OVERVIEW
The FY22-23 was a challenging year on macro front, as the global
economy continued its fight against inflation. The US Federal Reserve turned hawkish just
before the start of FY23 and increased the rates by 8 times or by 450bps to combat
inflation. The high inflation was a global phenomena and central bankers across the world
remained hawkish with India?s Reserve Bank of India (RBI) too hiking its interest
rate by 250bps in the year. The hike in interest rate has helped the CPI inflation to move
down (US and India inflation down 400bps and 200bps respectively) from its peak which was
seen in Q1FY23. Apart from that, geopolitical tension kept the supply side under check and
fresh emergence of banking crisis in the Q4, further triggered more uncertain environment.
Notwithstanding macro challenges, Indian economy showed robust
resilience in FY23. As per RBI?s, Monetary Policy report - April 23, India?s
real GDP is likely to grow 7% in FY23. Further, most of the high frequency indicator
surpassed pre-pandemic level and showed strong momentum. For FY23, Gross GST collection
grew 22% YoY, PV sales grew 27% YoY, power consumption was up 10% YoY, rail cargo volume
up 6.6% YoY, crude steel production up 5% YoY, bank credit grew 15% YoY, IIP grew 5% YoY
and others. The consumer confidence also remained positive in rural India mainly supported
by 4th consecutive year of normal monsoon, record foodgrain production in FY23,
and government support through higher MSP, increase in wages under MNREGA and others.
The year FY23 started with a dozen of headwinds however as the quarters
passed the challenges eased and global environment improved. FY23 started with escalating
geopolitical situations, sanctions, elevated oil and commodity prices, prolonged supply
chain disruption, increased global financial market volatility and renewed waves of
COVID-19 across countries clouding the outlook for growth. However, as the quarters passed
the situation relieved for betterment of growth. The prices of key commodity namely steel
peaked in April?22 while that of crude peaked in June?22, post which both took a
definitive U-turn and moved southwards. Further, aggregate supply conditions started to
improve from mid of Q2, which augured well for demand, just ahead of the festival season.
The geopolitical tension also started to ease from Q3 onwards resulting in better trade
activity and easing of supply chain.
The geopolitical tension had some impact on the supply side. However,
India Inc managed well and sailed through that crisis.
FY23 had more of global macro headwinds, however, India relatively was
insulated aided by several inherent demographic advantage and governments policy support.
On the external front, a strong trade performance on the services front
helped boost the overall export numbers in 2022-23, even as the impact of a global
economic slowdown was visibly felt in the case of merchandise trade. India?s overall
exports (including merchandise and services) are estimated to have increased by ~14% to a
record $770bn in 2022-23, while overall imports are expected to have grown by 17% over the
previous year to $892.18. Importantly, a strong trade performance on the services front
helped boost the overall export numbers in 202223, even as the impact of a global economic
slowdown was visibly felt in case of merchandise trade. Services exports are estimated to
have grown by ~27%, as compared to merchandise exports at just over 6% during the last
fiscal.
GLOBAL ECONOMY AND DEVELOPMENTS
2022 will go down as a historic year from multiple perspectives. A
series of severe and mutually reinforcing shocks — the COVID-19 pandemic, the war in
Ukraine and resulting food and energy crises, surging inflation, debt tightening, as well
as the climate emergency — battered large sections of the world economy in 2022.
While the global GDP is expected to have grown by 3% in 2022, it is expected to fall
sharply to a 1.9% growth in 2023. Growth momentum significantly weakened in the United
States, the European Union and other developed economies in 2022, adversely impacting the
rest of the global economy through a number of channels. Tightening global financial
conditions coupled with a strong dollar aggravated fiscal and debt vulnerabilities in
developing countries. Over 85% of central banks worldwide tightened monetary policy and
raised interest rates in quick succession since late 2021, to tame inflationary pressures.
Global inflation which reached a multidecade high of about 9% in 2022 is projected to ease
but remain elevated at 6.5% in 2023. Most developing countries have seen a slower job
recovery in 2022 and continue to face considerable employment slack. Disproportionate
losses in employment globally, during the initial phase of the pandemic have not been
fully reversed, with improvements mainly arising from a recovery in informal jobs. As per
the World Bank, growth in advanced economies is projected to slow from 2.5% in 2022 to
0.5% in 2023. Over the past two decades, slowdowns of this scale have indicated a global
recession.
INDUSTRY STRUCTURE AND DEVELOPMENTS
Indian stock market has seen a roller-coaster ride in FY 20222023 amid
aggressive monetary policy stance by global central banks, the Russia-Ukraine war, high
inflation, and outflows from overseas funds. Nifty and Nifty Midcap 100 were flat in FY22-
23 while the small-cap was down by 4%. Despite all these challenges, India was still the
second-best performer among the emerging markets in FY 22-23 after South Africa. The
outperformance was mainly because of H2.6 trillion net inflows from domestic institutional
investors compared to around H2 trillion outflows by Foreign institutional investors.
Retail broking businesses continue to improve their market share
through digital initiatives. The rise of discount brokers has made it easy to invest in
financial markets via zero brokerage, e-KYC and user-friendly mobile-based platforms which
has made stock buying as seamless and intuitive as shopping online. Quick and paperless
onboarding, UPl-based fund transfers, and a stable and scalable product have enabled
equity participation for every Indian. The number of demat accounts in India rose to
11.4cr in March 2023 from 9cr in March 2022, registering a growth of 27%. Penetration of
demat accounts in India increased from 6.4% to 8.1% on a YoY basis. More Tier 2 & Tier
3 customers are choosing to participate in the capital market and on the India growth
story. India has a long-term growth potential as the market is hugely under-penetrated
when compared to China which has a penetration level of 15% as of FY 22-23 and a US
penetration level of 65% (as on March 2018).
During FY 22-23, the flat to lower market has caused cash volume to
correct by almost 20% YoY to H53,564cr ADTO, while derivative ADTO more than doubled to
H152 trillion. It was witnessed that the intraday traders were shifting to derivative
segment from the cash market mainly due to SEBI?s rule on upfront margin which was
earlier funded by brokers. However, the implementation of an upfront margin was a good
move by SEBI to reduce systemic risk by protecting the market against broker default in
case clients failed to pay.
On the other hand, the pace of fast-growing derivative segment was also
due to increased volatility which is expected to sustain in the near term and support
F&O volumes for the industry. Leveraged traders seemingly shifted to the F&O
segment owing to peak margin rules. Meanwhile, an increase in the high-margin delivery
cash market ADTO remains the key but yields in this segment are also steadily getting hit
owing to flat rates.
The industry is positioning itself broadly into 2 structures -
i) Discount / Flat Brokerage - this business model is based on volume
and creating a customer base with a limited focus on research services. These firms act as
pure brokers between buyers and sellers. In addition, these firms aim to generate revenue
through distributing other products including MF, Insurance, etc.
ii) Hybrid Strategy - Here, a brokerage fee is charged, though it is
getting competitive and in return a bouquet of research services is provided.
FINANCIAL PERFORMANCE
The Company recorded Revenue from Operations of ?262.96 Crore for the
year ended 31st March 2023 as compared to ?231.31 Crore during the previous
year, an increase of 13.68% led by higher broking and interest income.
The Profit after Tax stood at ?33.90 Crore for the year ended 31st
March 2023 as compared to ?26.13 Crore in previous financial year, an increase of 29.73%.
OUTLOOK
With the on-going global macro challenges and a reasonable base of
FY23, India?s GDP growth is likely to slow its pace next year. RBI expects
India?s GDP to grow by 6.5% for FY24, with growth expected to be strong in Q1 and
then gradually taper for the balance of quarters. The moderate global growth, geopolitical
tensions, US banking crisis can weigh heavily on the overall outlook. On the Inflation
front, though crude oil and commodity prices have corrected, their future trajectories
remain uncertain, as revival in demand from countries recovering from pandemic could
result into upswing. The initial forecast of southwest monsoon seems to be mix, as the
possibility of El-Nino could lead to deficit in monsoon in 2023, thereby impacting rural
sentiment. RBI expects Inflation to be at average of 5.2%, in FY24.
Despite slowing the pace of growth, the Indian economy is expected to
be amongst the fastest growing economies in FY24, mainly backed by strong domestic drivers
and strengthening macroeconomic fundamentals. With softening of the commodity prices,
India Inc is likely to witness some relief on the input cost thereby driving its gross
margins. Further, most of the companies now has adopted the risk of managing supply side
challenges along with cost optimisation measures can uplift their margin going forward. We
believe that Indian economy which witnessed K-shape recovery in the past, will change,
with all the sectors gradually recovering over the medium term. The government impetus on
growth and capex ahead of key states and general elections over the next 12 months will be
one of the key monitorable going forward.
India growth story remains one of the best over medium to long term in
a world overflowing with structural and demographics challenges. The government?s
strong impetus on growth and continued focus on capital expenditure (expected to go up 37%
YoY to H10tn in FY24, i.e. 3.3% of GDP and 4x over FY16), will have a multiplier effect on
the economy. Apart from that, the strong policy initiatives ‘Aatmanirbhar
Bharat?, ‘Make in India? supported via ‘Production linked
Incentive? schemes and ‘National Infrastructure Pipeline? supplemented by
Gati Shakti Master plan will take India to the next level of growth in the coming years.
Thus, we believe that Indian economy is on right track and is on its way of becoming $5tn
economy by FY26. Further, according to Centre of Economics and Business Research (CEBR),
the erstwhile growth momentum could see India add on average of $1tn to its economy every
2 years for next 14-15 years, and thus, India will become a $10tn economy by 2035 and
third economic superpower by 2037. We think one can apply the principle of ‘compass
over the map? - as written in book named ‘Ikigai? - As one should focus on
Indian economy?s long term growth direction which remains upwards rather than the
near to medium term speed bumps which come on the pathway.
OPPORTUNITY AND THREATS
The broking industry has gone through a significant transformation over
the years. Amongst the key changes are massive digitisation, focus on value-added services
and a move from transactional to fee-based revenue models. Some have also adopted a hybrid
and pure subscription model where one-time subscription fees are charged and one avail of
all the services at no additional cost. The industry has seen higher volumes from retail
investors post the pandemic when the market was in a bull run, but whether the pace will
continue in a sideways or a bear market will be key to watch. However, the
financialisation of savings and equitisation of financial savings is still at a very
nascent stage with a demat account penetration of just about 8.1%.
While the competition from discount brokerages continues to disrupt the
overall broking industry, evolving business models still provide enough opportunities for
incumbents to cash in on the structural growth highway that lies ahead of them. Besides,
the previous generation trader/investor had only indiscriminate access to
corporate/business/financial information but rapid advances in technology and increased
digitisation provide traders and investors with better tools to trade and invest.
The proposal to extend the trading hours may help reclaim trading
volumes that shift offshore. However, brokerages will need to enhance their infrastructure
to support the extended hours, which includes investing in technology, personnel costs for
products and technology, operations, and risk management.
The introduction of the proposed ASBA facility for secondary market
trading could simplify the processes, potentially resulting in increased competition among
brokers. Brokerages will need to invest in personnel and processes since they will have to
manage separate procedures for ASBA and non-ASBA clients. Nevertheless, by adapting to
these changes and offering value-added services to clients, brokerages can maintain their
competitive advantage.
The Company will continue to focus on technology, drive client
acquisition, increase its business partner network, rationalise cost and provide efficient
trading tools and value-added research recommendations to its clients. The overall
strategic focus is to create product and service differentiators across all segments.
However, any stringent regulations from SEBI regarding such as client float, options
trading, etc. shall have a bearing on the retail broking industry.
RISK AND CONCERNS
The very nature of the Companys business makes it susceptible to
various kinds of risk. The Company encounters market risk, credit risk and operational
risk in its daily business operations. The Company has framed a comprehensive Risk
Management Policy which inter-alia lays down detailed processes and policies in various
facets of the risk management function. The risk management review framework provides
complete oversight on various risk management practices and processes. The framework and
assessment remains dynamic and aligns with the continuing requirements and demands of the
market.
The Company has also implemented a robust surveillance mechanism to
deal with various trade related risks and adopted a surveillance policy in line with the
regulatory requirements.
INTERNAL CONTROL SYSTEMS AND ADEQUACY
The Company has adequate internal control systems appropriate for the
business processes having regard to efficiency of operations and for compliance with
applicable laws. The controls are reviewed periodically and strengthened in view of
changed processes, systems and regulations.
In addition, the Company goes through periodic internal audits both
through its internal team and external auditors, which includes branch and franchisee
audits as well as all operations control. All the audit and inspection reports are placed
at the Audit Committee meetings. Key issues are specifically brought to the attention of
the Audit Committee and deliberated in detail along with the action plan for closure.
HUMAN RESOURCES
Employees are one of the key foundations of any successful
Organization. Human Resources plays a significant role in developing positive business
culture and improving employee engagement and productivity. The HR function takes the lead
on organization development, employee wellness and personal development.
At Aditya Birla Money Limited, the HR practices and policies are built
on the Group?s core values of Integrity, Commitment, Passion, Speed and Seamlessness.
Company embrace the principle that meaning at work is created when people relate to the
purpose of the organization, feel connected to the leaders and have a sense of
belongingness. The four strategic pillars of employee value proposition at our
organization are Enhancing Career, Rewards and Recognition, Learning and Development and
Enrich Life. These EVPs provide a robust platform for people to upskill, engage, grow and
prime a positive work life balance.
Focused initiatives driven around building manager capabilities
especially for Front Line Managers, to ensure we build a culture of development,
transparency and meritocracy.
Diversity and inclusion (D&I) is more than policies, programs, or
headcounts. We had conducted Leadership Dialogues to strengthen D&I and unconscious
Bias awareness with Leadership. Intuitive and personalized, learning and development is a
key asset today in the company?s organizational structure.
Digital learning adoption weaved in as a culture at ABML which helps
employees in faster, customized and convenient learning with access to larger knowledge
base.
Weaved in cross sell as a culture in ABML resulting in a very positive
conversion of other ABC Company products. Wellness is another area of focus considered as
a key element in enriching employees wellbeing.
As on 31st March 2023, the total employees on the Companys
rolls stood at 721.
KEY FINANCIAL RATIOS
The key financial ratios are given below:
|
FY 2023 |
FY 2022 |
| a) Operating Profit Margin (%) |
17.75 |
15.43 |
| b) Net Profit Margin (%) |
12.89 |
11.30 |
| c) Return on Net Worth (%) |
37.00 |
43.00 |
| d) Interest Coverage Ratio |
2.11 |
2.62 |
| e) Current Ratio |
0.80 |
0.79 |
| f) Debt Equity Ratio |
8.02 |
9.63 |
There has been an improvement in the ratios on account of improved
performance of the Company. Operating profit margins continues to improve YoY on account
of increased revenues.
CAUTIONARY NOTE
Statements in this Report, describing the Companys objectives,
projections, 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
certain risks and uncertainties. The Company cannot guarantee that these assumptions and
expectations are accurate or will be realized. The actual results may be different from
those expressed or implied since the Companys operations are affected by many external
and internal factors, which are beyond the control of the management. Flence the Company
assumes no responsibility in respect of forward-looking statements that may be amended or
modified in future on the basis of subsequent developments, information or eve.
+91-9892691696
