vertex securities ltd Management discussions

Indian Economy Overview

India entered the Fiscal Year 2023 in an uncertain macroeconomic environment. The outbreak of omicron corona virus and geopolitical conflict in Europe, affected major disruptions in global supply chain, resulting in a massive surge in energy and commodities prices, with a high inflation not seen in the past. Majority of Central banks responded in a synchronized manner with consistent increase in the policy interest rates.

However, Indian economy has demonstrated remarkable resilience. Strong investment activity, capital expenditure drive by the government and large consumption base has aided the growth in Indian economy. However, persistently escalating inflation may drag Indias growth trajectory downward going forward. In spite of high CPI inflation rate of 6.5% in India, the Monetary Policy Committee of the RBI has recently kept the repo rate unchanged at 6.5%. Indias financial sector remains robust with massive digitization, high credit take off and improvement in asset quality.

Industry Overview

The overall equity markets started on a low note on account of geopolitical tensions in Europe, monetary tightening by central banks, volatility in commodity prices, etc. However, the markets improved substantially in December 2022 due to robust corporate earnings, optimistic growth outlook, large, capital inflows by domestic institutional investors, etc. The average daily traded volumes (ADTO) for the equity markets during FY 2022-23 stood at 153.9 lakh crore, substantially up from 69.5 lakh crore in earlier year. However, Indian equities witnessed net outflows from FIIs in FY2023.This has been largely offset by substantial inflows from DIIs.

During the financial year, SEBI issued new guidelines for settlement of running accounts of clients funds or securities lying with stock brokers. Indian stock markets also shifted to a shorter trading cycle settlement (T+1) on January 27, 2023 to bring in operational efficiency. To curb possible misuse of clients funds by brokers, the board of SEBI approved a proposal to introduce a regulatory framework on upstreaming of clients funds by Stock Brokers (SBs)/ non- bank Clearing Members (CMs) to Clearing Corporations (CCs).

In FY 2022-23, the value of futures traded on the Indian commodities market declined to Rs. 63 trillion from Rs. 72 trillion in FY 2021-22. The ADT growth in the equity derivatives segment remained robust, increasing by 10.9%, from Rs. 1,466 billion in FY 2021-22 to Rs. 1,626 billion in FY 2022-23. The retail market share experienced a marginal decline in participation.

Opportunities and Threats Opportunities:

• Long-term positive economic outlook, will lead to opportunity for financial services

• Leveraging technology to enable best practices and processes

• Licensed Merchant Banking activities

• Wealth management opportunities, particularly with growing retail participation

• Distribution of various financial products Threats:

• Geopolitical tensions affecting the world economy

• Short term economic slowdown may impact investor sentiments and business activities

• Monetary tightening by Fed affecting the capital flows

• Exposed to systemic risks and economic risks

• Fierce competition from discount brokers

Segment-wise or Product wise performance

The Company has only one segment of activity namely, stock broking

Review of Operations

The Company currently provides brokerage services in equity, equity derivatives and currency derivative and in commodities segments through its network of branches and franchisees. During the year, the company made substantial upgradation of technology with launch of mobile App for trading and e-KYC. The Company has also successfully executed Merchant Banking valuation assignments during the year.

On standalone basis, revenue of the Company decreased marginally from Rs. 899.16 lakhs in the previous year to Rs. 785.38 lakhs during the year under review. This was mainly attributable to market conditions and less participation by retail investors.

The Company along with its subsidiary company achieved consolidated revenue of Rs. 838.19 lakhs compared to Rs. 955.85 lakhs in the previous year.

On standalone basis, Vertex Commodities And Finpro Pvt. Ltd (VCFPL) achieved total revenue of Rs. 52.81 lakhs and net profit of Rs. 15.60 lakhs as against the total revenue of Rs. 56.68 lakhs and net profit of Rs. 5.54 lakhs in the previous year. However, company has now surrendered broking license of VCFPL and commodities trading is being done through Vertex Securities Ltd.

Business Outlook

The Company expects the growth at a gradual pace to continue in the financial year 2023-24. The revenue from broking business is expected to maintain a normal steady pace. The Company has taken steps to improve retail participation, client acquisition and increase daily volume across all the branches as well as franchisees. The introduction of mobile application, e-KYC and 2

technology upgradation should help further in increasing the volume of business. The distribution business of Third-Party Products including Mutual Funds, NCDs and insurance products launched earlier should begin to see results in the current year. The Company also expects increased revenue from Merchant Banking activities. However, there is fierce competition in the market. With this background, the Company expects to achieve a modest profit for the year.

Risks & Concerns

The Company is primarily exposed to credit risk, liquidity risk and operational risks. Risk management and regulatory compliance are an integral part of the business model due to the nature of the industry. We have dedicated risk management & compliance teams to ensure that we conform to all the applicable regulations.

Internal Control systems

The Company maintains adequate internal control systems commensurate with the nature of business, size, and complexity of its operations. The Company has a system of continuous review of internal control policies and systems. The Internal Auditors reports are reviewed regularly by the Audit Committee and the Board.

Human Resources

Human resources are a focus area for the Company. Effective utilization of the human resources is done through reward and recognition of talent and rationalization of non-performers. Our employee strength was 68 as on March 31,2023.

Key Ratios

Key Indicators	2022-23	2021-22
PBT/Total Income	-9%	2.5%
PBT/Total Assets	-1.5%	0.5%
RONW (Avg. Net Worth)	-4.76%	2.1%
Debt/Equity	1.84:1	0.34:1
Interest Coverage Ratio	1.59	1.2
Current Ratio	1.021	1.3

During the current year the ratios have been negative due to loss for the year.

Cautionary Note

Statements in this Report describing the Companys objectives, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events. These statements are subject to risks &uncertainties. Actual results could differ materially from those expressed or implied since there could be many factors which are beyond the control of the management. The Company assumes no responsibility in respect of forward-looking statements that may change due to subsequent developments.

For and On behalf of the Board of Directors

Ramachandran Unnikrishnan	George Mampillil
Managing Director	Director & CFO
(DIN 00493707)	(DIN01976386)

Place: Kochi

Date: July 24, 2023