Khandwala Securities Ltd

BSE: 531892 | NSE: KHANDSE | ISIN: INE060B01014 
Market Cap: [Rs.Cr.] 19.70 | Face Value: [Rs.] 10
Industry: Finance & Investments

Management Discussions


India continues to witness a very challenging economic environment. Growth remainedweak and continued to decline throughout 2012-13 (FY2013): 5. 5% in Q1, 5. 3% in Q2,followed by 4. 5% in Q3, the last being the lowest quarterly growth in a decade. ForFY2013, growth is expected to be in the neighborhood of 5% — much below the 6. 2%recorded for FY2012. Declining growth is not the only economic problem. The currentaccount deficit, which stood at 4. 2% of GDP for FY2012, is expected to be around 5% forFY2013. Notably, the deficit for Q3 was a very high 6. 7% mainly due to high imports ofoil and gold. Both wholesale price inflation (WPI) and consumer price inflation (CPI) haveremained uncomfortably high through the later part of the year.

The WPI started declining only towards the end of FY2013 with a fall in core inflation;the CPI, however, continued to remain high on account of food inflation. There were somepositive developments on the monetary front. The Reserve Bank of India (RBI) began FY2013with a higher than expected 50 bps policy rate cut in April 2012. This was followed by twofurther cuts in the policy rate of 25 bps each — resulting in a total of 100 bps reporate cut through the year. Therefore, while the RBI’s policy stance remains focusedon containing inflation, it has shown some adjustment to marginally ease interest rates.It has also eased liquidity in FY2013 by cutting the CRR by 75 bps across the year andgiving a fillip to open market operations worth 1. 3 trillion.

During the second half of the fiscal year,, the Government of India announced severalreforms & measures such as increasing fuel prices and giving oil marketing companiesgreater freedom to adjust prices to reduce subsidy burden in tandem with global price ofcrude: opening of foreign direct investment (FDI) in different sectors, especially retail;and setting up a high level committee to address much needed infrastructure investment;simplification of debt limits for foreign institutional investors (Fll); and a fiscalconsolidation plan under the aegis of the new Finance Minister. Simultaneously, oil, goldand other commodity prices have begun to ease.

However, it is also imperative to address regulatory delays, infrastructurebottlenecks, inflation, and sustenance of reforms and creation of more skilled jobs. Asstability in inflation sustains, liquidity improves and fiscal deficit remains contained,it would lead to further interest rate softening. Monetary easing should eventually helplower the cost of borrowing, and revive the business investment cycle.



The Indian capital markets have performed better than most others during this financialyear. Beginning of FY13 bought some respite to investors, after a dismal FY12. The yearstarted on a worrying note, owing to announcement of retrospective taxing of Fils,However, a change of guard at Finance Ministry turned things around, with Governmentannouncing a series of reforms like FDI in retail, diesel price hike and restructuring ofSEBs etc.

ECB’s announcement of OMT (Outright Monetary Easing) and Fed’s QE3 furtheradded liquidity and support to markets. This resulted in India’s outperformance amongEmerging Markets, with Fils pumping in -USD 26 billion of inflows during the year.However, markets corrected in the last quarter owing to global cues and politicaluncertainty faced by Government. Within Capital Markets however, fresh capital raisingactivity continued to suffer the most with capex investment cycle grinding to a near halt.

Going forward, FY14 looks like a year of improving macros, but pessimism could remainan overhang on the markets with national elections barely a year away and corporatebusiness confidence being low.

The Primary Market

Riding on the wave of disinvestment of public sector undertakings, promoters ofGovernment and private companies managed to collect over Rs 34, 000 crore by sellingshares in the primary market during 2012-13. This is 44 per cent higher than 2011-12figures.

Fund mobilisation in 2012-13, would have been much lower but for the 35 offers-for-sale(OFS) done through the stock exchange auction system. PSUs dominated the year with a totalcollection of Rs 23, 857 crore or 69 per cent of the total amount. The entire amount wasthrough divestments.

There were a total of 68 initial public offerings, compared with 37 issues in thepreceding year. On the other side, 35 OFS raised Rs 28, 024 crore, compared with Rs 18,096 crore mobilised by three companies in the preceding year. All these OFS, prompted bySEBI guidelines, were required to dilute promoter holdings.

The Secondary Market

The BSE Sensex was up 8% for the fiscal FY 2013, after declining 10% in FY 2012. It sawpositive returns in each of the first three quarters of FY 2013. But a decline of 3% in Q4FY 2013 lowered Sensex returns for the full year.

On a relative basis, the Sensex performed better than the benchmarks of emerging marketpeers like China, Brazil, but underperformed developed markets like USA, UK, Germany andAustralia. In terms of the broader market, the BSE Midcap Index was down 4% for the fiscalyear. With macro headwinds and policy uncertainties impacting sentiments, domestic retailand institutional investors shied away from Indian equities.

However following deferment of GAAR proposals, Fils pumped in net inflows each monththis fiscal since Jul 2012. Fils are now the second biggest holders of Indian equities

after promoters. Inflation, interest rates and currency had an impact on profit marginsof companies. As mean reversal occurs in the economic variables, it should help corporateby fuelling operating cash flows, improving margins, reducing debt, and eventually lead toan uptick in market performance.

BSE market capitalization stood at R 65. 32tn in March 2013, up 5% for the year. Withthe depreciation in the average INR / US$ exchange rate this year, the marketcapitalization was down 2% YoY to US$1. 21tn in US dollar term _


FY 13 was a volatile year for Emerging Market equities with . markets rallying in Q2and Q3 of FY 13 but declining in the first and last quarters. Improvement in US data,Japan’s "Abenomics" and growth not recovering in Emerging Markets resultedin the outperformance of Developed Markets.

Among Emerging Markets, Brazil, Russia and South Africa were among the worstperformers, while smaller markets namely Turkey, Philippines and Mexico outperformed. Mainhighlights of FY 13 were ECB’s commitment that it will do anything to save the Euroand Quantitative Easing in US. Going forward in FY 14, global liquidity should continue toremain high. However, growth would be the main attraction of foreign investors to EmergingMarket equities


The Government’s commitment to rein in fiscal deficit and associated reforms inH2FY13 were welcomed by debt markets. These steps have ushered a regime of much neededfiscal discipline and averted the spectre of a sovereign rating downgrade. This togetherwith reduction in repo rates resulted in a sharp uptick in appetite for debt marketinstruments in second half of the year compared to a cautious first half.

The efforts of Government and regulatory bodies continue to be directed at deepeningbond markets, especially the Corporate Debt segment, where volumes are yet to pick up.Attracting liquidity to various sub-segments is key to achieving this momentum and it iswith this objective that SEBI has decided to provide a dedicated debt segment on theexchanges. The availability of a screen based trading interface is expected to bring inincreased pricing transparency, thereby widening investor base and ramping up liquidity.This can potentially have a favourable impact on some of currently dormant initiativeslike Corporate Bond Repos and CDS, which are imperative for an integrated debt marketecosystem. With the monetary transmission being more efficient in bond markets, a largenumber of top rated . corporate have mobilized significant amount of debt capital in thebeginning of FY 14, which augurs well for the bond markets.

Other big-ticket reforms in debt space have been enhancement of Fll debt limits andliberalisation of Fll debt investment norms. Fll appetite for Indian rupee debt was robustdespite weakening currency and net foreign flows into Indian bonds aggregated around USD 5billion in FY13. The Government responded to Fll demand by hiking investment limits by USD10 billion in Government longterm debt and USD 5 billion in corporate long-term debt.Overall, investment process was also further simplified and an auction mechanism to securelimits has been replaced by an "on-tap" system in case of corporate debt untillimit utilization reaches 90%. These reforms coupled with improving macroeconomic outlookwill keep up the pace of Fll inflows


Since the start of this financial year, the rupee has depreciated 9. 89% against thedollar in the last three months and, it has become the worst performer among the majorAsian currencies after losing 13. 83% of its value since it touched the low of 61. 21against the dollar on July 8th. The rupee has been depreciating sharply, in-line withoutflow of foreign capital, which increased the demand for the dollar at the domesticfront.

It is therefore critical to see stability in rupee than outguessing when RBI is goingto reverse its policy measures. In this backdrop, it would be prudent to be conservativefor time being until dust settles down. The panic in debt market has resulted into rise inyields across the curve with short term rates going up by more than 200bps and long termyields rising more than 50bps. Amidst these uncertainties, the shorter end offersselective investment opportunity by investing into FMPs and CD oriented funds as theaccruals are closer to double digit. On duration, at this juncture, it would be advisableto be on sidelines until clarity on rupee emerges along with persistence of externalrisks.

The RBI measures has been with an objective to tighten liquidity leading to rise inshort term yields which in turn would - a) arrest rupee depreciation by making rupeedearer, and b) deter speculative activity in forex as the cost of carry increases. Postthe measures, while the debt market witnessed heightened volatility with yields risingacross the board, the impact on rupee has been limited.

We expect FY 2014 to be another volatile year in fixed income markets. We expect the10-Year G-Sec benchmark to trade in the range 8. 15%-9% in the near-term. 10-Year AAACorporate bond spreads are likely to remain at the current levels of ~100 bps and 1-YearCD rates are expected to ease by -100 bps.

Fll & MF Activity in Equity Markets:

Fll net inflows were R 1. 40tn in FY 2013, about 3x that of FY 2012 and also above theINR 1. 10tn seen in FY 2010 and FY 2011 each. Net inflows were highest in the monthsof Sep, Oct, Dec, Jan and Feb. Dll activity was in sharp contrast. Mutual funds sawredemptions as equity investors pulled out of the markets and instead went for fixeddeposits etc. Equity funds lost sizable investor folios this year. Thus, Dlls were netsellers for the third successive year and saw net outflows in each of the three quarterssince Q2 FY 2013 OF INR 691 bn.


As a corporate house, the overall operations of Khandwala Securities Limited includeInvestment Banking, Institutional Broking, Private Client Broking and Investment Advisoryservices.

Financial Highlights:

The salient features of the Company’s performance: -

Total Revenues of Rs. 440. 03 Lakhs

Net Profit / Loss of Rs. (35 Lakhs)

Earning Per Share (EPS) of Rs. (0. 29)

Segment Highlights - FY13 over FY12:

(Rs. In Lacs)

Segment Revenue Financial Year ended on 31st March 2013 Revenue Financial Year ended on 31st
Brokerage 153.90 206.40
Corporate Advisory Services 126.46 45.95
Income from Capital Market Operations 26.96 83.27
Income From Investments 5.23
Other 127.41 263.79
Total Income 440.03 599.42


Ratios 2012-13 2011-12
Debt/Equity (Loans/Shareholders Funds) 0.13 0.13
Book Value (Rs. )



Empanelment during the Year

Your Company constantly endeavors to increase its market, share with large Banks,financial institutions, and insurance companies on a sustained basis in order to increasethe depth and width of its market offerings. With continuous effort backed by superiorExecution skills and Research support, your Company is able to add significant value toits esteemed clients on a long-term basis.

Your Company shall focus more towards high end Research with further enhancement of itsteam of cutting-edge research specialists during the year and will make higher allocationof funds towards building such talents on a continuous basis, as has been our objectivetill now.

Broking Business:

The Brokerage services of your Company include equity and debt broking and aresupported by a strong research platform.

Income received for brokerage services, had accounted for approximately 34. 97% of ourtotal revenues at Rs. 440. 03 Lacs for the year ended March 31, 2013.

Your Company also trades in the currency derivatives segment of National StockExchange.

Capital Market Operations:

The equity capital markets team focuses on structuring and executing diverse equitycapital raising transactions in the public and private markets for our clients. Productsin this segment include IPOs, follow-on offerings, rights offerings, private placement,ADR offerings, GDR offerings, QIP transactions and convertible offerings, etc. for bothlisted and unlisted entities.

As an Investment Banking firm, it has always been our endeavor to structure and puttogether transaction structures that build long term, sustainable value for both theborrower and tender of funds in the equity markets. This approach, though having provedits mettle during the stages of market tightness, has been somewhat considered as aweakness by industry participants, resulting in us not being able to successfully convinceBloomberg on its benefits. This has led to situations wherein KSL has had to eitherwithdraw from certain mandates or had to face resistance from Indian Corporates inawarding their fund raising mandates to us from the secondary markets. This is despite themanagement of these corporate houses acknowledging the deep knowledge and understanding ofthe micro and macro economy factors including the future growth prospects in specificindustry, and the sustainable long term valuation parameters.

We always believe that in order for market to value and reward its participants, it isimportant for both the Promoter Groups and the Merchant Bankers to design appropriate andsustainable valuation models such that it remains consistent with the overall corporateperformance and at the same point in time is able to ride both the good and the bad times.

Investment Baking and Advisory Group is putting their best endeavors on reviving someof the lost or delayed transactions, and are confident that in improved market sentimentsame can be executed efficiently.

Institutional Equities:

Equity and derivatives brokerage business of the Company contributed 25. 67% of theconsolidated revenue during this financial year. The Company’s revenue of Rs. 440. 03Lacs for the year showed a decrease of 26. 59% over the previous year corresponding to acomparable increase in volume. However it is encouraging to note that we marginallyincreased our market share. The number of clients who traded and the number oftransactions were also good.

The institutional equities business comprises institutional equity sales, sales-tradingand research. We differentiate ourselves based on our cutting-edge research focus, whichaids our execution capabilities across our sales and trading platforms. We provide equityand derivatives sales and trading services to a large and diversified base ofinstitutional investors, including Fils and domestic institutional investors.

As at present, we have over 24 institutional investors actively transacting with us ona continuous basis.

The category wise contribution from the Institutional Dealing Desk to our revenues hasbeen mentioned in the table below which shows a decrease of 45% during the Fiscal Year2012-13 over previous financial year 2011-12.

Category Brokerage Revenue during FY 12-13 Brokerage Revenue during FY 11-12 Brokerage Revenue during FY 10-11
MF 827062 943803 2405185
INS 10731422 1032983 2835556
BANKS 1270377 2328332 4441702
CORP 2560610 1233600 459400
FII's 0 0 0
Total 15389471 5538718 10141844

Private Client Broking:

Our private client broking services are targeted at High Net worth Individuals (HNIs)who actively invest and trade in equity markets and seek priority service with Bloombergresearch and advisory support. Our approach is to provide advisory-based brokerageservices with a strong emphasis on research, and to offer our clients value-added servicesusually reserved for institutional clients.

KSL with its concentrated efforts in equity broking business, and as future strategy tobuild high volumes and revenues could successfully add a good number of Trading Accountsfor various segments (Cash, Derivatives and Currency Futures) during the period 1stApril 2012 to 31st March 2013.

Your Company is confident that with its high degree of execution skills and servicessupport, besides with its high end research will grow to new heights in its revenues inthe coming years.

Portfolio Management Services:

The Portfolio Management Segment is bound to grow and offer immense business potentialfor financial advisory services. The NRI community is the key market segment. SuccessfulNRI business owners and professionals are of great interest to Portfolio managementinstitutions. KSL has identified this rapidly growing segments’ need for specificproducts and- services and has created practice models and advisory teams thatspecialize in servicing NRIs. Our service offerings include providing HNIs with investmentadvisory, planning and asset deployment advice, asset allocation and the distribution of awide range of products. Our primary focus is on understanding each client’s financialprofile, including tolerance for risk, capital growth expectations, current financialposition and income requirements in order to create comprehensive and tailored investmentstrategies. Our Portfolio Management services have increased our clients’ access toand use of our financial products and services

Your Company is confident to garner much larger assets under management under the PMSdivision compared to last year and could be able to clearly.. demonstrate its coreexpertise’ to maximize the value under PMS, even under adverse market situation.

Merger and Acquisition Advisory:

Our merger and acquisition team provides clients strategic and financial advice aidingthem in achieving their objectives through mergers, acquisitions, takeovers, tenderoffers, divestments, spin offs, restructuring, Joint Ventures and strategic alliances anddemergers.

Our services encompass strategy formulation, identification of buyer or targets,valuation, negotiation and bidding, capital structuring, transaction structuring andexecution.

Private Equity:

Private Equity investments in India are still dominated by funds investing out of theirglobal funds. Given the global risk aversion, the allocations from these funds may slip.

Corporate Advisory Business:

The Corporate advisory business of the Company includes equity capital marketstransaction execution, mergers and acquisitions advisory and capital raising advisory andtransaction execution relating to structured finance, real estate and infrastructure.During the period the total Income from advisory services was Rs. 1. 51 crores.

Market Research:

Our institutional equities business is supported by an experienced and dedicated teamof analysts in fundamental, technical and alternative investment research. Our researchinitiatives are driven by committed professionals, management graduates, CharteredAccountants and Engineers having combined experience of several decades.

Besides conventional tools, our alternative research Bloomberg proprietary toolsdeveloped in-house, including quantitative analytical techniques and models to identifyshort and medium-term investment opportunities. Our research team maintains an updateddatabase on, and tracks regularly, various factors impacting economy, industry andcompanies. The trends are analyzed using data both on macro and micro level.

Various research products such as Market Today, Market Weekly, Market Technicals, IndiaStrategy, Model Portfolio, Eco Update, InSight, Company/Sector reports/updates and othersare sent to esteemed clients on a regular basis. These reports are supplemented byday-to-day market information by way of market alerts and impact analysis. Strength of ourresearch capability lies in our ability to identify emerging investment themes and spotwinners ahead of time.

Our research reports, widely acknowledged by domestic and international print andelectronic media, are rated among the leading domestic brokerage houses and have earnedroyalties from international data services providers in foreign exchange.

Our Intelligent Research Reports are accessible on globally acknowledged and marqueewebsites such as Bloomberg, net, thomsonreuters. com, 1call. com, moneycontrol. com,securities. com, valuenotes. com, capitaliq. com.

Our research reports are highly recognized by international investor’s communityincluding leading Foreign Institutional Investors, global central banks, multi-lateraldevelopment agencies and independent multi-strategy funds. Some of the research reports,apart from being widely acclaimed, have been ranked among the best by internationalfinancial information providers such as Thomson-Reuters and Bloomberg.

Internal Control System:

As remarked by the auditors in their report, the Company has an internal control systemcommensurate with its requirements and the size of the business. As a step further, yourCompany has already taken steps to document its systems and processes. The companyhas put in place adequate internal control measures in all risk areas. Your Company hasinitiated a process to upgrade the existing system. The Company is continuously investingin developing one of the best trading front end systems, enabling users to place ordersand receive confirmations at lightning speed.

Risk concerns and Risk Management:

The Risk Management Function Is overseen by the Audit Committee. Risk ManagementPolicies are designed after discussion with various constituents and experts. In abusiness where prices and realities change every instant, it is imperative for KSL tooperate within a broadly de-risked business model that protects stakeholder interests onthe one hand and facilitates growth on the other.

Therefore, the concept of real-time risk mitigation management is integrated within theCompany’s existing business strategy. It is integrated into the Company’sstrategic and operational decision making process; it is ingrained in the organizationalmindset; it pervades all organizational tiers, roles and functions.

KSL’s effective risk management is guided by an understanding of the variousparameters that can have a bearing on its business and profitability:

a External: These comprise risks that the Company faces butcannot control - industry slowdown, competition, regulatory changes, brand perception etc.

a Internal: These comprise risks that the Company candirectly control through prudent strategy - costs, liquidity, technology, operations,people etc.

KSL controls client risk through a prudent categorization of clients as per theirfinancial depth. This helps circumscribe their trading limits, leading to effective riskmanagement. KSL monitors a client’s trading pattern in addition to keeping acontinuous vigil on positions, balances and margins. This- provides an understanding of aclient’s trading pattern in terms of nature of transactions, trading, investments,F&O types of scrips, etc. to detect any undesirable or prohibited practices. Based onthis, remedial actions are initiated whenever required. This ensures strict regulatorycompliance.

Industry Risk

KSL is primarily engaged in the business of financial services. Any slowdown in thecountry’s economy or financial sector as well as any changes in interest rates,political climate or regulatory changes could affect the Company’s prospects. Furtherthe capital market is always exposed to the cyclical risk of upswing and downturns, whichin turn depend on the overall economical growth of the country.

Management Perception

KSL’s presence in multiple product segments also serves as a natural hedge againsta downturn in any particular sector. For instance, the Company's presence in therelatively volatile equity segment is balanced by its presence in the relatively stableinsurance, mutual funds and fixed interest- bearing debt instruments. Your Company hasbroadly three major revenue generation department viz. Broking division, CorporateAdvisory Division ahd Capital Market Operation. The total revenue generated by the companyduring the year shows the overall performance of all the departments jointly anddoesn’t depend on any single segment of revenue.

Liquidity risk

In the event of clients not honoring their financial commitments following anunexpected market movement, the Company’s cash flow could be significantly affected.

KSL has exercised prudence in client selection and credit extension. For instance, theCompany’s internal audit team ascertains client credentials before they are permittedto trade.

Management Perception

As a corporate policy, it is endeavor to constantly monitor the margin payments andsettlements of our customers on a continuous basis. Our ability to understand thefinancial track record of each of our customers provides us with a judgment and directionon the margin calls to be issued as also calling for pre-payments if need be in cases ofexigencies. This approach we believe gives the Company the required flexibility inmanaging the liquidity risk across multiple categories and types of customer profiles.This assumes that at KSL we follow an independent and customer centric risk managementexercise thereby ensuring timely interventions to significantly reduce potential liquidityrisks.

Economic risk

A slowdown in economic growth in India could cause the business of the Company tosuffer. While the Indian economy has shown sustained growth over the last several years,the growth in industrial production has been variable. Any slowdown in the Indian economy,and in particular in the demand for housing and infrastructure, could adversely affect theCompany’s business. Similarly, any sustained volatility in global commodity prices,including a significant increase in the prices of oil and petroleum products, could onceagain spark off a new inflationary cycle, thereby curtailing the purchasing power of theconsumers.

Management Perception

The Company manages these risks by maintaining a conservative financial profile andfollowing prudent business and risk management practices.

Human Resource Risk

Human Resource represents the company’s principal assets in a knowledgeledbusiness, where any attrition or skill obsolescence could lead to a weaker industryposition.

Management Perception

Your Company has consciously made the transition from a family based organization intoa professionally managed one, accompanied by delegation of responsibilities forintellectual growth. Over the years, your company has invested in the humanresource by providing timely training, various seminars on personal development etc. Thefree work environment provided by the Company has also resulted in to low attrition ofmanpower.

Client Risk

In the financial industry the company depends on a few bigger corporate andinstitutional clients from where majority of the revenue is generated.

Regulatory risk

The Company’s presence in a variety of financial segments warrants an ongoingcompliance with the evolving requirements of their various regulators. Any violation ortransgression could invite censure, affecting the Company’s brand.

Management Perception

Your Company enjoys strong long term relationship with its clients. However, as a goodRisk Management practice, the company has never relied upon particular client base andhence not exposed to such risk. During the year under review company has added 1 (One) newinstitutional clients from where regular business is generated. It is your--company’s constant endeavor to search for new area of business and clients.

KSL takes its compliance commitment seriously, recognizing that the business must notonly serve the interest of the customer but also function well within the establishedguidelines of the various regulatory authorities for responsible and profitable growth. AtKSL, the compliance discipline extends across the entire transaction cycle, clientidentification, KYC process transaction execution, transaction settlement involvingsecurities and funds transfer. The compliance requirements across the various servicepoints have been communicated comprehensively to branch through compliance manuals,leading to uniformity, quality, priority and discipline

Futures & Options Quote
Future Data Not present
Key Information

Key Executives:

Shreedhar Parande , Chairman

Paresh J Khandwala , Managing Director & CEO

Rohit Chand , Director

Kalpen Shukla , Director

Company Head Office / Quarters:

Ground Floor Vikas Building,
Green Street Fort,
Phone : Maharashtra-91-22-22642300/40767373 / Maharashtra-
Fax : Maharashtra-91-22-22615172/40767377 / Maharashtra-
E-mail :
Web :


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