IIFL Capital Services (NSE:IIFLCAPS) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the IIFL Capital Services Limited Q2 FY 'twenty seven Earnings 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. Please note that this conference is being recorded. I now hand the conference over to mister Venkat Raman from IIFL Capital Services. Thank you, and over to you, sir. Good afternoon, and welcome to the Q2 FY 'twenty seven Analyst Call of IIFL Capital. I'm Arav Venkatraman, Managing Director, and I'm accompanied with my colleague, Ronald Gandhi, who is the CFO.

0:49 The global environment remains challenging during Q2 FY 'twenty seven because of geopolitical tensions, elevated oil prices, high interest rates, and that has led to increased volatility across multiple asset classes. However, India remained resilient. Our GDP is showing signs of growth. I think it grew 7.8% in Q1 FY 'twenty seven, and it has been supported by manufacturing services. In this environment, because of inflation pressure, crude price pressure, currency pressure, and outgoing foreign flows, We have to closely monitor the happenings on a macroeconomic front.

1:36 However, as of now, as we speak now, India's medium term fundamentals remain strong. We remain focused on disciplined growth, prudent capital allocation, governance and risk management. Coming to our results. Consolidated operational revenue for the quarter was INR $7.22 crores, up 14% quarter on quarter, twenty two percent year on year. If you compare Q2 FY 'twenty seven with Q1 FY 'twenty seven, the retail equities was INR $3.16 crores, which was up 6%. We saw a significant growth in our institutional and banking revenues. It was up 18%, $2.45 crores versus INR $20.07 crores in first quarter of it. Basically, we have seen traction in Broking as well as Banking.

2:29 FPD income, which is distribution income was INR 159 crores in Q2 versus INR 125 crores, which was up 27%. Employee cost increased 8% because of both headcount increase as well as bonus provisions. Finance cost increased 25% to INR75 crores due to increase in borrowings, which was up. Then depreciation increased 6% to INR18 crores. Fees and commissions were virtually flat, down 4% to INR134 versus INR139 crores. Admin expenses grew by 9% to INR 96 crores mainly because of investments in technology. Operational PBT, which was before mark to market, was INR $20.06 crores, up almost 40% on a quarter on quarter basis. If you remember last time in the analyst call, I had spoken about the other income, which we had seen in the first quarter of FY 'twenty seven due to mark to market gains in BFC.

3:19 This time, unfortunately, because of adverse price movement, we have a loss of INR 32 crores. That is primarily because of BSC sales price movement. If you now look at data on a year on year basis, Q2 FY27 versus Q2 FY26, then we have seen a retail broking income growth of almost 17% to 316 crores. Institutional banking income was up 31%. Then we have FPD income, which was up almost 23%, one fifty nine versus one thirty. Employee cost increased 26% to $1.94 crores, basically due to both increase in headcount, variable pay and fixed cost because on a year on year basis, we had to take normal base increase also. Finance cost increased 40% because of increased borrowing.

4:09 Our MTM book has grown. Depreciation increased 16% because of branches and technology investments. Trees and commissions increased 13%. Admin expense grew again 11% mainly driven by debt. Operational PBT was crores before mark to market and it was a gain of about 25%. Other income, as I mentioned, was due to mark to market and BSE share due to price movement in BSE shares. Coming to year on year basis for H1 twenty seven versus H1 twenty six, then we have seen a 15% increase in retail equity, INR613 crores. Institutional booking income was up 16%, INR $4.51 crores versus INR $3.90 crores. The equity income was virtually flat, $2.85 crores versus INR $2.75 crores because in the last year's first quarter, we had seen some exceptional upfront transactional income.

4:57 Finance cost increased 44% to INR 135 crores. Depreciation, 9% increase, again, as I mentioned, because of bachelor's technology. Fees and commissions increased 8%, $2.73 crores versus INR $2.53 crores. Admin expense was up 6%. Operational PBT was up 8% to INR $3.55 crores before MTM. Primarily, we have investments in BSE, which is a legacy investment. We continue to hold about INR 5.95 lakh shares of BSE, which is the main driver of the MTM. Coming to some housekeeping data, average daily turnover was INR 305,073 crores, of which F and O was INR 301,075 crores. Cash was INR 3,288 crores in Q2 FY 'twenty seven versus INR 3 and 15,780 crores, F and O, $3.12 crores, $4.80 crores and cash was INR 3,300 crores in Q1 FY 'twenty seven, which was down roughly 3% on an overall EBITDA basis.

5:53 We have done we have actually done reasonably well compared to the overall decline in market volumes. On a year on year basis, we have seen a 16% increase because that the last year, same quarter, it was about INR 263,568 crores. Coming to other updates, first, I'll give an update on the Fairfax investment. If you remember, Fairfax had decided to do a preferential allotment preferential infusion of capital in IIFL Capital. We have received FIH, Fairfax, Monisture's investments has required received all requisite regulatory and shareholder approvals for the proposed acquisition of 51% of the company through a preferential allotment, open offer and other arrangements with the promoter. The prep allotment and open offer are under implementation, and we expecting that we'll get close in this month of November itself.

6:45 Consequent to this, AIFLCAPS will join the promoter group along with existing promoters. The other update is we also propose to incorporate a wholly owned NBSC subsidiary, and become... We want to... For... And this basically NBSC is aligned with the company's strategy to expand the financial services offerings and develop lending and credit solutions to HNI segment. This is, of course, subject to regulatory approvals from RBI. And last point is about succession planning. Apart of our leadership succession, the board has approved appointment of Vasudev Jagannath as additional director and hold time director for three years subject to requisite regulatory approvals.

7:35 Vasu is an MBA from IIM Calcutta, and he has over, I would say, close to three decades experience in capital markets. Of which two decades, he has been with IIFL Capital. Prior to joining IIFL Capital, he has... He was in the New York desk of CLSA. And also just before joining us, he was the head of sales of CLSA. So he comes with deep experience and has been with the firm for almost two decades. The board... And we believe that Avasu is well positioned to lead the company to the next phase of growth and act... And he will be recent... He will be designated as managing director with effect on 01/01/2027. I will continue to be on the board of directors even after that. With this, I think I come to the end of my opening remarks, and we'll be more than happy to answer any questions that you have. Thank you so much.

8:26 Thank you. We will now begin the question and answer Anyone who wishes to ask a question may press star and 1 on their touch tone telephone. If you wish to remove yourself from the question queue, you may press 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Keshav Karwa with White Pine Investment. Please go ahead. Hi, sir. Thank you for the opportunity. I had few questions. This quarter, how many RMs were added? And could you also please provide the breakup between the institutional broking and investment banking revenue?

9:18 See, this this quarter, I don't think we are getting anyone... Any... Even if you have added items, it will be in single digit. I think best item, I'm assuming you're asking. So net increase has been marginal. Coming to institutional broking and investment banking, I think that's for this quarter, it was roughly about INR450 crores out of it. I think the split would be about INR250 crores of broking and INR200 crores of institutional investment banking. So my second question was on Fairfax. How are you planning to declare the funds? See, actually, think we have the fund fund and bulk of it will go for, I think, margin funding. Repayment of borrowing will be one use of fund and a margin funding book will be rather use of fund.

10:11 These are the broad broad, I would say, use of funds. I'll do a thing... I think whatever we have published open offer document we have here, I'll submit it to you separately. So if you can drop an email at @IIFLCapital.com, I'll give you the exact details. Okay, sir. Sure. And my third question was your PMS, you had declined this quarter. Could you please provide an update on this? We have seen some decline in the PMS area because that's primarily because we have seen some outflows in the end of PMS, which hope we hope to recover in the coming days. So that that was the reason. Okay, sir. Thank you so much. Thank you so much. The next question comes from the line of Neha with Abacus Investment Managers.

11:01 Congratulations on a good set of numbers. So just a couple of questions. So on the FPP, the distribution income, the ARR assets have grown by 5% sequentially. So going forward, what do you think will be the key drivers for this segment for us? See, in the equity income, the key driver earlier was there are some components, which was the AR income, some amount of transaction income, some insurance income also. I think going ahead in the next two quarters, at least we should see some uptick on the insurance income. And the key driver will be growth of AUM. So ARR, AUM should increase, that will drive the income. Sir, this quarter, our lease have increased. Is that coming from insurance or that's been coming from the other segment because So only if the first this quarter, insurance has underperformed. So we have seen actual growth in the IRR income.

12:02 Right. And that's largely coming from the fixed income and mutual fund, right? Yes. AI, CMS and mutual fund. Got it, sir. And sir, also on these assets, so if you could just give a broad sense of how much would be from The U. And your clients? I don't have that detail. So I think that's a good question. Generally, I'm looking at in a consolidated basis, but let me call that number and get back to you. Sure, sure, sir. And sir, with respect to our broking business, so what kind of impact did we see because of the RBI regulations that came into effect from second quarter? So I mean, have you seen any impact of that? I mean, course, we have done We much have seen marginal impact, nothing to write home about because we have no problem. So I don't think we have any impact, if I can say.

12:58 Okay. Sir. And sir, lastly, just on the employee cost. So you mentioned that the increase is because of the headcount increase on COVID. So where is the headcount increase coming from? Because you mentioned that in the wealth, we have not added RMs as such. So where is the headcount increase? Was I coming talked about the wealth RM, but we have in wealth, have the AMC business. So there we are seeing some headcount. And headcount has not been so dramatic also. Think so if you see the overall expense, employee expenses increased 8% only. So it is and on a quarter on quarter basis because of some bonus provisions and few increase in headcount. And on a year on year basis also, it has increased 26%. That was because we already we have taken we had roughly about some 5% increase in the headcount. And then also, we have seen some increase because of variable pay and on account of overall year on year inflation. And actually this year inflation has been quite full inflation has been quite high.

14:02 Understood. So sir, this INR194 million number is what we can expect to see continue for the rest of the year. Right? $1.92 per quarter. Quarter. Yes. That be the number. Understood. Thank you. Thanks. Thank you so much. Participants, please press star and one to ask a question. The next question comes from the line of Krish Agarwal with New Asset. Hey, Krish. This is Sai. I wanted some clarity on the difference between the fee charges in the assets that we are distributing by ourselves and the third party assets.

14:50 The meaning, sorry? We have our own distribution AUM in the SPD business, and we are also distributing the third party products. So I wanted to know what's the efficiency that is being charged between the third party distribution? Speaking on the equity products are in house, we get about two, 2.5, 2.25 maybe. And third party products, it will be about a 50% cut. I think these are rough numbers. I hope I give you directionally the answer. Okay. So 2% on our own products and 0.5% on the 1% on the third party. Got it. Thank you. Thank you. Participants, please press star and one to ask a question.

16:00 The next question comes from the line of with VVD Asset Managers. Please go ahead. Thank you for the opportunity, sir. Sir, I joined later. So pardon me if there's a repeating question. Sir, how do we see the direction of breaking even in our FPD business? Actually, the wealth business, I'm assuming you're asking a question regarding the wealth business, right? Because the FPD has got components from both our existing working business, which have migrated to HNI bookings. So the new business that we have started, so we hope that we should breakeven in the next maybe six to eighteen months. But what has happened is that subsequently, we have started enough manufacturing also.

16:49 And we are close to thousand about roughly about 4,000 crores, INR INR $5.05 of of INR 5,000 crores, and we are investing in that. So that, I think, will take a longer time to breakeven. Okay. And sir, what what was the loss from equity business for H1? The equity business? No. Malab, your wealth business is making loss as of now. What was the? We are loss. We are making loss in the wealth business. I'll I'll do one thing. I'll call you separately and give you the figure. I don't have a figure right now. Okay. Thank you so much, sir. Okay. The next question comes from the line of Abhijit Sakhari with Kotak Securities.

17:40 Sir, pardon my lack of information on this, but the Fairfax transactions, the ultimate end goal is that it all rolls up into the banking license, right? Just reading through what Fairfax has put out in their disclosures on the transaction. Actually, you have a very good point you have made. So actually, the Fairfax press release mentions about that. But it says that ultimately, interest of both go digit and IIFL Capital will get subsumed into the bank, maybe become part of the bank as a subsidiary. So I think that's what will happen in the long term. Although this question is better answered by Fairfax people themselves.

18:31 Got it, sir. That was the only thing. Thanks a lot. Thank you. The next question comes from the line of Akshay Shah with VVD Asset Managers. Please go ahead. Yes, sir. Sir, our insurance business has not performed much well. So what is our target in insurance business going forward? Actually Are we focused yes. So answer the question. I'll ask... Answer it fully. Sorry. I I cut you. So please complete the question. Okay. So the...

19:18 So how are we... Malaba, are we focused more on capital market business in distribution business? Or are we, say, I would say, focus on insurance business? You know, actually, to me, that's a good question because this this entire insurance business has become marginal. And in the last two years last two quarters, we have seen some amount of dip. And for the next two quarters, we'll focus on this because before the new regulations kick in. But on the long term, if you ask me, we will focus more on the capital markets distribution rather than insurance distribution. Okay. So if there is an opportunity, you will sell it out of this business. Is that possibility? Actually, yeah. We are open to all discussions to enhance shareholder value. So So I think we'll explore.

20:23 The next question comes from the line of Devansh Jain with Neo Wealth Management. Please go ahead. Hey. This was regarding the open offer whether promoters intend to tender their shares in the open offer other than the promoters selling shareholders? No. No. Actually, let me clarify. The way that open up is structured is they will make an open offer. If they don't get shares to go up to 51%, then we'll sell to make them 51%. Okay. But other than the total was selling the shareholders to make that 51%, can tender in open offer or not? No, we are not tendering. They are not tendering. I'm talking on behalf of the supporters and not for everyone.

21:09 Okay. Okay. Thank you. You. I think let me clarify the question that Neo I forget your name. What's your name, sorry? Can I understand? Devans, sir. Devans. Devans of Neo. See, the way we have structured the transaction is that the promoters and the group promoter group will not offer shares in the open offer. As and when the open offer gets concluded, if they don't make it to 51%, only then we'll give shares to them. I hope I have answered your question. Yes. Thank you, sir. Thank you. Thank you. Anyway, if you don't have any more questions, so first of all, you so much to all the participants.

22:04 And as I mentioned, venkatislcapital dot com is my email, And both Ronak and I are available to answer any further questions that you may have. And thank you so much for giving me a patient hearing. Thank you. Thank you, sir. Ladies and gentlemen, on behalf of IIFL Capital Services, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.