OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of our financial condition and results of operations is derived from and should be read in conjunction with the section "Restated Consolidated Financial Statements" on page 193. Certain non-GAAP financial and operational measures and certain other industry measures relating to our operations and financial performance have been included in this section and elsewhere in this Draft Red Herring Prospectus. Such measures may not have been computed on the basis of any standard methodology that is applicable across the industry and therefore may not be comparable to financial and operational measures, and industry related statistical information of similar nomenclature that may be computed and presented by other similar companies. Such non-GAAP measures are not measures of operating performance or liquidity defined by generally accepted accounting principles and may not be comparable to similarly titled measures presented by other companies.
Our financial year ends on March 31 of each year, so all references to a particular financial year or Fiscal are to the 12-month period ended March 31 of that year. Unless the context otherwise requires, in this section, references to "we", "us", "our" or "Our Group" refers to DAM Capital Advisors Limited and its Subsidiaries on a consolidated basis and references to "the Company" or "our Company" refers to DAM Capital Advisors Limited on a standalone basis.
Unless otherwise indicated, industry and market data used in this section has been derived from industry publications, in particular, the report titled "Assessment of Investment Banking and Institutional Equities Industries in India" dated August 2024 (the "CRISIL Report") prepared and issued by CRISIL MI&A, appointed by us on July 12, 2024 and exclusively commissioned and paid for by us in connection with the Offer. A copy of the CRISIL Report is available on the website of our Company at https://www.damcapital.in/static/investor-relation.aspx. The data included herein includes excerpts from the CRISIL Report and may have been re-ordered by us for the purposes of presentation. There are no parts, data or information relevant for the proposed Offer, that has been left out or changed in any manner. Unless otherwise indicated, financial, operational, industry and other related information derived from the CRISIL Report and included herein with respect to any particular year refers to such information for the relevant calendar year. For more information, see "Risk Factors - Industry information included in this Draft Red Herring Prospectus has been derived from an industry report exclusively commissioned and paid for by our Company" on page 53. Also see, "Certain Conventions, Use of Financial Information and Market Data and Currency of Presentation - Industry and Market Data" on page 15.
OVERVIEW
DAM Capital is the fastest growing investment bank in India by revenue CAGR from Fiscals 2022 to 2024 with the highest profit margin in Fiscal 2024, among the peers considered (Source: CRISIL Report). We are one of the leading investment banks in India with a market share of 12.1% based on the number of initial public offerings and qualified institutional placements undertaken by us as the book running lead manager in Fiscal 2024 (Source: CRISIL Report). We provide a wide range of financial solutions in areas of (i) investment banking comprising equity capital markets ("ECM"), mergers and acquisitions ("M&A"), private equity ("PE"), and structured finance advisory; and (ii) institutional equities comprising broking and research.
We focus on the Indian capital markets, one of the most dynamic and high growth organised markets in the world (Source: CRISIL Report). We leverage our deep domain knowledge across sectors and products combined with vast experience of our team to provide strategic advisory and capital markets solutions to our diverse and marquee clientele including corporates, financial sponsors, institutional investors and family offices. From the date of the Acquisition till July 31, 2024, we have successfully executed 67 ECM transactions comprising 26 initial public offerings ("IPOs"), 15 qualified institutions placements ("QIPs"), 5 offer for sale ("OFS"), 6 preferential issues, 3 rights issues ("Rights Issues"), 7 buybacks ("Buybacks"), 4 open offers ("Open Offers") and 1 initial public offer of units by a real estate investment trust ("REIT"). We have also advised on 20 advisory transactions including M&A advisory, private equity advisory and structured finance advisory and have also executed block trades since the Acquisition till July 31, 2024. The institutional equities business, as of July 31, 2024, comprises of 27 employees in research and 33 employees in our broking team. They service 257 active clients including registered FPIs spread across geographies such as India, USA, UK, Europe, Hong Kong, Singapore, Australia, Taiwan, South Korea, Middle East and South Africa.
Under the leadership of Dharmesh Anil Mehta, a veteran investment banker with over 25 years of work experience, our Company has achieved rapid growth with the total income being Rs1,820.00 million, Rs850.41 million and Rs945.08 million for Fiscals 2024, 2023 and 2022, respectively, representing a 38.77% CAGR over the same period. Our profit after tax was Rs705.23 million, Rs86.74 million and Rs218.98 million for Fiscals 2024, 2023 and 2022, respectively, representing a 79.46% CAGR over the same period. Our Company has declared a dividend of Rs35.34 million, Rs14.14 million and U21.21 million to our shareholders during Fiscals 2024, 2023 and 2022, respectively. We have achieved this growth by capitalising on strong relationships with our clients and our execution capabilities, successfully completing various landmark transactions, while navigating through market volatility.
India is projected to almost double its nominal GDP by Fiscal 2030 (Source: CRISIL Report). In Fiscal 2024, the equity markets in India have achieved record levels in terms of market capitalisation of listed companies and the benchmark index performance (Source: CRISIL Report). Indias market capitalisation rose by a strong 52% year- on-year to Rs394 trillion as of March 31, 2024, marking it the second highest growth in a year in the last 14 years (Source: CRISIL Report). DAM Capital is strategically positioned to capitalize on Indias growth story. By leveraging our deep industry expertise, robust research capabilities, and large investor distribution network in our institutional equities business, we provide tailored solutions to our clients. Our client retention demonstrates our personalized, solution-oriented approach and our proven execution capabilities.
Our intellectual capital is the cornerstone of our success, which allows us to be well-informed about market opportunities and adapt our business strategies efficiently. As on July 31, 2024, we had a team of 115 employees across businesses comprising seasoned personnel with experience in executing transactions across product lines and sectors. Our senior team is extensively involved in building client relationships and structuring and executing our clients transactions. Our team has an average of over 16.4 years of work experience with 54 of 115 employees having over 18 years of work experience.
We are backed by marquee investors with varied backgrounds and a diverse board of directors. Our board of directors comprises industry leaders, financial experts and thought leaders from different sectors. Their combined expertise contributes to our strategic decision-making, fosters innovation and ensures strengthened governance.
Our wholly-owned Subsidiary, DAM Capital (USA) Inc. ("DAM USA") is incorporated in New York, USA and is registered as a Broker-Dealer with Securities and Exchange Commission ("SEC") and a member of Financial Industry Regulatory Authority ("FINRA") and Securities Investor Protection Corporation ("SIPC"). Through our Chaperoning Arrangement with DAM USA, we are able to broaden our access to serve clients in the United States of America and offer Rule 144A issuances of Indian companies to institutional investors in the United States of America.
The following table highlights certain of our financial and operational metrics as of the dates and for the period indicated:
(in Rs million, unless otherwise indicated)
| Particulars? | Fiscal 2024 | Fiscal 2023 | Fiscal 2022 |
| Financial performance indicators | |||
| Total Income? | 1,820.00 | 850.41 | 945.08 |
| Investment Banking Revenue as a % of Total Income? | 67.24% | 60.01% | 64.01% |
| Broking Revenue as a % of Total Income? | 28.27% | 35.75% | 32.65% |
| Revenue per Employee? | 16.40 | 8.50 | 10.27 |
| Employee cost as % of Total Income? | 35.90% | 62.92% | 51.04% |
| Profit After Tax | 705.23 | 86.74 | 218.98 |
| PAT Margin? | 38.75% | 10.20% | 23.17% |
| Return on Equity? | 54.72% | 9.47% | 28.53% |
| Operating performance indicators | |||
| Total Number of Employees | 111 | 100 | 92 |
| Capital Market Issuances | 21 | 13 | 12 |
| Number of Stocks Covered by Research | 168 | 153 | 128 |
| Number of Sectors Covered by Research | 19 | 20 | 19 |
Notes:
(1 Data is taken on a consolidated basis
(2 For our Company, for calculating Broking Revenue % and Investment Banking Revenue %:(a) Investment Banking Revenue includes Investment Banking segment; (b) Broking Revenue includes stock broking segment as per the segment reporting in restated financials (3 Investment Banking Revenue %, Broking Revenue % and other income revenue % has been calculated based on ‘Total Income
(4) Revenue / employee is calculated as total income / number of employees
(5) Employee cost as % of total income is calculated as employee benefit expense / total income
(6) PAT Margin is calculated as PAT / total income
Return on Equity is calculated as PAT/ average total equity
SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Our business, prospects, results of operations and financial conditions are affected by a number of factors, including the following:
General economic and financial services industry in India
Our investment banking and institutional equities businesses are materially affected by conditions in the financial markets and the economic conditions in the world, especially in India. In Fiscal 2024, the equity markets in India have achieved record levels in terms of market capitalisation of listed companies and the benchmark index performance (Source: CRISIS Report). Markets tend to be volatile and can be adversely impacted by unfavourable or uncertain economic and market conditions caused by a myriad of factors, including decline in economic or GDP growth, changes in consumer spending, pandemics, high level of inflation, interest rate fluctuations, increase in savings rate, shift from equity to fixed bank deposits, debt and other investment products, growth in financial savings, exchange rate or basic commodity price volatility, uncertainty concerning fiscal or monetary policy, political instability, uncertainty about potential increases in tax rates and other regulatory changes, laws and regulations that limit trading, worsening of domestic or international geopolitical tensions or hostilities, terrorism, nuclear proliferation, cybersecurity threats or attacks and other forms of disruption to or curtailment of global communication, corporate frauds, political or other scandals that reduce investor confidence in capital markets, extreme weather events or other natural disasters, or a combination of these or other factors.
Unfavourable financial or economic conditions would likely reduce the volume and size of transactions in which we provide capital markets, mergers and acquisitions advisory and other services. Our investment banking revenues, in the form of commissions and left lead fee, are directly dependent on the number and size of the transactions in which we participate and would therefore be adversely affected by a sustained market downturn.
Extensive statutory and regulatory compliances and operation in a highly regulated environment
Our operations in the financial services industry are subject to extensive regulation. Our Company is registered with SEBI as a category I merchant banker, a stockbroker/proprietary trading member/ clearing member and as a research analyst. Our Company is also registered as a trading and a trading cum clearing member of BSE and a trading member in capital markets, futures and options, interest rate futures and currency derivatives by NSE. To undertake some of our business activities, we are required to obtain and renew registrations and approvals under regulations issued by regulatory authorities, especially SEBI.
We are subject to significant scrutiny and oversight by various regulatory authorities, especially SEBI. In many cases, our activities are subject to overlapping and divergent regulation in different jurisdictions and are dependent on law enforcement authorities, regulators or private parties who may challenge our compliance with existing laws and regulations, thereby prohibiting us from engaging in some of our business activities or subjected to limitations or conditions on our business activities. These limitations or conditions may limit our business activities and negatively impact our profitability.
We believe that significant regulatory changes in our industry are likely to continue, which is likely to subject industry participants to additional and generally more stringent regulations. The requirements imposed by SEBI and other regulators are designed to ensure the integrity of the financial markets and to protect investors and other third parties who deal with us and may not always align with the interests of our shareholders. Consequently, these regulations may serve to limit our activities and/or increase our costs, including through investor protection, compliance management and market conduct requirements. We are also dependent on changes in the interpretation or enforcement of existing laws and rules by SEBI and other governmental and regulatory authorities.
Volatility in the Indian equity capital markets
A significant amount of our revenue depends on the activity in the Indian equity capital markets. Factors such as trading volumes, regulatory environment, interest rates, liquidity and transparent and efficient functioning of the equity capital markets in India are important for the continuous growth of our business. For instance, changes in the activity of the equity markets affect the value of our clients portfolios and their trading and investing activities, which in turn may affect the amount of brokerage fees and commissions earned by us.
The investment banking and institutional equities industry has been materially and adversely affected in the past by significant declines in the values of nearly all asset classes, by a serious lack of liquidity and by high levels of borrower defaults. For instance, the 2008 stock market crash was triggered by the collapse of the subprime mortgage market and the ensuing financial crisis, led to a severe global economic downturn across the globe. Major financial institutions faced huge losses due to exposure to toxic mortgage-backed securities, resulting in widespread bankruptcies and government bailouts. Major global and Indian stock indices, including the S&P 500 and Dow Jones Industrial Average, Sensex and NIFTY plummeted, erasing trillions in market value and eroding investor wealth. The crisis caused a deep recession, leading to significant job losses, reduced consumer spending, and prolonged economic instability (Source: CRISIS Report).
Our investment banking revenue, in the form of fees for management of equity issuances and financial advisory fees, is directly related to the number and size of transactions in which we participate. Changes in financial or economic conditions may lead to an increase or decrease in the number and size of transactions we manage and impact the opportunity to provide certain financial advisory services, which in turn will impact our revenue from these activities.
Execution capabilities in our business
We are expected to process and monitor, on a daily basis, a very large number of transactions, some of which are complex and occur at high volumes and frequencies. These transactions often must adhere to client-specific guidelines, as well as legal and regulatory standards. Compliance with these legal and reporting requirements can be challenging, and we have been and may in the future be subject to regulatory fines and penalties for failing to follow these rules or to report timely, accurate and complete information in accordance with these rules.
We are also dependent on human execution which could lead to an inability to comply with a regulatory requirement, operational delay and inefficiencies, data entry errors, incorrect trade executions, or misjudgments in financial analysis. These errors can arise from various sources, including inadequate experience, system malfunctions, or oversight failures. Human errors can lead to substantial financial losses, regulatory penalties, or reputational damage, affecting overall operational efficiency and investor confidence. Human errors and mistakes may lead to (i) non-compliance with regulatory requirements, resulting in fines, sanctions, or increased scrutiny from regulatory bodies, (ii) direct financial losses, impacting profitability and capital reserves, (iii) disruption of daily operations, leading to delays, inefficiencies, or the need for corrective measures that can be costly and time- consuming, (iv) damage our brand equity, potentially declining client trust and impacting future business opportunities, and (v) lead to legal disputes or litigation, with associated costs and potential settlements affecting our financial stability.
Competition
The financial services industry is intensely competitive. We compete on the basis of a number of factors, including the execution of transactions, our products and services, innovation, reputation and price. We experience price competition in our investment banking and institutional equities business.
The financial services industry is fragmented and is exposed to low barriers to entry. Accordingly, we face significant competition from companies seeking to attract our existing and potential clients. We compete with Indian and foreign brokerage houses, investment banks, institutional equity and structured finance businesses.
In terms of our investment banking business, we face increased competition from competitors who have various advantages over us, such as larger financial resources, broader geographic presence and stronger brand recognition.
Our product mix and pricing strategy
Our products and services in each of our businesses have different brokerage yields, commissions, profit margins and growth prospects. Any material changes in our businesses mix, whether due to changes in our growth strategies, market conditions, clients or demand or other reasons, may affect our financial condition and results of operations.
Our future results of operations and financial condition could be materially affected if we cannot successfully increase business with existing clients, attract new clients and manage the new and expanded operations in an efficient manner.
Our expense management
Our ability to adequately manage our expenses will directly affect our results of operations. Our expenses may be impacted by macroeconomic conditions including increases in inflation, changes in laws and regulations, increased competition and personnel expenses amidst other factors. Personnel expense is one of the major components of our total expense. As we grow our business, we will require additional human resources including relationship managers, investment bankers, dealers and operational, management and technology staff. Changes affecting our expenses may impact our financial condition and results of operations.
MATERIAL ACCOUNTING POLICIES
1. Background
The Company is engaged in the business of share and stock broking for both cash segment and Derivatives segment and is a member of the National Stock Exchange of India Limited and BSE Limited. The activities of the Company include providing equity research and stock broking services to foreign institutional investors and domestic institutional investors. The Company is also registered with the Securities and Exchange Board of India as category - I Merchant Banker, engaged in providing investment banking services like advisory services, IPO underwriting, qualified institutional placement, fund raising and structured finance.
The Company has a wholly owned subsidiary ("WOS") in USA, DAM Capital (USA), Inc. The WOS is a broker-dealer registered with the Securities and Exchange Commission and is a member of the Financial Industry Regulatory Authority in USA.
The financial statement of the Group consists of the Company and its subsidiaries in USA and Singapore. 1.1. Material accounting policies
(a) Basis of preparation
The restated consolidated financial statements comprises of the restated statement of assets and liabilities as at March 31, 2024, March 31, 2023 and March 31, 2022, the restated statement of profit and loss (including other comprehensive income/(loss)), restated statement of changes in equity and the restated statement of cash flows for the years ended March 31,2024, March 31, 2023 and March 31, 2022 and the statement of material accounting policies and explanatory notes (hereinafter referred to as "Restated Consolidated Summary Statement").
The Restated Consolidated Summary Statements have been prepared specifically for inclusion in this draft red herring prospectus to be filed by the Company with the Securities and Exchange Board of India ("SEBI") in connection with the proposed initial public offering.
These Restated Consolidated Summary Statements have been prepared by the company to comply in all material respects with the requirements of:
(i) Section 26 of Part I of Chapter III of the Companies Act, 2013 (the "Act");
(ii) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, (the "SEBI ICDR Regulations") issued by SEBI; and
(iii) Guidance note on Reports in Company Prospectuses (Revised 2019) ("Guidance Note") issued by the Institute of Chartered Accountants of India ("ICAI").
These Restated Consolidated Summary Statements have been prepared by the management from:
Consolidated financial statements of the Company as at and for the years ended March 31, 2024, March 31, 2023 and March 31, 2022, which were prepared in accordance with the Indian Accounting Standard (referred to as "Ind AS") as prescribed under Section 133 of the Act read with Companies (Indian Accounting Standards) Rules 2015, as amended from time to time and other accounting principles generally accepted in India and presentation requirements of Division III of Schedule III of Companies Act, 2013, which have been approved by the Board of Directors at their meetings held on August 9, 2024, May 16, 2023 and May 11, 2022, respectively.
(i) Historical cost convention
The Restated Consolidated Summary Statement have been prepared on a historical cost basis, except for the following assets and liabilities which have been measured at fair value or revalued amounts:
• Financial assets and liabilities- measured at fair value;
• Defined benefit plans assets- measured at fair value; and
• Share-based payments - measured at fair value.
(ii) Order of liquidity
The Group is registered Intermediary under the respective SEBI Regulations. Though for the classification purpose, the entity will be covered in the definition of Non- Banking Financial Group as defined in Companies (Indian Accounting Standards) (Amendment) Rules, 2016, in view of the exemption granted under the RBI Regulations for SEBI registered intermediaries, the Group is exempted from the requirement of registration and applicable Rules under Non- Banking Financial Companies Regulations. Pursuant to Ind AS 1 and amendment to Division III of Schedule III to the Companies Act, 2013, the Group presents its balance sheet in the order of liquidity. Since the Group does not supply goods or services within a clearly identifiable operating cycle, therefore making such presentation more relevant. A maturity analysis of recovery or settlement of assets and liabilities within 12 months after the reporting date and more than 12 months after the reporting date is presented in Note 36.
(b) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The board of directors, which has been identified as being the chief operating decision maker, consists of the directors of the Group (both executive and independent). Refer note 31 for segment information presented.
(c) Foreign currency translation
(i) Functional and presentation currency
Items included in the Restated Consolidated Financial Statements, consolidated summary statement of the Group is measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency). The Restated Consolidated Financial Statements are presented in Indian Rupees (INR) except when otherwise stated.
(ii) Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency at the spot rate of exchange ruling at the date of the transaction. However, for practical reasons, the Group uses an average rate if the average approximates the actual rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated into the functional currency at the spot rate of exchange at the reporting date. All differences arising on non-trading activities are taken to other income/expense in the statement of restated consolidated profit and loss.
Non-monetary items that are measured at historical cost in a foreign currency are translated using the spot exchange rates as at the date of recognition.
(iii) Subsidiary Company:
The results and financial position of foreign operations (none of which has the currency of a hyper inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
*assets and liabilities are translated at the closing rate at the date of that balance sheet
*income and expenses are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and
*All resulting exchange differences are recognised in other comprehensive income.
(d) Financial instruments
Initial Recognition and Measurement
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instruments. Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset.
In the case of a financial asset or financial liability not at FVTPL, at initial recognition, the Group measures a financial asset or financial liability at its fair value plus or minus transaction costs that are incremental and directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs of financial assets and financial liabilities carried at FVTPL are expensed in profit and loss.
Trade receivables that do not contain a significant financing component are measured at transaction price.
Determination of Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date regardless of whether that price is directly observable or estimated using another valuation technique.
Fair value measurements under Ind AS are categorized into Level 1, 2, or 3 based on the degree to which the inputs to the fair value measurement are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at measurement date;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) that the Group can access at measurement date.
Financial assets
(i) Classification and subsequent measurement of financial assets
The Group classifies its financial assets in the following measurement categories:
• Fair value through profit and loss ("FVTPL")
• Fair value through other comprehensive income ("FVOCI")
• Amortised cost
The classification requirements for debt and equity instruments are described below:
Deb t Instruments
Debt instruments are those instruments that meet the definition of a financial liability from the issuers perspective such as loans, mutual fund units, venture capital fund and corporate bonds.
For investments in debt instruments, measurement will depend on the classification of debt instruments depending on:
• the Groups business model for managing the asset; and
• the cash flow characteristics of the asset.
Business model assessment
The business model reflects how the Group manages the assets in order to generate cash flows. The business model determines whether the Groups objective is solely to collect the contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising from the sale of assets. If neither of these is applicable or when performance of portfolio of financial assets managed is evaluated on a fair value basis, then the financial assets are classified as part of ‘other business model and measured at FVTPL.
Solely Payment of Principle and Interest ("SPPI") Assessment
Where the business model is to hold assets to collect contractual cash flows or to collect contractual cash flows and sell, the Group assesses whether the financial instruments cash flows represent solely payments of principal and interest (the ‘SPPI test).
Based on these factors, the Group classifies its debt instruments into one of the following three measurement categories
Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. A gain or loss on a debt investment that is subsequently measured at amortised cost is recognised in profit and loss when the asset is derecognised or impaired.
Fair value through other comprehensive income: Debt instruments that meet the following conditions are subsequently measured at FVOCI:
• the asset is held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets; and
• the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Fair value through profit or loss: Assets that do not meet the criteria for amortised cost or FVOCI, are measured at FVTPL. A gain or loss on a debt investment that is subsequently measured at FVTPL is recognised in profit and loss and presented in the statement of profit and loss within other gains/(losses) in the period in which it arises.
Equity Instruments
Equity instruments are instruments that meet the definition of equity from the issuers perspective; that is, instruments that do not contain a contractual obligation to pay and that evidence a residual interest in the issuers net assets.
Changes in fair value of equity investments at FVTPL are recognised in the statement of profit and loss, except where the Groups management has elected, at initial recognition, to irrevocably designate an equity investment at FVOCI.
Where the management has elected to present gains and losses on equity instruments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to statement profit and loss. Dividends from such investments are recognised in statement profit and loss.
Misdeal stock comprises of stock that has devolved on the Group due to erroneous execution of trades on behalf of the clients in the normal course of business. These securities are measured at fair value. A valuation gain or loss on a misdeal stock is recognised in profit and loss and presented in the statement of profit and loss within "gains/(losses) on misdeal stock" in the period in which it arises.
(ii) Impairment of Financial Assets
The Group assesses on a forward-looking basis the expected credit losses (‘ECL) associated with its financial instrument measured at amortized cost. The impairment methodology depends upon whether there has been a significant increase in credit risk of the investment. The Group recognises lifetime expected credit loss for trade receivables (also referred to as provision for doubtful trade receivables) and has adopted simplified approach of computation as per Ind AS 109. The Group considers outstanding overdue for more than 180 days for calculation of impairment loss.
(iii) Income recognition
Interest income
The Group calculates interest income by applying the EIR to the gross carrying amount of financial assets other than credit-impaired assets. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of a financial asset.
Dividend income
Dividend income is recognised when the Groups right to receive the payment is established, it is probable that the economic benefits associated with the dividend will flow to the entity and the amount of the dividend can be measured reliably. This is generally when the shareholders approve the dividend.
(iv) De-recognition of financial assets
Financial assets, or a portion thereof, are derecognised when the contractual rights to receive the cash flows from the assets have expired, or when they have been transferred. On derecognition of a financial asset in its entirety, the difference between the assets carrying amount and the sum of the consideration received and receivable is recognised in profit and loss on disposal of that financial asset.
Financial liabilities and equity instruments
(i) Classification as debt or equity
Debt and equity instruments issued by our Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
(ii) Classification and subsequent measurement
Financial liabilities are subsequently measured at amortised cost using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability to the gross carrying amount of a financial liability.
(iii) De-recognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Groups obligations are discharged, cancelled or have expired.
(e) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount is reported in the balance sheet where there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
(f) Investment in Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the relevant activities of the entity. Investments in Subsidiaries are accounted at cost, net off impairment loss, if any.
(g) Revenue recognition
Revenue is recognized to the extent that is probable that the economic benefits will flow to the Group and the amount based on performance obligation can be reliably measured. Revenue towards satisfaction of a performance obligation is measured at the amount of transaction price (net of variable consideration) allocated to that performance obligation.
Ind AS 115, Revenue from contracts with clients outlines a single comprehensive model of accounting for revenue arising from contracts with clients:
The standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. A five-step process must be applied before revenue can be recognised:
- identify contracts with client;
- identify the separate performance obligation;
- determine the transaction price of the contract;
- allocate the transaction price to each of the separate performance obligations; and
- recognise the revenue as each performance obligation is satisfied.
(i) Brokerage fees - point in time
Revenue from contract with customer is recognised at point in time when performance obligation is satisfied (when the trade is executed). These include brokerage fees which is charged per transaction executed.
(ii) Fees, commission and other income
The Group provides investment banking services to its clients and earns revenue in the form of advisory fees on issue management services, mergers and acquisitions, debt syndication, corporate advisory services etc. In case of these advisory transactions, the performance obligation and its transaction price is enumerated in contract with the customer. For arrangements with a fixed term, the Group may commit to deliver services in the future. Revenue associated with these remaining performance obligations typically depends on the occurrence of future events or underlying asset values and is not recognized until the outcome of those events or values are known. In case of contracts, which have a component of success fee or variable fee, the same is considered in the transaction price when the uncertainty regarding the consideration is resolved.
(iii) Contract assets
Contract assets are recognised when there are excess of revenues earned over billings on contracts. Contract assets are classified as unbilled receivables (only act of invoicing is pending) when there is unconditional right to receive cash, and only passage of time is required, as per contractual terms.
(iv) Dividend Income
Dividend income is recognized in the Statement of profit and loss on the date that the Groups right to receive payment is established, it is probable that the economic benefits associated with the dividend will flow to the entity and the amount of dividend can be reliably measured.
(h) Income Tax
The income tax expense or credit for the period is the tax payable on the taxable income of the current period based on the applicable income tax rates adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and unused tax losses.
(i) Current Tax
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Group operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.
(ii) Deferred Tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the restated consolidated financial statements, consolidated summary statement and the corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority.
Deferred tax is recognised in profit and loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity
(i) Goods and service tax
Expenses and assets are recognised net of the goods and services tax paid, except:
(i) when the tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the tax paid is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable;
(ii) when receivables and payables are stated with the amount of tax included.
The net amount of tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.
(j) Leases - as a lessee
Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group
At the inception of the contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group assesses whether:
- The contract involves the use of an identified asset, this may be specified explicitly or implicitly
- The Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use, and the Group has right to direct the use of the asset.
At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component based on their relative stand-alone prices
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
• fixed payments (including in-substance fixed payments), less any lease incentives receivable
• variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date
• amounts expected to be payable by the Group under residual value guarantees
• the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and
• payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessees incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received. Subsequently, lease liability is measured at amortised cost using the effective interest method.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
• the amount of the initial measurement of lease liability
• any lease payments made at or before the commencement date less any lease incentives received
• any initial direct costs, and
• restoration costs.
Right-of-use assets are generally depreciated over the shorter of the assets useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying assets useful life. Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.
(k) Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
(l) Property, plant and equipment
All items of property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit and loss during the reporting period in which they are incurred.
Depreciation methods, estimated useful lives and residual value:
Depreciation is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives prescribed in Schedule II to the Companies
Act, 2013 except in respect of following categories of assets, in which case life of asset has been assessed based on the technical advice.
a) Computer - 3 years
b) Servers and networks - 6 years
c) Furniture - 10 years
d) Office equipments - 5 years
e) Vehicles - 4 years
f) Mobile - 2 years
g) Leasehold improvement - Over the period of lease or useful life, whichever is lower
Depreciation on additions during the year is provided on a pro-rata basis. Assets costing less than Rs5,000 each are fully depreciated in the year of capitalisation.
The useful lives have been determined based on technical evaluation done by the managements expert which are lower than those specified by Schedule II to the Companies Act, 2013, in order to reflect the actual usage of the assets. The residual values are not more than 5% of the original cost of the asset.
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period on prospective basis
An assets carrying amount is written down immediately to its recoverable amount if the assets carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals and retirement are determined by comparing proceeds with carrying amount.
(m) Intangible assets
Separately purchased intangible assets are initially measured at cost. Subsequently, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses, if any.
Estimated useful lives by major class of intangible assets are as follows:
Computer software - 3 years
The amortisation period and the amortisation method for intangible assets are reviewed at each financial year end and adjusted prospectively, if appropriate.
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in the statement of Profit and Loss when the asset is derecognised.
(n) Impairment of non-financial assets
Non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs of disposal and value in use. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
(o) Employee benefits
(i) Defined contribution plan
The contribution to provident fund is considered as defined contribution plans, and is charged to the Statement of Profit and Loss as it falls due, based on the amount of contributions required to be made as and when services are rendered. The Group has no further payment obligations once the contributions have been paid. The contributions are accounted for as defined contribution plan and the contributions are recognised as employee benefit expense when they are due.
(ii) Defined benefit plan
The liability or asset recognised in the balance sheet in respect of gratuity plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. Actuaries using the projected unit credit method calculate the defined benefit obligation annually.
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows by reference to market yields at the end of the reporting period on government bonds that have terms approximating to the terms of the related obligation.
The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the statement of profit and loss.
Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in other comprehensive income. They are reclassified to surplus in statement of profit and loss under other equity.
Changes in the present value of the defined benefit obligation resulting from plan amendments or curtailments are recognised immediately in statement of profit and loss as past service cost.
(iii) Compensated absences
Based on the leave rules of the Group companies, employees are not permitted to accumulate leave. Any unavailed privilege leave to the extent encashable is paid to the employees and charged to the Statement of profit and loss for the year. Short term compensated absences are provided based on estimates of availment / encashment of leaves.
(p) Trade and other payable
These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year, which are unpaid. They are initially recognised at their transaction price and subsequently measured at amortised cost using the effective interest method.
(q) Provisions and contingent liabilities
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of past events, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. When the effect of the time value of money is material, the Group determines the level of provision by discounting the expected cash flows at a pre-tax rate reflecting the current rates specific to the liability. The expense relating to any provision is presented in the statement of profit and loss net of any reimbursement.
Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount cannot be made.
(r) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
• the profit attributable to owners of the Group
• by the weighted average number of equity shares outstanding during the financial year, adjusted for bonus elements in equity shares issued during the year and excluding treasury shares.
(ii) Diluted Earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:
• the after income tax effect of interest and other financing costs associated with dilutive potential equity shares, and
• the weighted average number of additional equity shares that would have been outstanding assuming the conversion of all dilutive potential equity shares.
(s) Insurance Claims
Insurance claims are accounted for on the basis of claims admitted/expected to be admitted and to the extent that there is no uncertainty in receiving the claims.
(t) Rounding off
All amounts disclosed in the restated consolidated financial statements and notes have been rounded off to the nearest "thousands" as per the requirement of Schedule III, unless otherwise stated.
(u) Equity
Equity shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceed.
(v) Dividends
The final dividend on shares is recorded as a liability on the date of approval by the shareholders and interim dividends are recorded as a liability on the date of declaration by the Group s Board of Directors. Income tax consequences of dividends on financial instruments classified as equity will be recognized accordingly.
1.2. Significant accounting judgments, estimates and assumptions
The preparation of Restated Consolidated financial statements requires the use of accounting estimates that, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Groups accounting policies. This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be different than those originally assessed. Detailed information about each of these estimates and judgements is included in relevant notes together with information about the basis of calculation for each affected line item in the restated consolidated financial statements and consolidated summary statement.
• Estimation of current tax expense, recognition of deferred tax assets- Note 29
• Estimation of defined employee benefit obligation - Note 30
• Impairment of investment in foreign subsidiary - Note 6
• Evaluation if an arrangement qualifies as ‘lease under Ind AS 116
• Estimation of impairment loss on trade receivables - Note 2.1(D)(ii) above
Estimates and judgements are evaluated continually. They are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances.
Description of our business
Our business operations include two principal business lines: (i) investment banking; (ii) institutional equities. We provide a wide range of financial solutions in areas of (i) investment banking comprising equity capital markets ("ECM"), mergers and acquisitions ("M&A"), private equity ("PE"), and structured finance advisory; and (ii) institutional equities comprising research and broking.
RESULTS OF OPERATIONS
The following table sets forth select financial data from our statement of profit and loss for the Fiscals 2024, 2023 and 2022, the components of which are also expressed as a percentage of total income for such periods:
| Particulars | Fiscal 2024 | Fiscal 2023 | Fiscal 2022 | |||
| (in Rs million) | Percentage of total income (%) | (in Rs million) | Percentage of total income (%) | (in Rs million) | Percentage of total income (%) | |
| Income | ||||||
| Revenue from operations | ||||||
| (i) Advisory fee income | 1,243.63 | 68.33% | 522.88 | 61.49% | 611.14 | 64.67% |
| (ii) Brokerage | 494.72 | 27.18% | 291.50 | 34.28% | 302.40 | 32.00% |
| (iii) Interest income | 62.07 | 3.41% | 34.52 | 4.06% | 16.35 | 1.73% |
| (iv) Dividend income | - | - | 0.01 | 0.00% | 0.14 | 0.01% |
| (v) Net gain on fair value changes | - | - | 0.35 | 0.04% | 3.65 | 0.39% |
| Total revenue from operations | 1,800.42 | 98.92% | 849.26 | 99.86% | 933.68 | 98.79% |
| Other income | 19.58 | 1.08% | 1.15 | 0.14% | 11.40 | 1.21% |
| Total income | 1,820.00 | 100.00% | 850.41 | 100.00% | 945.08 | 100.00% |
| Expenses | ||||||
| Finance costs | 12.12 | 0.67% | 10.99 | 1.29% | 11.52 | 1.22% |
| Fees and commission expenses | 66.00 | 3.63% | 59.09 | 6.95% | 55.43 | 5.87% |
| Employee benefit expense | 653.41 | 35.90% | 535.07 | 62.92% | 482.38 | 51.04% |
| Depreciation and amortisation expense | 63.37 | 3.48% | 53.78 | 6.32% | 50.71 | 5.37% |
| Other expenses | 70.42 | 3.87% | 72.82 | 8.56% | 64.58 | 6.83% |
| Total expenses | 865.32 | 47.55% | 731.75 | 86.05% | 664.62 | 70.32% |
| Profit/ (loss) before tax | 954.68 | 52.45% | 118.66 | 13.95% | 280.46 | 29.68% |
| Tax expense | ||||||
| (i) Current tax | 241.09 | 13.25% | 34.12 | 4.01% | 61.80 | 6.54% |
| (ii) Deferred tax | 8.36 | 0.46% | (2.20) | (0.26)% | (0.32) | (0.03)% |
| Total tax expense | 249.45 | 13.71% | 31.92 | 3.75% | 61.48 | 6.51% |
| Profit/ (loss) for the year | 705.23 | 38.75% | 86.74 | 10.20% | 218.98 | 23.17% |
| Other comprehensive income | ||||||
| Items that are not be reclassified to profit and loss | ||||||
| (i) Re-measurements of post-employment benefit obligations | (3.49) | (0.19)% | (0.08) | (0.01)% | 3.78 | 0.40% |
| Particulars | Fiscal 2024 | Fiscal 2023 | Fiscal 2022 | |||
| (in Rs million) | Percentage of total income (%) | (in Rs million) | Percentage of total income (%) | (in Rs million) | Percentage of total income (%) | |
| (ii) Income tax relating to the above | 0.88 | 0.05% | 0.02 | 0.00% | (0.95) | (0.10)% |
| Items that will be reclassified to profit and loss | ||||||
| (i) Exchange differences on translating the financial statements of a foreign operation | (13.63) | (0.75)% | 6.07 | 0.71% | 2.56 | 0.27% |
| Other comprehensive income/(loss) for the year | (16.24) | (0.89)% | 6.01 | 0.70% | 5.39 | 0.57% |
| Total comprehensive income /(loss) for the year | 688.99 | 37.86% | 92.75 | 10.91% | 224.37 | 23.74% |
| Earnings per equity share (Face value Rs2 per equity share) | ||||||
| (i) Basic (Rs) | 9.98 | - | 1.23 | - | 3.10 | - |
| (ii) Diluted (Rs) | 9.98 | - | 1.23 | - | 3.10 | - |
Fiscal 2024 compared to Fiscal 2023 Total income
Total income increased by Rs969.59 million, or 114.01%, from Rs850.41 million for Fiscal 2023 to Rs1,820.00 million for Fiscal 2024, primarily due to increase in revenue from our investment banking and brokerage segments.
Revenue from operations
Total revenue from operations increased by Rs951.16 million, or 112.00%, from Rs849.26 million for Fiscal 2023 to Rs1,800.42 million for Fiscal 2024. The increase in revenue from operations is primarily attributable to the following:
• Advisory fee income: Advisory fee income increased by Rs720.75 million or 137.84% from Rs522.88 million in Fiscal 2023 to Rs1,243.63 million in Fiscal 2024, which was principally attributable to higher number of deals completed in equity capital markets.
• Brokerage: Brokerage increased by Rs203.22 million or 69.72%, from Rs291.50 million in Fiscal 2023 to Rs494.72 million in Fiscal 2024, which was principally attributable to an increase in active clients and trade volumes.
• Interest income: Interest income increased by Rs27.55 million or 79.81% from Rs34.52 million in Fiscal 2023 to Rs62.07 million in Fiscal 2024, which was principally attributable to an increase in fixed deposit and interest rate.
Other income
Other income increased by Rs18.43 million or 1,602.61%, from Rs1.15 million in Fiscal 2023 to Rs19.58 million in Fiscal 2024, which was principally attributable to an increase in interest on income tax refund and realised gain on foreign exchange (net gain on foreign exchange).
Expenses
Total expenses increased by Rs133.57 million, or 18.25%, from Rs731.75 million in Fiscal 2023 to Rs865.32 million in Fiscal 2024, primarily due to an increase in employee benefit expense. Our total expenses represented 47.55% and 86.05% of our total income in Fiscals 2024 and 2023, respectively. The details of changes in expenses are set forth below:
• Finance costs: Finance costs increased by Rs1.13 million or 10.28%, from Rs10.99 million in Fiscal 2023 to Rs12.12 million in Fiscal 2024, on account of an increase in bank guarantee charges, which are placed with the exchange for trade margin, from Rs548.38 million in Fiscal 2023 to Rs728.38 million in Fiscal 2024. Further, the interest on temporary bank overdraft availed from the bank increased from Rs0.56 million in Fiscal 2023 to Rs1.57 million in Fiscal 2024, on account of increased margin required at exchanges to support higher trading volumes.
• Fees and commission expenses: Fees and commission expenses increased by Rs6.91 million or 11.69%, from Rs59.09 million in Fiscal 2023 to Rs66.00 million in Fiscal 2024, on account of an increase in membership and subscription charges.
• Employee benefit expense: Employee benefit expense increased by Rs118.34 million or 22.12%, from Rs535.07 million in Fiscal 2023 to Rs653.41 million in Fiscal 2024, on account of an increase in headcount, salaries, wages and bonus, contribution to provident and other funds and staff welfare expenses.
• Depreciation and amortisation expense: Depreciation and amortisation expense increased by Rs9.59 million or 17.83%, from Rs53.78 million in Fiscal 2023 to Rs63.37 million in Fiscal 2024, on account of an increase in depreciation of property, plant and equipment and amortisation of intangible assets.
• Other expenses: Other expenses decreased by Rs2.40 million or 3.30%, from Rs72.82 million in Fiscal 2023 to Rs70.42 million in Fiscal 2024, which was principally attributable to a decrease in loss on foreign exchange fluctuation, provisions for doubtful debts and recoverable and donations, which was partially offset by an increase in travelling and conveyance expenses, repairs and maintenance, printing and stationery, miscellaneous expenses and contribution towards corporate social responsibility.
Profit/ (loss) before tax
As a result of the factors outlined above, our profit before tax was Rs954.68 million for Fiscal 2024 compared to Rs118.66 million for Fiscal 2023.
Total tax expense
Total tax expense increased by Rs217.53 million or 681.48%, from Rs31.92 million for Fiscal 2023 to Rs249.45 million for Fiscal 2024, which was principally attributable to an increase in total income and profit before tax.
Profit/ (loss) for the year
As a result of the factors outlined above, our profit for the year was Rs705.23 million for Fiscal 2024 compared to Rs86.74 million for Fiscal 2023.
Fiscal 2023 compared to Fiscal 2022
Total income
Total income decreased by Rs94.67 million, or 10.02%, from Rs945.08 million for Fiscal 2022 to Rs850.41 million for Fiscal 2023, primarily due decrease in fund raising activities and advisory transactions on account of uncertainties in the global market.
Revenue from operations
Revenue from operations decreased by Rs84.42 million, or 9.04%, from Rs933.68 million for Fiscal 2022 to Rs849.26 million for Fiscal 2023. The change in revenue from operations was on account of the following:
• Advisory fee income: Advisory fee income decreased by Rs88.26 million or 14.44% from Rs611.14 million in Fiscal 2022 to Rs522.88 million in Fiscal 2023, which was principally attributable to a decrease in fund raising activities and advisory transactions on account of uncertainties in the global market.
• Brokerage: Brokerage decreased by Rs10.90 million or 3.60%, from Rs302.40 million in Fiscal 2022 to Rs291.50 million in Fiscal 2023 which was principally attributable to a decrease in capital market activities on account of uncertainties in the global market.
• Interest income: Interest income increased by Rs18.17 million or 111.13% from Rs16.35 million in Fiscal 2022 to Rs34.52 million in Fiscal 2023, which was principally attributable to an increase in quantum of fixed deposits and interest rates.
Other income
Other income decreased by Rs10.25 million or 89.91%, from Rs11.40 million in Fiscal 2022 to Rs1.15 million in Fiscal 2023. This was principally attributable to an increase in interest on fixed deposits and partially offset by a decrease in interest on income tax refund.
Expenses
Total expenses increased by Rs67.13 million, or 10.10%, from Rs664.62 million in Fiscal 2022 to Rs731.75 million in Fiscal 2023, primarily due to an increase in employee benefits expense and other expenses. Our total expenses represented 86.05% and 70.32% of our total income in Fiscals 2023 and 2022, respectively. The change in expenses is on account of the following:
• Finance costs: Finance costs decreased by Rs0.53 million or 4.60%, from Rs11.52 million in Fiscal 2022 to Rs10.99 million in Fiscal 2023, on account of a decrease in interest on lease liability.
• Fees and commission expenses: Fees and commission expenses increased by Rs3.66 million or 6.60%, from Rs55.43 million in Fiscal 2022 to Rs59.09 million in Fiscal 2023, on account of increase in membership and subscription charges.
• Employee benefit expense: Employee benefit expense increased by Rs52.69 million or 10.92%, from Rs482.38 million in Fiscal 2022 to Rs535.07 million in Fiscal 2023, on account of an increase in headcount, salaries, wages and bonus, contribution to provident and other funds and staff welfare expenses.
• Depreciation and amortisation expense: Depreciation and amortisation expense increased by Rs3.07 million or 6.05%, from Rs50.71 million in Fiscal 2022 to Rs53.78 million in Fiscal 2023, on account of an increase in depreciation of property, plant and equipment and amortisation of intangible assets.
• Other expenses: Other expenses increased by Rs8.24 million or 12.76%, from Rs64.58 million in Fiscal 2022 to Rs72.82 million in Fiscal 2023. This was on account of an increase in travelling and conveyance expenses, repairs and maintenance, printing and stationery, advertising and publicity, loss on foreign currency fluctuation, rates and taxes, provisions for doubtful debts and recoverable, donation, contribution towards corporate social responsibility and directors sitting fees. This was partially offset by a decrease in professional fees, miscellaneous expenses and bad debts written off.
Profit/ (loss) before tax
As a result of the factors outlined above, our profit before tax was Rs 118.66 million for Fiscal 2023 compared to Rs280.46 million for Fiscal 2022.
Total tax expense
Total tax expense decreased by Rs29.56 million or 48.08%, from Rs61.48 million for Fiscal 2022 to Rs 31.92 million for Fiscal 2023, which was principally attributable to a decrease in revenue from operations and other income.
Profit/ (loss) for the year
As a result of the factors outlined above, our profit for the year was Rs86.74 million for Fiscal 2023 compared to Rs218.98 million for Fiscal 2022.
Cash flows
The following table sets forth certain information relating to our cash flows for Fiscals 2024, 2023 and 2022:
(in Rs million)
| Particulars | Year Ended March 31, 2024 | Year Ended March 31, 2023 | Year Ended March 31, 2022 |
| Net cash (used in)/ generated from operating activities | (5,950.17) | 6,793.96 | 374.36 |
| Net cash (used in)/ generated from investing activities | 6,582.24 | (6,707.81) | (284.03) |
| Net cash (used in)/ generated from financing activities | (42.52) | (41.50) | (30.60) |
Net cash (used in)/ generated from operating activities
Fiscal 2024
Net cash used in operating activities for Fiscal 2024 was Rs5,950.17 million and our operating surplus before working capital changes was Rs916.86 million. The net cash (used in)/ generated from operating activities in Fiscal 2024 primarily consisted of (i) a decrease in trade receivables due to recovery of dues in Fiscal 2024; (ii) a decrease in other financial assets due to exchange settlement; (iii) a decrease in trade payables due to payment towards unsettled exchange obligation in Fiscal 2024; (iv) an increase in other non-financial liabilities due to statutory dues; (v) a decrease in other financial liabilities due to leasehold liability; and (vi) an increase in provisions due to employee related expenses.
Fiscal 2023
Net cash generated from operating activities for Fiscal 2023 was 6,793.96 million and our operating surplus before working capital changes was Rs 159.18 million. The net cash (used in)/ generated from operating activities in Fiscal 2023 primarily consisted of (i) an increase in trade receivables on account of unsettled trades; (ii) a decrease in other receivables due to investment banking out-of-pocket expenses; (iii) an increase in other financial assets due to deposit placed with the exchange; (iv) a decrease in other non-financial assets; (v) an increase in trade payables due to unsettled trade; (vi) an increase in other non-financial liabilities due to statutory dues; and (vii) an increase in provisions due to employee benefits.
Fiscal 2022
Net cash generated from operating activities for Fiscal 2022 was Rs374.36 million and our operating surplus before working capital changes was Rs313.74 million. The net cash (used in)/ generated from operating activities in Fiscal 2022 primarily consisted of (i) an increase in trade receivables due to investment banking fees and unsettled trade receivables; (ii) a decrease in other receivables due to investment banking fees and out-of-pocket expenses; (iii) an increase in other financial assets due to exchange deposits for trade margin; (iv) an increase in other non- financial assets; (v) an increase in trade payables due to unsettled trade; (vi) an increase in other non-financial liabilities due to statutory dues; and (vii) an increase in provisions due to employee benefits.
Net cash (used in)/ generated from investing activities
Fiscal 2024
Net cash generated from investing activities in Fiscal 2024 was Rs6,582.24 million. This reflected (i) movement in other bank balances of Rs6,715.38 million; (ii) interest received of Rs64.02 million; (iii) proceeds from sale of investments of Rs20.53 million; and (iv) proceeds from sale of property, plant and equipment of Rs1.49 million. This was partially offset by (i) bank deposits placed of Rs174.90 million; and (ii) purchase of property, plant and equipment of Rs44.28 million.
Fiscal 2023
Net cash used in investing activities in Fiscal 2023 was Rs6,707.81 million. This reflected (i) movement in other bank balances of Rs6,675.15 million; (ii) bank deposits placed of Rs54.71 million; (iii) payment to acquire investments of Rs95.47 million; and (iv) purchase of property, plant and equipment of Rs32.09 million. This was partially offset by (i) proceeds from sale of investments of Rs115.35 million; (ii) interest received of Rs33.29 million;
(iii) proceeds from sale of property, plant and equipment of Rs0.96 million; and (iv) dividend received of Rs0.01 million.
Fiscal 2022
Net cash used investing activities in Fiscal 2022 was Rs284.03 million. This reflected (i) payment to acquire investments of Rs1,250.81 million; (ii) bank deposits placed of Rs275.53 million; and (iii) purchase of property, plant and equipment of Rs16.31 million. This was partially offset by (i) proceeds from sale of investments of Rs1,174.46 million; (ii) movement in other bank balances of Rs59.71 million; (iii) interest received of Rs24.30 million; (iv) dividend received of Rs0.14 million; and (v) proceeds from sale of property, plant and equipment of Rs0.01 million.
Net cash (used in)/ generated from financing activities
Fiscal 2024
Our net cash used in financing activities was Rs42.52 million in Fiscal 2024. This was primarily due to (i) repayment of lease liabilities of Rs36.44 million; (ii) dividend paid to companys shareholders (including dividend distribution tax) of Rs14.14 million; and (iii) interest paid of Rs8.29 million.
Fiscal 2023
Our net cash used in financing activities was Rs41.50 million in Fiscal 2023. This was primarily due to (i) repayment of lease liabilities of Rs34.71 million; (ii) dividend paid to companys shareholders (including dividend distribution tax) of Rs21.21 million; and (iii) interest paid of Rs4.46 million.
Fiscal 2022
Our net cash used in financing activities was Rs30.60 million in Fiscal 2022. This was primarily due to (i) repayment of lease liabilities of Rs33.05 million; and (ii) interest paid of Rs2.65 million.
INDEBTEDNESS
As of March 31, 2024, we had Rs 728.38 million as outstanding debt comprising bank guarantees. For further information on our indebtedness, see "Restated Consolidated Financial Statements - Note 4 - Bank Balance other than cash and cash equivalents and Rs49.29 million as outstanding debt being vehicle loan. The total debt outstanding is Rs 777.67 million as of March 31, 2024.
CONTINGENT LIABILITIES
The following table sets forth certain information relating to our contingent liabilities as of March 31, 2024, as determined in accordance with Ind AS 37:
N in million)
| Particulars | As at March 31, 2024 |
| Contingent liabilities | |
| Claims not acknowledged as debts in respect of: | |
| - Income Tax matters under appeal | 6.88 |
| Total | 6.88 |
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or which we believe are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, operating results, liquidity, capital expenditure or capital resources.
RELATED PARTY TRANSACTIONS
We have, in the course of our business and operations, entered into transactions with related parties, such as payment of professional fees, brokerage received, expense payables and employee benefits payables.
For further information on our related party transactions, see "Restated Consolidated Financial Statements - Note 39 - Related Party Transactions" on page 238.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISKS
Market risk is the risk of any loss in future earnings, in realizable fair values or in future cash flows that may result from a change in the price of a financial instrument. We are exposed to certain market risks, including credit risk, liquidity risk and market risk.
Credit risk
Credit risk is the risk of suffering financial loss, should any of the Groups clients or market counterparties fail to fulfil their contractual obligations to the Group. Credit risk arises mainly from trade and other receivables which are reviewed and assessed for default on an individual basis. The credit risk is perceived to be low due to regular monitoring of receivables, historically low default rate and escrow mechanisms for capital market trades.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they become due. Prudent liquidity risk management implies maintaining sufficient cash and liquid investments. The Group believes that current cash and bank balances, bank deposits and investments in liquid investments are sufficient to meet liquidity requirements. Moreover, the Group has no external borrowings. Accordingly, liquidity risk is perceived to be low.
Market risk
Market risk is the risk of loss of future earnings, volatility of future cash flows and fluctuations in fair values of financial assets. The fair value of a financial asset may fluctuate because of changes in interest rates, foreign currency exchange rates, equity prices and other market changes that affect market risk sensitive instruments. The Group operates internationally and is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the USD, GBP, EUR and SGD. Foreign exchange risk arises from commercial transactions and recognized assets and liabilities denominated in a currency that is not the functional currency (Rs) of our Group. The management does not undertake any hedging activity or otherwise to offset or mitigate the foreign currency risk. Foreign currency exposure is partly balanced by purchasing of services in the respective currencies, which acts as a natural hedge for the Group.
UNUSUAL OR INFREQUENT EVENTS OR TRANSACTIONS
Except as described in this Draft Red Herring Prospectus, there have been no unusual or infrequent events or transactions that have in the past or may in the future affect our business operations or future financial performance.
SIGNIFICANT ECONOMIC CHANGES THAT MATERIALLY AFFECTED OR ARE LIKELY TO AFFECT REVENUE FROM OPERATIONS
Our business has been subject, and we expect it to continue to be subject, to significant economic changes that materially affect or are likely to affect our revenue from operations identified above in "Managements Discussion and Analysis of Financial Condition and Results of Operations — Significantfactors affecting our Results of Operations and Financial Condition" and the uncertainties described in "Risk Factors" on pages 246 and 28, respectively.
KNOWN TRENDS OR UNCERTAINTIES
Other than as described in "Risk Factors" on page 28 and this section, to our knowledge there are no known trends or uncertainties that have had or are expected have a material adverse impact on our sales, income or revenue from operations.
EXPECTED FUTURE CHANGES IN RELATIONSHIP BETWEEN COST AND REVENUE
Other than as described in this section and "Our Business", and "Risk Factors" on pages 149 and 28, respectively, to our knowledge there are no known factors that may adversely affect our business prospects, results of operations and financial condition.
SIGNIFICANT DEPENDENCE ON A SINGLE OR FEW CLIENTS OR SUPPLIERS
Given the nature of our business operations, we do not believe that our business is dependent on any single client or a few clients. Our total number of billed clients in investment banking business were 36, 27 and 30 in Fiscals 2024, Fiscal 2023 and Fiscal 2022, respectively. Our total number of billed clients in institutional equities business increased from 133 in Fiscal 2022 to 167 in Fiscal 2023 and 203 in Fiscal 2024. Our top 10 client concentration in broking has reduced from 45.09% in Fiscal 2022 to 36.44% in Fiscal 2024.
TOTAL TURNOVER OF EACH MAJOR INDUSTRY SEGMENT
Our Company is primarily engaged in investment banking activities (equity capital markets, M&A and PE advisory, corporate finance advisory, structured finance) and institutional equities. Our Group monitors the operating results of our business as two segments, namely brokerage income and advisory fee income and there are no other primary reportable segments. For further information, see "Restated Consolidated Financial Statements" on page 193.
NEW PRODUCTS OR BUSINESS SEGMENTS
Other than as disclosed in this section and in " Our Business" on page 149, there are no new products or business segments that have or are expected to have a material impact on our business prospects, results of operations or financial condition.
COMPETITIVE CONDITIONS
We operate in a competitive environment. For further information, see "Business - Competition", "Industry Overview" and "Risk Factors" on pages 160, 107 and 28, respectively.
SEASONALITY
Our business is affected by seasonal trends in the Indian economy. For details, see "Risk Factors - Our investment banking and institutional equities business is highly dependent on market and economic conditions. Adverse market or economic conditions could have a significant economic and financial impact on our business" on page 30.
RESERVATIONS, QUALIFICATIONS AND ADVERSE REMARKS
There have been no reservations, qualifications, adverse remarks or emphasis of matters highlighted by our Statutory Auditors in their examination report on the Restated Consolidated Financial Statements.
MATERIAL DEVELOPMENTS SINCE MARCH 31, 2024
Except as disclosed in this Draft Red Herring Prospectus, to our knowledge, no circumstances have arisen since the date of the last financial statements disclosed in this Draft Red Herring Prospectus, which materially and adversely affect or are likely to affect our operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next 12 months.
CAPITALISATION STATEMENT
The following table sets forth our Companys capitalization as at March 31, 2024, as derived from our Restated Consolidated Financial Statements. This table should be read in conjunction with the sections titled "Risk Factors", "Financial Information" and "Managements Discussion and Analysis of Financial Condition and Results of Operations" beginning on pages 28, 193 and 244, respectively.
(Rs in million, except ratios)
| Particulars | Pre-Offer as at March 31, 2024 | As adjusted for the proposed Offer(1) |
| Total Equity | ||
| Equity share capital* | 141.37 | [•] |
| Other equity* | 1,484.74 | [•] |
| Total equity (A) | 1,626.11 | [•] |
| Total borrowings (B) | 49.29 | [•] |
| Total Capitalisation (A+B) | 1,675.41 | [•] |
| Total borrowings/ Total equity ratio | 0.03 | [•] |
Notes:
(1 The corresponding post Offer capitalization data is not determinable at this stage pending the completion of the Book Building Process and hence has not been furnished. To be updated upon finalization of the Offer Price.
* These terms shall carry the meaning as per Schedule HI of the Companies Act, 2013.
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