this arbitrage part also sir,
when we look at the arbitrage mutual funds, they are able to even if we take their expense
ratio, they are earning anywhere 0.4 to 0.5 50 basis point on a monthly basis at max. So, how
does this strategy works out that it is only, the secret juice with us that we are able to create
this kind of good numbers if I may use from the arbitrary debt and this mutual funds are
unable to translate that profit, what is the area where we are able to garner this profit from?
Himanshu Gupta:
Okay, thank you for your question. So, first of all, your first question regarding the debt
market penetration, this is Himanshu Gupta, you are very right, inspite of RBI allowing the
retail investor to directly trade on the RBI portal for GSEC, still the momentum is not there
from the individual investor side though, we are an early mover and we have a full-fledged
debt desk in SMC in Delhi and Mumbai region, so, we are already catering to this segment.
The gap what we see is that the investors are not aware about how to trade in the govt.
securities and particularly because to open account, one needs to approach the banking
channel only. So, banks are even not promoting the individual investor to open the account.
So, there is a gap in the information and it becomes a push product in the market. But
anyways, what we are offering to the investors that we can buy the government security on
the portal and then sell it to the individual investor in his Demat account, that facility is
available and investors are willing to buy the government securities also, apart from the
corporate bonds. We have seen higher momentum from the HNI investor segment during the
last two-three years particularly when the interest rates were going down in the market so
people were moving their investment from fixed deposit to the debt product. So, this is our
take on the debt side and for your next question regarding the arbitrage fund. Dr. DK
Aggarwal will take that.
DK Aggarwal:
Mr. Kapoor. You rightly mentioned that these arbitrage fund from various mutual funds, they
have been giving a return of 4% to 6%. Because, when you do arbitrage in a fund there are
many limitations. There are limitations in respect of you can’t do intraday trading, that is one.
Secondly, because of that reason, the churning does not happen, only vanilla arbitrage can be
done. Secondly the leverage, when you’re doing arbitrage in a mutual fund, then the leverage
is not possible. You can’t take that leverage, but in case of propriety arbitrage which we do,
you can take leverage and only basis the margins you can take the position. So, that has seen
multiplying returns, the churning which happens intraday, that also adds in multiplying return
and then they are bound by many constraints, they have IM and they can do only those
strategies which they have given in the IM. There are many strategies like conversion
reversal, box which they cannot do because of margins limitation. So, the return which an
arbitrage fund makes and the return which proprietary arbitrage would make there would be
a substantial difference and that difference is the main reason.
Saket Kapoor:
Sir, what does IM stands for?
Page 10 of 15
DK Aggarwal:
What?
Saket Kapoor:
You mentioned the word IM, IM stands for?
DK Aggarwal:
Information Memorandum which they have to submit to the SEBI, what strategies they will
do. So, you have to send the rule book basically what you will be doing so, all you have to
define the strategies which will carry out when you submit for a scheme. So, that document
which outlines what all you will be doing, where you will be investing. So, that document I
referred as IM, information memorandum.
Saket Kapoor:
As you mentioned sir our size. If we look at your book size for proprietary arbitrage fund is
around 350 crore you mentioned that is what the.
DK Aggarwal:
It keeps on varying, sometimes it is even 200 crores, 250 crores, 300 crores because, what
happens that when whatever proprietary surplus we have, we deploy that fund instead of
keeping it idle, we use whatever arbitrage opportunity arises, we use fund available with us
to deploy into arbitrage strategy. So, the deployment of fund keeps on varying depending
upon the availability of the fund with us.
Saket Kapoor:
And sir if we look at the market size of this opportunity, just to understand how many players
and what could be the big resultant, if I may ask that, if we look at the market share of what’s
the type of strategies which you deploy to create arbitrage opportunities, what could be the
entire market size of it, wherein you are garnering 350 or 400 crores, how big is the total
space in which number of players are in this strategy y?
DK Aggarwal:
Right. So, I would not have the number but I can tell you, if somebody gives me another 1000
crore or 2000 crore, or 5000 crore even that can be deployed.
Saket Kapoor:
Okay. And its direct correlation is with your option segment only, because the money flow is
maximum for the option strike prices, so there is the way?
DK Aggarwal:
You are right most of the strategy happens in options, but there are many strategies where
cash futures, even there are strategies in commodities, arbitrage also. There are number of
strategies which can be deployed for arbitrage. So, of course options is a major component.
But, like cash future arbitrage I said, cash to cash arbitrage, there are many strategies, where
even options are not used, pair trading strategies, then some statistical arbitrage. So, there
are quant based strategies. So, there are strategies where even we do not use options and
then there are strategies available.
Saket Kapoor:
And here in sir everywhere we are knocking the spread at one go only, this is not that we
have to change?
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DK Aggarwal:
No, everything is automated we do our arbitrage through algo trading. So, mostly it is
automated trading so everything happens through the automated software.
Saket Kapoor:
So, at no point we have any open position, whenever the algo trades have put into both sides
are?
DK Aggarwal:
Principally we do not keep any open position but there are strategies quants based strategies
where we can have some open position but they’re all based on some strategies like
corporate actions are there, plus there are certain quant strategies. So there, there could be
some open position but a majority of our positions are always hedged position.
Moderator:
Thank you. The next question is from the line of Achal Biyani from Yes Bank. Please go ahead.
Achal Biyani:
I would want to know on the PCM front, as we know that you also have a PCM license in
place. What kind of developments are being done with the changing regulations of allocation
of end line collateral, additional cost percent which you might have to face in future because
of these changes and what is the income sources because we see very negligible clearing
income in your P&L, if you can give an update on the TCM front?
Ajay Garg:
Yes, I am Ajay Garg. We are clearing and trading member. So, all the regulations we are
complying for and even for allocation from today the penalty is going to be imposed so
accordingly we are uploading the thing as per the exchange guidelines. So, compliance is the
first thing like even our CMD say that, it should be on the top priority, so we are doing that
and as far as TCM is concerned like we are not that big in TCM though we do have more than
200 trading members who are taking cleaning services from us, but you rightly said that it is
not that remunerative but we are still like with all the exchanges even we are a member of
this India INX and NSCIFSC, even there we are clearing member, even we are the member of
DGCX even there we are the clearing member. So, as a brand like we want to focus on that
and in time to come it should be a remunerative segment for us.
Achal Biyani:
Okay. Any additional heavy expense you are expecting because of this change?
Ajay Garg:
No, it is an ongoing thing because the front office vendors and back office vendors even they
know they have to comply so, there is no much additional expense only thing is that we have
to deploy our back office resources and we have to coordinate with the vendors.
Achal Biyani:
Okay. Sir, a few questions on your prop trading front, as you said that you are majorly into
arbitrage and you are doing F&O and cash F&O head straight, at any point in time is there any
directional trade which you undertake on an opportunity basis, and second there is a good
amount of quoted investments which is seen in your balance sheet. So, are these a part of
strategies which you’re deploying or these are invest and wait for the right time to sell it off?
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DK Aggarwal:
Whatever investment you’re seeing the balance sheet those are the investments and
whatever we have in arbitrage those are the part of the arbitrage strategy.
Achal Biyani:
Okay, there is no scope of any kind of directional trade which has been undertaken?
DK Aggarwal:
Whatever directional is to be taken that is in the investment part of the business and in
arbitrage it is based on such certain strategy.
Achal Biyani:
Which is F&O driven?
DK Aggarwal:
You can’t say F&O only because there are corporate actions also happening so some
directional change could be based on the corporate action.
Achal Biyani:
Okay. Sir few questions on your group companies. So, as you said that your NBFC is trying to
expand into the gold loan financing. Sir what will be your USP to compete with big players like
Muthoot and Manappuram, because they have a pan India presence, how are you targeting
to targeting that same audience. Second is on the NBFC performance front what is the GNPA
levels as of now and what is the average deal which you are charging to your customers?
Himanshu Gupta:
Okay. So, I will answer your questions in the reverse order. Himanshu here. Our gross yield on
the portfolio is around 15%, to 15.5% that we are charging blended across all the products,
you know the interest rates have gone up recently in the market and we have passed on the
interest rate hike to our customers on the floating rate loans. Talking about the GNPA, March
22 GNPA numbers were about 2.8% and that has come down to 2.4% during the quarter and
the collections have been better. And even you will see that (trend) in the overall market.
Coming to your first question regarding the gold loan, so we believe the market size is very
large for the gold loan product and obviously the competition would be there, but that is a
healthy competition and we would be focusing more on the Northern India part initially. And
the larger players Muthoot and Manappuram they are concentrated more on the Southern
part of the India though they have presence in North India, but that would be an advantage
to us. And as I said the cake is very big and there is share for everyone.
Achal Biyani:
Okay. Sir a few questions on this stress level books only in the NBFC. Are there any
restructured assets in your book?
Himanshu Gupta:
Yes, there are restructured assets in the book as part of the restructure policy that RBI had
came out during the COVID period and as of March 22, the restructured book was about 22
to 24 crore, that was the book that was restructured but standard book, but the restructuring
was done under the COVID policy of the RBI.
Achal Biyani:
Okay. Sir now on the other group company which are there in the same group, first is on the
discount broking business. On the discount broking business we see you are still making
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losses till FY22. So, what is the development on that front, when are you going to break even
in the discount brokers. How are you competing with Upstox and Zerodha and on another
group company who also had a group company called SMC Global USA, which as per few
previous years financials we show that the investment amount has been written off because
of some issues in that company. Can you throw some light on that?
Pranay Aggarwal:
Hi, Achal I’m Pranay Aggarwal, CEO of Stoxkart Discount Broking arms. So, basically, Mr.
Vinod Jamar he already put forward the individual financial statements of our discount
broking arm, in the quarter we made a profit of 64 lakhs, profit after tax and profit before tax
of 87 lakhs. So, I’m very happy to inform that this quarter we are able to not only turn it
breakeven, but we are able to achieve some profit on the back of revenue of six crores. So,
that is because of increased ARPU. We are focused on our strategies differently, we are
focusing on revenue generating clients, we are focusing on increasing our ARPU and that is
around Rs.4000 per client and that would be on the higher side in the industry. So, going
forward we have positive outlook for this and with the new technological revamp which is
taking place this will be increasing day-by-day.
Subhash Chand Aggarwal: Actually we opened a branch in USA and we transferred funds there, but we had plans for
ADR and everything so we thought that we must take the license of USA also, but the person
we kept as a manager, he did not do well and he has suffered losses and so, that is why we
have closed the branch so now it is inoperative. It is a subsidiary SMC Global USA and now we
are in the process of closing that branch.
Achal Biyani:
Has the entire amount of SMC Global USA investment being written off as on date?
Subhash Chand Aggarwal: Around 5 crore something that has been written off.
Achal Biyani:
This has been written off in Q1 or earlier periods only?
Subhash Chand Aggarwal: Mr. Jamar who is our CFO he will answer.
Vinod Kumar Jamar:
Write off require certain RBI procedures. We have provided for fully, but it is in the process of
writing it off.
Achal Biyani:
Okay. So, entire amount has been written it off?
Vinod Kumar Jamar:
Provided for.
Subhash Chand Aggarwal: Provision has been made but we have not yet written it off.
Vinod Kumar Jamar:
Formal write off will be with RBI permission. That is the process.
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Moderator:
Thank you. As there are no further questions from the participants, I now hand the
conference over to the management for closing comments.
Mahesh Chand Gupta:
Good morning to all myself Mahesh Gupta. Thank you all for participating in this earning
concall. I hope we have been able to answer your questions satisfactorily. If you have any
other further questions or would like to know about the company, please reach out to our Investor Relations Manager at Valorem Advisors. Thank you, stay safe and healthy. Thank you
very much to all.
Moderator:
Thank you. On behalf of SMC Global Securities Limited that concludes this conference. Thank
you for joining us and you may now disconnect your line.
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