parag parikh financial advisory services ltd Management discussions

PARAG PARIKH FINANCIAL ADVISORY SERVICES LIMITED ANNUAL REPORT 2007-2008 MANAGEMENT DISCUSSION AND ANALYSIS Fixed Results: Highlights of the Financial Results for the years 2007/08 and 2006/07 are given below: (Rs in Lacs) Particulars For the year ended 31-03-2008 31-03-2007 Operating Income 593.80 507.46 Other Income 62.52 35.35 Total Operating Income 656.32 542.81 L.T Capital Gain on BSE Card & Shares 355.71 0.00 Profit before depreciation and tax 516.25 161.38 Depreciation 27.10 21.94 Profit before tax 489.15 139.44 Provision for taxation 71.00 31.00 Fringe Benefit Tax (and previous 8.56 3.76 year tax paid Rs.1.10 lacs) Profit after tax 409.59 114.80 Share Capital 651.48 386.80 Reserves and Surplus 1183.32 773.74 Management Discussion & Analysis and Results of operations: Share capital: The issued, subscribe and paid up equity share capital has been increased to Rs. 65,148,050 from Rs. 38,680,000 due to allotment of 2,646,805 equity shares of Rs.10 each fully paid up, to the shareholders of Parag Parikh Securities Limited in the ratio of 2.35 shares of the company for every one share held in Parag Parikh Securities Limted in pursuant to the scheme of amalgamation as approved by the Honble High Cart, Bombay. Environment in the Capital Markets: For most part of the Financial Year ended March 31, 2008 the conditions in the Capital Market were very buoyant. The BSE Sensex touched an all time high of 21,206 and seemed to be defying gravity. Equity and derivatives market turnover was at all time highs with a generous help of margin funding and lax credit standards, arbitrage spreads were good, clients were willing to invest in Mutual Funds and Portfolio Management Services (PMS) and proprietary positions of capital market intermediaries were making good profits. Merchant Banks could offer fancy premiums to promoters for questionable issues and still get record over-subscriptions through IPO funding. In short, it was a perfect recipe for disaster. Things started to change in 2008. Stock markets crashed, inflation shot up as did interest rates, growth slowed down as did volumes on the stock market. Clients wanted their money back and did not want anything to do with the capital markets. Initial Public Offerings dried up. No one wanted margin funding any more. Without doubt PPFAS benefited from the buoyant conditions. However we are proud to say that we did not participate in the folly going on at the time of euphoria. We had .. 1. No credit losses from client positions. 2. No forced liquidations of client portfolios at the time of market volatility. 3. No frothy investments in client portfolios. In fact we are proud of the fad that the dip in portfolio values for PPFAS clients has been far lower that of the Sensex and Nifty. 4. No problems in proprietary investments. In fad we have largely stayed away from making fresh investments in frothy markets. We held on to stocks where we believe investment value is high. 5. No indiscriminate opening of branches or hiring of staff. Operations of PPFAS: A lot of initiatives mentioned in the last annual report were completed during FY 2008. Branding: This Annual Report has the new logo of PPFAS. The branding exercise of PPFAS is not just skin deep involving new signboards and stationery. The branding exercise involves alignment of all stakeholders to the core business values of PPFAS. The new logo represents our Slow and steady approach to investing and the brand line Theres only one right way lets investors know that in investing the other path of shortcuts inevitably leads to loss of capital and misery. The logo and the brand line also reflect the alignment of client interest and that of PPFAS where we take care of client investments as if they were our own. It reflects our position that our business is to promote investments and not gambling. It represents our attempt at re-establishing the forgotten principles of investment. Internet based trade execution and bank payment gateway: The internet based trade execution platform of PPFAS went live. PPFAS offers both a browser based as well as an executable program based trade execution services. PPFAS offers a choice of three banks, namely HDFC Bank, ICICI Bank and Axis Bank for online funds transfer by means of a bank payment gateway. Depository Participant: PPFAS has also started its Depository Participant services through NSDL. This service is integrated with the internet trading platform. Availing depository services from PPFAS enables clients to get significant saving on depository charges as normally charged by banks. It also avoids filling of demat instructions and unnecessary commuting. Further clients can be assured of validation of holdings prior to sale of shares, thus eliminating loss on account of auctions. Brokerage business: The retail brokerage business saw growth over last year on account of increased volumes as well as increase in number of clients. The institutional brokerage business was adversely affected for 3-4 months on account of the procedural formalities to be completed post mergerwith a lot of institutions. Portfolio Management Services: 1. The following schemes were operational during the year: 1 Cognito (Value investment oriented PMS scheme) 2. Progeny (Management of client investments in mutual funds) 3 Alpha Arbitrage scheme (scheme to benefit from arbitrage opportunities between cash and futures market, between different exchanges, between different derivatives markets etc.) 4. Non-discretionary scheme (management of bank and demat accounts of the client, accounting and audit for the clients investments combined with advice of the portfolio holdings) 5. Structured Products PMS (a new scheme launched under Cognito where investments are oriented towards capital protection and giving all the upside of equity markets represented by NIFTY returns) Cognito has come back in reckoning after under performing the indices in FY 2007-08. The investments of Cognito have fallen by 2.85% as compared to a fall of 13.85% in Sensex and a fall of 14.75% in Nifty in the quarter April 1, 2008 to June 30, 2008. We had mentioned in our last Annual Report that we were cautious in seeking money from clients. That situation has now changed. We are aggressively seeking funds for the Cognito scheme with a lot of values emerging in the market. Progeny scheme managing mutual funds continued to help clients with their mutual fund investments. Alpha Arbitrage had a good year in 2007-08. The returns from arbitrage have dropped in the current financial year and we have switched client investments to other opportunities in the market. Non-discretionary PMS continued to add clients in 2007-08: Structured investments under Cognito were recently launched. Here the clients have a reasonable assurance of capital protection and full equity upside participation. While SEBI does not allow PMS service providers to give capital guarantee and assured returns, here the nature of investments and asset allocation assures clients of the safety of capital and the equity participation. Shareholders who wish to know more may contact our Wealth Management Group for details. Financial Planning: Your Company continues to get a lot of client inquiries for its Financial Planning services. We expect to add a lot of clients forthis service during the current financial year. Finances: The Company has reviewed its finances and is making all attempts at reducing idle funds and generating returns from its resources. During the year the Company got additional bank guarantee limits sanctioned to enable it to do a highervolume of business. The debt free status of the Company continues. Human Resources: Your Company continues to make efforts to be a preferred employer for potential employees. We continue to operate our profit linked compensation scheme to attract and retain good talent and to create an entrepreneurial approach among employees. Rajeev Thakkar a Director of the Company was appointed Chief Executive Officer of the Company in March 2008. RajeevThakkar has been with the Company since 2001. Outlook for the current year: The current year is expected to be a difficult year from a profitability perspective. Brokerage volumes have fallen, arbitrage returns are down, profit sharing fees from Portfolio Management clients are down. There will also be some additional expenses on account of the enhanced marketing thrust in the nearterm. However PPFAS is well positioned to seek new clients and funds for its Portfolio Management Services. PPFAS has also activated a client acquisition program and aims to more than double its client base for all of its services by the year 2010. The increase in client base is expected to overcome the fall in volumes.