MOTILAL OSWAL FINANCIAL SERVICES LIMITED
ANNUAL REPORT 2011-2012
DIRECTOR`S REPORT
To the Members
Your Directors have pleasure in presenting their 7th Report together with
the audited Accounts of your Company for the year ended 31st March, 2012.
Financial Highlights
Summary of Financial results for the year is as under:-
Motilal Oswal Financial Services Limited (Standalone)
Rs. in million
Year ended 31st Year ended 31st
March, 2012 March, 2011
Income 819.48 643.41
Profit before Finance Cost and Taxation 671.17 576.80
Finance Cost (8.97) (11.42)
Profit before Taxation 662.20 565.38
Less: Provision for Taxation
Current Tax 88.85 126.65
Deferred Tax Asset 11.72 11.50
For previous year (s) (1.33) 0.63
Profit for the year 562.96 426.60
Balance brought forward from previous year 414.85 351.30
Profit Available for appropriation 977.81 777.90
Less: Appropriations
Transfer to Statutory Reserve (112.59) (85.32)
Proposed dividend/Interim Dividend (217.68) (202.26)
Dividend Distribution Tax 20.86 (32.81)
Transfer to General Reserve (45.04) (42.66)
Balance of Profit carried forward 623.36 414.85
Summary of Consolidated Financial results of the Company and its
subsidiaries for the year is as under:-
Rs. in million
31st March, 2012 31st March, 2011
Income 4655.27 6,007.57
Profit before Finance cost, Depreciation
and Taxation and Exceptional Items 1561.99 2,294.98
Finance Cost (35.99) (56.64)
Depreciation (129.70) (131.28)
Profit before Taxation and
Exceptional Items 1396.30 2,107.06
Exceptional Items 129.87 -
Profit before Taxation 1,526.17 2,107.06
Less: Provision for Taxation
Current Tax 442.26 672.47
Deferred Tax 45.16 32.97
Tax for the prior year (2.98) 6.57
Profit after tax before Minority Interest 1041.72 1395.05
Minority Interest in profits (2.86) (24.44)
Profit after tax and Minority Interest 1038.86 1370.60
Profit brought forward from previous year 5,029.57 4189.77
Profit available for the Appropriations 6,068.42 5560.37
Less: Appropriations
Transfer to Statutory Reserve &
Capital Redemption Reserve (112.59) (91.32)
Proposed Dividend/Interim Dividend (217.77) (215.44)
Distribution tax on proposed/
Interim Dividend (14.45) (67.60)
Transfer to General Reserve (126.56) (156.45)
Balance of Profit carried to Balance Sheet 5597.06 5029.57
Dividend
The Company at the Meeting of its Board of Directors held on 16th January,
2012, had declared an interim dividend of Rs.1.00 per Equity Share, out of
the profits of the Company for the nine months ended 31st December, 2011 on
14,51,19,469 Equity Shares of Rs.1.00 each aggregating to Rs.14,51,19,469/-
Keeping in view the overall performance during the year, your Directors are
pleased to recommend a final dividend of Rs.0.50 per Equity Share on the
face value of Rs.1.00 each aggregating to Rs.72,561,435, payable to those
members whose names appear in the Register of Members as on the Book
Closure Date. The dividend distribution tax will absorb a sum of
Rs.11,771,279.
Results of Operations (MOFSL Standalone)
The standalone revenues for the year were Rs.819.48 million, a growth of
27% compared to Rs.643.41 million last year. Interest income went up by 14%
to Rs.452.60 million, on account of an increase in the average loan book
size. Income from arbitrage operations was lower as compared to last
financial year due to non deployment of surplus fund in arbitrage business.
Other income includes dividend from subsidiaries (including interim
dividend declared in current year) Rs.346.29 million compared to Rs.134.06
million in the last year.
Due to higher operating expenses and provision created for Sub-Standard
Assets, the total expenses (before depreciation and interest) registered a
109% jump to Rs.139.04 million this year. Profit before depreciation,
interest, and taxation (EBITDA) increased by 18% this year, from Rs.576.88
million to Rs.680.44 million. With a reduction in the Company`s average
borrowing this year, interest and finance charges fell by 21%. The
Company`s net profit increased by 32% to Rs.562.96 million.
The detailed results of operations of the Company are given in the
Management Discussion & Analysis forming part of this Report.
Consolidated Results of Operations:
The Consolidated Revenues of the Company for the year were Rs.4,655.27
million, a decline of 22.51% as compared to the previous year.
- Broking and related revenues declined by 25.7% to Rs.3,201.13 million
this year. The dramatic shift towards the low-yield options segment
continues through this year as well, contributing to 68% of total volumes,
as compared to 57% a year back. The cash segment of the market (which is
also the most profitable) registered a decline of 24% in the average daily
volume at Rs.139.7 billion as compared to last year whereas the overall
market volumes actually saw a growth of 7% in the same period. This
disproportionate rise of low yielding options segment has resulted in a
drop of our overall market share from 2.5% to 1.9% this year. As on 31st
March, 2012, total client base has increased to 746,932 while Pan-India
distribution reach stood at 1,579 business locations across 552 cities.
Despite challenging market conditions we remain committed to building a
strong franchise in the broking space and our efforts were recognized at
several industry platforms.
- Investment banking fees fell by 78.4% to Rs.86.33 million this year. Poor
performance of equity markets adversely impacted equity raising activities
by both IPO and QIPs in the market. The global slowdown and uncertainty in
the government policies clubbed with high borrowing costs, has had an
adverse impact on the decision making by the corporates and investors,
causing a slowdown in deal activities in the current year. However, the
business is well aligned to arising market opportunities and the execution
pipeline remains robust.
- Fund-based income for the year was Rs.822.2 million, a growth of 7.5%.
This is attributable to growth in interest income due to higher average
loan book this year.
- Asset management fees increased by 17.4% to Rs.503.53 million. The total
assets under management/advice across mutual funds, PMS and private equity
businesses was Rs.29.1 billion of which mutual funds AUM was Rs.4.5
billion, private equity AUA was Rs.11.0 billion and PMS AUM was Rs.13.6
billion. During the current year, the mutual fund business launches two new
schemes
- Gilt Fund and Gold ETF, which saw good investor participation. The
private equity business announced the first closing of its new fund
- India Business Excellence Fund II raising Rs.3.5 billion through a
combination of domestic and offshore investors.
- Other income declined by 61.0% to Rs.42.08 million as compared to last
year.
Total expenses for the year (before interest and depreciation) at
Rs.3,093.29 million registered a 16.7% decline over last year. The decline
in brokerage commission earned reduced the brokerage shared with
intermediaries by 19.9% to Rs.1,164.33 million. People costs at Rs.1,138.57
million declined by 17.0% as compared to last year. Other operating costs
which include facilities, marketing, communication, travel and other costs
declined by 10.8% to Rs.790.38 million. The profit before depreciation,
interest, exceptional items and taxation (EBITDA) decreased by 31.9% to
Rs.1,561.99 million. EBITDA margin reduced from 38% to 34%.
Towards consolidation of office premises at the Corporate Headquarters at
Prabhadevi, some of the existing office premises in South Mumbai area were
sold during the current quarter for a profit of Rs.129.87 million.
Reported net profit for the year after minority interest stood at
Rs.1,038.86 million, a decline of 24.2%.
The Consolidated Financial Statements of the Company and its subsidiaries
prepared in accordance with `Accounting Standard -21` prescribed by The
Institute of Chartered Accountants of India, form part of the Annual Report
and the Accounts. The Balance Sheet, Profit and Loss Account, Reports of
the Board of Directors and Auditors of the subsidiaries have not been
attached with the Balance Sheet of the Company as per the general exemption
provided under Section 212(8) of the Companies Act, 1956 by the Ministry of
Corporate Affairs, issued vide General Circular No. 2/2011 dated 8th
February, 2011.
The Company hereby undertakes that annual accounts of the subsidiary
companies and the related detailed information shall be made available to
shareholders of the holding and subsidiary companies seeking such
information at any point of time. The annual accounts of the subsidiary
companies shall also be kept for inspection by any shareholders in the
registered office of the Company and of the subsidiary companies concerned.
The Company shall furnish a hard copy of details of accounts of
subsidiaries to any shareholder on demand.
The detailed results of operations of the Company and its subsidiaries are
given in the Management Discussion & Analysis forming part of this report.
Future Outlook
Indian Stock Markets had a muted year in 2011-12, due to rupee
depreciation, high inflation and high interest rates. FII and retail
participation have been weak due to un-exciting outlook. The valuations
have corrected significantly and are at a reasonable level. Global equity
markets had a better year, but India turned out to be the worst performing
market in dollar terms.
Corporate earnings growth still looks to be in single digit for the current
year. Lot of hope is built on the possibility of interest rate cuts in the
quarters ahead. At our end, we are building-up all our businesses
relentlessly, in such a way that we are ready to en-cash on any up-turn in
the market.
Credit Rating
The Company enjoys the highest rating of `A1+` assigned by CRISIL Limited
to the Short-term Debt Programme of Rs.1.5 billion of your Company. The
rating indicates the highest degree of safety with regard to timely payment
of interest and principal on the instrument.
CRISIL Limited also reaffirmed the rating of `A1+` to the Short-term Debt
Programme of Rs.1billion of Motilal Oswal Securities Limited, a subsidiary
of the Company.
Finance
During the year under review, to meet the working capital requirements, the
Company had issued Commercial Papers.
Employees` Stock Option Schemes (ESOS)
Details required to be provided under the Securities and Exchange Board of
India (Employee Stock Option Scheme and Employee Stock Purchase Scheme)
Guidelines, 1999 are set out in Annexure to this Report.
Directors
Mr. Praveen Tripathi was appointed as an Additional Director on 22nd July,
2011 by the Board of Directors. It would be required to appoint him as a
Director by the Members at the forthcoming Annual General Meeting. The
credentials of Mr. Praveen Tripathi is given in the Corporate Governance
Report annexed herewith.
The Company has received a notice from a Member signifying his intention to
propose the name of Mr. Praveen Tripathi for appointment as a Director of
your Company at the forthcoming Annual General Meeting of the Company.
Mr. Navin Agarwal and Mr. Balkumar Agarwal retire by rotation at the
forthcoming Annual General Meeting and being eligible, offer themselves for
reappointment.
Directors` Responsibility Statement
Pursuant to section 217(2AA) of the Companies Act, 1956, your Directors
confirm that:
(i) in the preparation of the annual accounts, the applicable accounting
standards have been followed;
(ii) they have, in the selection of the accounting policies, consulted the
Statutory Auditors and these have been applied consistently and reasonable
and prudent judgments and estimates have been made so as to give a true and
fair view of the state of affairs of the Company as at 31st March, 2012 and
of the Profit of the Company for the year ended on that date;
(iii) proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956 for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities; and
(iv) the annual accounts have been prepared on a going concern basis.
Audit Committee
The Audit Committee presently comprises of Mr. Balkumar Agarwal (Chairman
of the Committee), Mr. Raamdeo Agrawal, Mr. Vivek Paranjpe and Mr. Praveen
Tripathi.
Remuneration/Compensation Committee
The Remuneration/Compensation Committee of the Board of Directors presently
comprises of Mr. Vivek Paranjpe (Chairman of the Committee), Mr. Balkumar
Agarwal and Mr. Motilal Oswal.
Shareholders/Investors` Grievance Committee
The Shareholders/Investors Grievance Committee of the Board of Directors
presently comprises of Mr. Balkumar Agarwal (Chairman of the Committee),
Mr. Motilal Oswal and Mr. Raamdeo Agrawal.
Nomination Committee
The Nomination Committee of the Board of Directors presently comprises of
Mr. Motilal Oswal and Mr. Raamdeo Agrawal.
Risk Management Committee
The Risk Management Committee of the Board of Directors presently comprises
of Mr. Motilal Oswal and Mr. Navin Agarwal.
Asset Liability Management Committee (ALCO)
Asset Liability Management Committee (ALCO) of the Board of Directors
presently comprises of Mr. Motilal Oswal (Chairman of the Committee), Mr.
Raamdeo Agrawal, Mr. Navin Agarwal and Mr. Ajay Menon.
ESOP Committee
The ESOP Committee of the Board of Directors presently comprises of Mr.
Motilal Oswal and Mr. Raamdeo Agrawal.
Corporate Governance
A report on the Corporate Governance along with a certificate from the
Auditors of the Company regarding the compliance of conditions of Corporate
Governance as also the Management Discussion and Analysis Report as
stipulated under Clause 49 of the Listing Agreement are annexed to this
Report.
Auditors
Messrs. Haribhakti & Co., Chartered Accountants, retire as Auditors of the
Company at the forthcoming Annual General Meeting and have given their
consent for re-appointment. The members will be required to appoint
Auditors for the current year and fix their remuneration.
Subsidiaries
The Company has the following subsidiary companies:
1 Motilal Oswal Securities Limited (MOSL).
2 Motilal Oswal Investment Advisors Private Limited
3 Motilal Oswal Private Equity Advisors Private Limited
4 Motilal Oswal Commodities Broker Private Limited
5 Motilal Oswal Insurance Brokers Private Limited
6 Motilal Oswal Capital Markets Private Limited (Subsidiary of MOSL)
7 Motilal Oswal Asset Management Company Limited (Subsidiary of MOSL)
8 Motilal Oswal Trustee Company Limited (Subsidiary of MOSL)
9 Motilal Oswal Wealth Management Private Limited (Subsidiary of MOSL)
10 Motilal Oswal Securities International Private Limited. (Subsidiary of
MOSL) (incorporated during FY 2011-12 in India)
11 Motilal Oswal Capital Markets (Hong Kong) Private Limited (Subsidiary of
MOSL) (incorporated during FY 2011-12 in Hong Kong)
12 Motilal Oswal Capital Markets (Singapore) Pte. Limited. (Subsidiary of
MOSL) (incorporated during FY 2011-12 in Singapore)
The Statement pursuant to section 212 of the Companies Act, 1956,
containing details of the Company`s subsidiaries is attached herewith.
Fixed Deposits And Loans/Advances
The Company has not accepted any deposits from the public or employees
during the year under review.
The particulars of loans/advances and investment in its own shares by
listed companies, their subsidiaries, associates, etc., required to be
disclosed in the annual accounts of the Company pursuant to Clause 32 of
the Listing Agreement with the Company, are furnished separately.
Conservation of Energy and Technology Absorption and Foreign Exchange
Earnings and Outgo
In view of the nature of activities which are being carried on by the
Company, Rules 2A and 2B of the Companies (Disclosure of Particulars in the
Report of Board of Directors) Rules, 1988 concerning conservation of energy
and technology absorption respectively are not applicable to the Company.
There was no inflow of foreign exchange during the year under review.
Details of the foreign exchange outflow are given in the notes to Accounts.
Particulars of employees as required under section 217(2A) of the Companies
Act, 1956 and Rules framed thereunder
In accordance with the provisions of Section 217(2A) of the Companies Act,
1956 and the Rules framed thereunder, the names and other particulars of
employees are set out in the Annexure to the Directors` Report. In terms of
the provisions of Section 219(1) (b)(iv) of the Companies Act, 1956, the
Directors` Report is being sent to all the Shareholders of the Company
excluding the aforesaid Annexure. The Annexure is available for inspection
at the Registered Office of the Company. Any shareholder interested in
obtaining a copy of the said Annexure may write to the Company Secretary &
Compliance Officer at the Registered Office of the Company.
Acknowledgments
Your Directors take this opportunity to thank the Authorities, Bankers,
Shareholders and the Customers of the Company for their continued support
to the Company. The Directors also place on record their sincere
appreciation of the contributions made by every member of the MOFSL family
for their dedicated efforts that made these results achievable.
For and on behalf of the Board
Motilal Oswal
Chairman & Managing Director
Mumbai, 25th April, 2012
Annexure to the Directors` Report
Information disclosed under the Securities and Exchange Board of India
(Employee Stock Option Scheme and Employee Stock Purchase Scheme)
Guidelines, 1999 as at 31st March, 2012:-
S. Particulars `Motilal Oswal Financial `Motilal Oswal Financial
No. Services Limited - Services Limited -
Employees` Stock Option Employees` Stock Option
Scheme (RS. 2) - III` Scheme (R 5) - IV`
(ESOS - III) (ESOS - IV)
a) Options granted 12,61,500 2,00,000
b) The pricing formula Price at which shares Price arrived at with
are issued to Private reference to the
Equity Investor i.e. at expected issue Price i.e
the Rate of Rs.518.90 at Rs.775 per share.
per share.
c) Options vested 10,15,975 10,000
d) Options exercised 6,43,175 5,000
e) The total number of
shares arising as a
result of exercise of
option 12,86,350 25,000
f) Options lapsed
(as at 31.03.12) 6,07,375 1,90,000
g) Variation of
terms of options N.A. N.A.
h) Money realised by
exercise of options Rs.13,34,97,403 Rs.38,75,000
i) Total number of
options in force
(as at 31.03.12) 10,950 5,000
j) Employee-wise
details of options
granted to:
(i) Senior managerial
personnel N.A. N.A.
(ii) Any other employee
who receives a grant in
any one year of option
amounting to 5% or more
of option granted
during that year N.A. N.A.
(iii) Identified
employees who were
granted option, during
any one year, equal to
or exceeding 1% of the
issued capital
(excluding outstanding
warrants and conversions)
of the company at the
time of grant N.A. N.A.
k) Diluted Earnings Per
Share (EPS) pursuant to
issue of shares on
exercise of option
calculated in
accordance with
Accounting Standard(AS)
20 `Earnings per Share` Rs.3.89 Rs.3.89
l) Where the company
has calculated the
employee compensation
cost using the
intrinsic value of the
stock options, the
difference between the
employee compensation
cost so computed and
the employee
compensation cost that
shall have been
recognised if it had
used the fair value
of the options, shall
be disclosed. The
impact of this
difference on profits
and on EPS of the
company shall also
be disclosed. Nil Nil
m) Weighted-average
exercise prices and
weighted average fair
values of options shall
be disclosed separately
for options whose
exercise price either
equals or exceeds or is
less than the market
price of the stock. N.A. N.A.
n) A description of the
method and significant
assumptions used
during the year to
estimate the fair
values of options,
including the
following weighted-
average information:-
(i) risk-free interest
rate, N.A. N.A.
(ii) expected life, N.A. N.A.
(iii) expected N.A. N.A.
volatility,
(iv) expected
dividends N.A. N.A.
(v) the price of the The Company was an The Company was an
underlying share in unlisted company at the unlisted company at the
market at the time time of grant. However, time of grant. However,
of option grant. the Options were granted the Options were granted
at the price at which at the price which was
Shares were issued to determined with
Private Equity Investor reference to the
i.e. Rs.518.90 per expected Issue Price.
share.
S. Particulars `Motilal Oswal Financial `Motilal Oswal Financial
No. Services Limited - Services Limited -
Employees` Stock Option Employees` Stock Option
Scheme (R 1 ) - V` Scheme (R 1) - VI`
(ESOS - V) (ESOS - VI)
a) Options granted 58,17,500 50,84,000
b) The pricing formula The closing price of the The closing price of the
Company`s Equity Shares Company`s Equity Shares,
quoted on the Bombay prior to the date of
Stock Exchange Limited grant of the Options, on
immediately preceding the the Stock Exchanges
date of Grant of the there the highest
Stock Options, which for trading volume is
this purpose shall be the recorded, discounted/
date on which the increased by such
Committee grant the Stock percentage as may be
Options, discounted by determined by the
such percentage as may be Committee.
determined by the
Committee in the best
interest of the various
stakeholders in the
prevailing market
conditions.
c) Options vested 4,80,500 4,34,750
d) Options exercised 54,500 40,750
e) The total number of
shares arising as a
result of exercise of
option 54,500 40,750
f) Options lapsed
(as at 31.03.12) 37,15,250 9,43,250
g) Variation of
terms of options N.A. N.A.
h) Money realised by
exercise of options Rs.90,82,238 Rs.67,43,375
i) Total number of
options in force
(as at 31.03.12) 20,47,750 41,00,000
j) Employee-wise
details of options
granted to:
(i) Senior managerial
personnel Nil Nil
(ii) Any other employee
who receives a grant in
any one year of option
amounting to 5% or more
of option granted
during that year N.A. N.A.
(iii) Identified
employees who were
granted option, during
any one year, equal to
or exceeding 1% of the
issued capital
(excluding outstanding
warrants and conversions)
of the company at the
time of grant N.A. N.A.
k) Diluted Earnings Per
Share (EPS) pursuant to
issue of shares on
exercise of option
calculated in
accordance with
Accounting Standard(AS)
20 `Earnings per Share` Rs.3.89 Rs.3.89
l) Where the company The Company has
has calculated the calculated the employee
employee compensation compensation cost using
cost using the the intrinsic value of
intrinsic value of the stock options. Had the
stock options, the fair value method been
difference between the used, in respect of
employee compensation stock options granted
cost so computed and under ESOS - V and
the employee ESOS - VI, the employee
compensation cost that compensation cost would
shall have been have been higher by
recognised if it had Rs.8,82,15,048/-Profit
used the fair value after tax lower by
of the options, shall Rs.8,82,15,048/- and the
be disclosed. The basic earnings per share
impact of this would have been lower by
difference on profits Rs.0.61.
and on EPS of the
company shall also
be disclosed.
m) Weighted-average
exercise prices and
weighted average fair
values of options shall
be disclosed separately
for options whose
exercise price either
equals or exceeds or is
less than the market
price of the stock. N.A. N.A.
n) A description of the
method and significant
assumptions used
during the year to
estimate the fair
values of options,
including the
following weighted-
average information:-
(i) risk-free interest
rate, N.A. N.A.
(ii) expected life, N.A. N.A.
(iii) expected N.A. N.A.
volatility,
(iv) expected
dividends N.A. N.A.
(v) the price of the
underlying share in
market at the time
of option grant. N.A. N.A.
Management Discussion and Analysis
The last year was tough, but the long-term historic trend reaffirms India`s
economic strength:
The immediate year gone by saw India caught between conflicting challenges
of managing economic growth vs inflation. Nevertheless, the long-term
historic trend, signified by the last 25 years, has seen India deliver
strong economic growth over the years.
FY12 saw interest rate hikes to rein in inflation, slowdown in corporate
investments, supply-side constraints like poor infrastructure and public
utilities and global economic crises resulting in weak industrial growth.
Thus, the economic growth momentum saw a pause this year. Lower growth in
government receipts, industry slowdown and high commodity costs kept fiscal
deficit under pressure. Exports, which picked up in H1 FY12, slowed down in
H2 FY12.
Despite the headwinds, certain observations show the outlook to be
positive. Inflation, though still elevated, showed some signs of slowing by
FY12-end. A reversal in rate hikes should encourage investments and enhance
growth. Despite a dip in FY12, the financing and business services GDP
outperformed. Services growth is expected to continue. RBI stress tests in
FY12 showed banks to be reasonably resilient. Schemes like MNREGA helped
boost rural incomes. The low median age should add to the labour force and
demand levels.
With the per capita income growing and the momentum in savings growth
largely intact, the allocation towards financial savings by households has
picked up. Given the recent headwinds impacting the Indian economy, the GDP
is now expected to grow by a slightly lower rate this year than the earlier
estimates. Nevertheless, India still remains amongst the high-growth
economies globally for the coming years. Key challenges are adequate
infrastructure, skill levels, financial inclusion, governance, technology
to enhance productivity and the consumption-investment balance.
Indian GDP`s 5 year CAGR across the last 25 years has outperformed global
peers since the 1990s, second only to China. IMF projections till 2016
shows the gap between China and India to narrow further and the gap between
India and emerging economies group to widen slightly. This indicates the
relative performance of India would make it attractive over the next 5
years.
Since the 1990s, the outperformance of financing and business services GDP
relative to traditional manufacturing and agriculture segments stands out.
Over the last 25 years, India`s per capita net national income has also
grown at a strong rate comparable to the GDP growth.
The last 25 years saw India emerge as a savings-oriented country. While its
GDS (Gross Domestic Savings) showed strong growth, the proportion of GDS to
GDP has also gradually increased.
Household financial savings have also picked up. Indian households have
increasingly allocated towards financial savings in the last 5 years
itself, coinciding with a sharp growth in the 5-year CAGR in per capita
income in the same period. Growth in the proportion of financial savings to
GDS indicates a higher allocation for financial investments, which bodes
well for financial services companies.
Key observations that emerge from the recent performance of the Indian
equity markets:
Indian equity markets were amongst the worst performers globally this year,
delivering negative returns in the first three quarters. During CY11,
Consumption was the only sector with positive returns. Government sponsored
schemes, the 6th Pay Revision and increase in asset prices like land and
gold buoyed a sense of affluence amongst the masses and drove incomes and
demand. Thus, 2011-12 was the year of Consumption. Given the freeze in
industrial capex and infrastructure slowdown, Capital Goods was amongst the
worst performing sectors. Sectors with high gearing underperformed due to
rising interest rate climate and concerns over refinancing. Positive
initiatives like allowing entry of QFIs into India, uniform KYC norms and
lowering of STT from 0.125% to 0.1% on cash delivery trades should have a
positive impact on future equity participation.
India`s economic growth has had a higher than proportionate impact on the
market performance, in terms of share to world averages. BSE market cap`s
share to world m-cap went up from 0.4% to 2.1% over the last decade, while
its GDP share went up from 1.5% to 2.6%.
India`s Share to World Average
Benchmark index performance shows emerging markets like India, Brazil have
outperformed the major markets in the long-term and also during the
immediate recovery of the last 3 months, despite the drop seen during FY12.
Benchmark Index Returns
Market volatility has been declining in India since 2008. FY 2012 did see
an increase, given the market conditions. However, the volatility in India
did not exceed US this time, as has traditionally been the case. This bodes
well for investor confidence. Volatility (Standard Deviation of indices)
City-wise cash turnover % at NSE
Mumbai and Delhi hold strong as prime cities of equity participation. Last
two years saw an increase in the proportion of participation from towns
outside the Top 10 cities. Many of these are seeing growing pools of wealth
given their recent economic prosperity, and the allocation of this wealth
towards equities is increasing.
% Turnover by top `X` Members in NSE
Although the industry continues to remain largely fragmented, the last 5
years have seen a gradual concentration of cash volumes with the Top 25 and
Top 100 brokers, which peaked during 200809. This slight shift in the
proportion of cash volumes towards the top brokers indicates a slow but
definite process of consolidation.
Changes in financial assets of households
RBI data on changes in financial assets of households in FY11 shows that
the focus was on life insurance and currency, while shares and debentures
were out of favour. Considering this had been 5% during the market upswing
of FY10, it reaffirms that the proportion held in shares will pick up once
the market performance picks up.
Business Streams and Outlook:
Motilal Oswal Financial Services Limited (MOFSL), is a non-banking
financial company (NBFC), registered under the Reserve Bank of India Act,
1934. The company`s standalone operations have two critical elements:
(i) Build on a financing infrastructure that can best customize risk
adjusted products, have simple and compliant documentation, and prompt loan
approval procedures; and
(ii) A strong structure in place that can most efficiently source funds and
manage resources.
There is a clearly defined set of procedures for evaluating the
creditworthiness of customers that extends from initial evaluation to loan
approval. Funds are advanced after due process of evaluation and upon
providing the necessary documentation. A lot of emphasis is placed on
tailoring finance to customer needs. MOFSL`s objective is to ensure
appraisal and disbursement within the shortest possible time, without
compromising on asset quality.
The company also raises resources through short-term borrowings. During
FY12, the company enjoyed the highest rating of `A1+` assigned by CRISIL
Limited to its short-term debt programme of Rs.1.5 billion. The rating
indicates the highest degree of safety with regard to timely payment of
interest and principal on the instrument. CRISIL Limited also reaffirmed
the rating of `A1+` to the short-term debt programme of Rs.1 billion of
Motilal Oswal Securities Limited, a subsidiary of the Company.
Besides the financing business directly carried out through MOFSL, we offer
a range of financial products and services such as Broking and
Distribution, Institutional Equities, Wealth Management, Investment
Banking, Private Equity and Asset Management business through various
subsidiaries:
MOFSL`s
Name of the Company Business Shareholding
1. Motilal Oswal Stock Broking (Institutional 99.95%
Securities Limited & Retail) and Wealth Management
(MOSL)
2. Motilal Oswal Investment Banking 93.75%
Investment Advisors
Private Limited (MOIA)
3. Motilal Oswal Asset Mutual Funds, PMS, Offshore Funds 99.95%*
Management Company
(MOAMC)
4. Motilal Oswal Private Equity Management and 85.00%
Private Equity Advisory
Advisors Private
Limited (MOPE)
5. Motilal Oswal Commodities Broking 97.55%
Commodities Broker
Private Limited (MOCB)
6. Motilal Oswal Stock Broking (membership of NSE) 99.95%*
Capital Markets
Private Limited (a
subsidiary of MOSL)
7. Motilal Oswal Insurance Brokers (has applied to 99.00%
Insurance Brokers IRDA for Insurance Broker License)
Private Limited
(MOIB)
8. Motilal Oswal Wealth Wealth Management Activities & 99.95%*
Management Pvt. Ltd. Lease Rental
(a subsidiary of MOSL)
9. Motilal Oswal Trustee Trustee to Mutual Fund 99.95%*
Company Limited (MOTC)
(subsidiary of MOSL)
10. Motilal Oswal Applied for broker dealer 99.95%*
Securities Inter- license in US**
national Pvt. Ltd.
11. Motilal Oswal Applied for Type 1/4 license 99.95%*
Capital Markets in Hong Kong**
(Hong Kong) Private
Limited
12. Motilal Oswal Applied for Exempt Financial 99.95%*
Capital Markets Advisor Status in Singapore**
(Singapore) Pte
Limited
* through MOSL;
** Application made to respective regulators Business streams
Business Stream Primary products and services
Broking & Distribution * Equity (cash and derivatives) and commodity
Wealth Management broking
* Distribution of financial products like Mutual
Funds, PMS, IPO and Insurance
* Depository services
* Financing (though MOFSL)
Institutional Broking * Equity (cash and derivatives) broking
* Advisory
Investment Banking * Capital raising
* M&A Advisory
* Domestic IPOs
* Private Equity placements
* Corporate Finance Advisory
* Restructuring
* FCCBs and GDRs
Private Equity * Private equity investment management and
advisory
Asset Management * Portfolio Management Services
* Mutual Funds
* Offshore Funds
Broking Business:
Following negative returns in the first three quarters, a rebound of 13% in
the fourth saw the benchmark BSE Sensex decline by a moderate 10% in FY12,
as compared to the 11% growth seen in FY11. BSE market capitalization stood
at Rs.62.1 tn in March 2012, a decline of 9% for the year. Given the
appreciation in the exchange rates, the dollar loss in the market cap was
much steeper at 19%.
FII net inflows dipped this year, though 4th quarter recovery helped:
FY12 was a contrast as compared to the earlier two years. The first nine
months saw net outflows from equities by FIIs in as many as four months.
Jan and Feb saw a market rally and FIIs posted strong net inflows. This
helped boost aggregate net inflows for the fiscal year to a respectable
Rs.437 bn.
Net outflows by DIIs this year, despite inflows in first 3 quarters:
DII participation, which had been positive from last quarter of FY11 to the
third quarter of FY12, saw significant net outflows in January and February
on the back of profit booking and concerns over macro issues. As a result,
DIIs ended the year with net outflows from Indian equities.
Growth in equity market volumes continue to be boosted by options, however
growth rates were much more moderate this year:
Equity average daily volume (ADTO) continued its uptrend and touched a high
of Rs.1,431 bn in FY12. However, the growth rate of 7% was moderate than
the phenomenal 41% growth seen in FY11. The main contributor to the growth
continued to be the options segment, albeit moderated at 28% as compared to
118% in FY11. Options comprised 68% of total volumes in FY12, up from 57%
in FY11. Given the relative growth in options, the proportion of F&O to
total volumes increased to 90% in FY12, as compared to 86% in FY11. This
trend towards low-yield options continued to put brokerage revenues under
pressure this year. Within the cash segment, the proportion of high-yield
delivery picked up marginally to 28% of cash ADTO, as compared to 27% in
FY11. Cash volume proportions have been declining across all the major
geographies since 2008. As the macro climate improves, retail and DII
participation picks up and public issues increase, the cash volumes in
India are expected to return to their historical averages.
Cash volume participation across all categories declined in FY12:
Absolute cash volumes across all participants registered a drop, though the
decline in retail segment was higher. As a result, in proportionate terms,
the proportion of retail reduced from 56% to 51%, while that of the other
segments increased marginally.
Incremental growth in demat accounts slowed as IPOs dried up:
Growth in demat accounts tapered down this year, coinciding with a slowdown
in the primary issue market. The incremental number of demat accounts
created each year was the lowest in FY12, from amongst the last five years.
Our Broking Business:
Backed by award winning research capabilities, the broking business under
Motilal Oswal Securities Ltd. (MOSL) covers distinctly positioned units -
Retail Broking & Distribution and Institutional Equities. They address a
diversified client base covering FIIs, domestic institutions, HNIs and
retail.
Retail Segment:
Services offered under the "Retail Broking and Distribution business"
include equities, derivatives, commodities, depository services,
distribution of portfolio management services, mutual funds, primary equity
offerings and insurance products.
As of 31st March, 2012, MOFSL had over 746,000 registered customers, which
included over 657,000 broking clients with almost 577,000 having depository
accounts. The company serves its clients through a strong branch and
franchisee network. The distribution network of 1,579 locations across 552
cities, is one of the largest in India. It remains focused on building a
Pan-India distribution reach, while maintaining good quality locations.
This extensive network provides opportunities to cross-sell products as the
company diversifies into new business streams.
In line with its Knowledge First mantra, MOSL developed innovative equity
trading strategies this year, which saw good response from investors. It
continued its investor education efforts with a multi-city seminar series
`Investor Ki Kahani Usi Ki Zubaani` which saw a sizable retail investor
turnout of ~2,600. With a focus on technology to enhance the customer
experience, the company has developed feature-rich online and mobile
platforms, an enhanced version of its unique, widget-based web service-My
Motilal Oswal and also its industry first feature - Online Account Opening
which offers prospective customers the facility to apply for a trading
account online. Following its membership of NSEL (commodity spot exchange),
the company has successfully entered the commodity spot business.
The company`s superior quality of broking and advisory services was
recognized yet again this year when it won the `Best Performing National
Equity Broker` award at the CNBC TV18 Financial Advisor Awards, for the
second year in a row. In addition, MOSL won the `Best Equity Broker` award
at the Bloomberg UTV Financial Leadership Awards 2012 and the `Best Equity
Broking House` award at the BSE iPf-D&B Equity Broking Awards 2011. MOSL
was also honoured with the `Retailer of the Year (Banking & Financial
Services)` award at the Retail Excellence Awards 2012 organised by Asia
Retail Congress. Lastly, BSE felicitated MOSL for being `Amongst the Top
Five Performers in BSE Star - Mutual Fund` and `Amongst the Top Ten
Performers in Equity segment` for the period Nov. 2010 - Sep. 2011.
With its core strength of providing excellent research and advisory, the
company continues to focus on the high-yielding cash segment. As the market
performance and retail participation picks up, the company will be best
poised to capture the resultant upside.
Institutional Broking
The company offers Institutional Broking services in cash and derivatives
segment to a large institutional clientele in India and abroad. As on 31st
March, 2012, we were empanelled with over 500 institutional clients. The
Institutional Team comprises Sales and Dealing, Research and Corporate
Access. The research team consisting of 30 analysts covers over 200
companies across 20 sectors and 25 commodities and provides a complete
bouquet covering Thematic, Sectoral and Company updates.
MOSL won two `Best Market Analyst` awards at the `India`s Best Market
Analyst` awards 2011. The company conducted the 7th Annual Global Investor
Conference in Mumbai during August 2011, with almost 100 corporate
participants and over 500 investors.
India is projected to deliver relatively stronger economic performance over
the next two years. MOSL`s strong global clientele base and its constant
endeavour to provide best in-class research, advice, corporate access and
execution support will help to tap the emerging opportunities and gain a
higher market share across the institutional client segments.
Investment Banking
Industry Facts
Equity markets dropped for most part of the year, which impacted equity
raising activity. As corporates put expansion plans on hold, the IPO market
dried up. About 30 odd companies stalled their IPO plans to raise over
Rs.330 bn due to the volatile markets. The main saviors for ECM were the
L&T Finance, Muthoot and MCX IPOs, the Power Finance follow-on issue and
the ONGC auction. The QIP market also dried up in FY12. Given the growing
concerns with many companies trading below issue prices post-listing, SEBI
has made it mandatory for bankers to make public the track record of their
previous issues during any new IPO.
Debt fund raising declined 13% during FY12. High interest rates impacted
demand for loans, with rupee loans declining 36% to comprise ~40% of the
debt funds raised. Domestic bonds issues went up 13%. However, the high
borrowing costs and growing investor concerns over high-leveraged companies
led to some finance and infrastructure companies putting on hold their debt
raising plans.
M&A deal value fell by 13% this year, led by a 73% fall in domestic deals.
With a less than proportionate decrease in deal count, the average value
per deal declined only 5% to Rs.3.3 bn. The year saw a phenomenal rise in
inbound deals, led by the BP-Reliance, Intelenet-Serco and Vedanta-Cairn
transactions. Inbound deals comprised 64% of M&A deal value in CY11.
The team at Motilal Oswal Investment Advisors (MOIAPL) comprises multi-
disciplinary professionals with a collective experience of more than twelve
decades. An extensive understanding of different sectors within the team
underpinned by the strong research pedigree of the Group enables it to
provide customized financial solutions to clients across industries. Poor
performance of equity markets adversely impacted equity raising activities
for both IPO and QIPs in the market. The two other key business segments,
outbound M&A and capital raising by Infrastructure sector have been a
dominant source of income for the company for the past few years. The
global slowdown and uncertainity in the government policies clubbed with
high borrowing costs has had an adverse impact on the decision making by
the respective corporate and investors. There was good business available
in PE syndication and debt refinancing in the last year, however the
company was not well geared to take advantage of the same. On a positive
note, the distribution company MOSL consolidated its position in retail IPO
distribution market and has closed the year with a ranking of 4th as
reported by Prime Database.
Despite macro headwinds causing a slowdown in the economy and investment
climate, we believe that the India growth story remains intact and the
company is re-orienting itself to capture the opportunities that arise from
them. There is a large inventory of significant work completed in lot of
assignments undertaken by the company in the previous years which could
materialize into income this year.
Asset Management
Industry Facts
The mutual funds industry witnessed another challenging year. Given the
market sentiments, equity funds remained out of favour and gilt and gold
were relatively more attractive for retail investors. Liquid funds saw an
inflow in assets, driven by banks and corporates. However, in the later
part of FY12, liquid funds were impacted following RBI`s cap on banks`
investments in them to 10% of networth. This is visible from the decline
between Dec. 11 and Mar. 12 AUM figures. Going forward, regulations like
tightening of valuation norms by SEBI and savings account interest de-
regulation are expected to impact liquid fund assets. The Budget
announcement of allowing mutual funds to accept subscriptions for equity
schemes from foreign investors who meet KYC norms should help widen the
investor base. SEBI`s recent ruling to charge transaction fee from
investors should incentivize distributors and bring them back into the
market.
Mutual Fund AUM by Asset Class (Rs. Bn)
Mutual funds AUM declined 0.8% YoY to Rs.5,872 bn, as on March 2012, the
lowest since June 2009. This is mainly attributable to the Rs.154 bn
decline in equity assets, impacted by the market performance. On the other
hand, liquid and gilt, gold and other ETFs saw an increase of Rs.67 bn and
Rs.48 bn in assets respectively.
Mutual Fund AUM by Participants (Rs. Bn)
Retail investors comprised the largest participant group within equity
funds, holding 67% of AUM as of Mar 2012.
Conversely, corporates remain the largest investor group in liquid and
income funds. In gold, gilt and ETF fund segment, retail and HNIs combined
hold about half the assets, with the remaining held by corporates.
Share of ETF assets in the AMC industry
ETFs continue to grow in popularity, with a flurry of product launches this
year. Indian ETF assets increased 41% YoY to US$ 1.7 bn in 2011, comprising
0.12% of World ETF AUM. Share of Indian ETF assets to World ETF AUM have
been increasing steadily since the last 3 years. This reaffirms the strong
performance of this still nascent fund category in India.
Our Asset Management Business
Mutual funds AUM across all the fund products were Rs.4.5 bn in March 2012,
up 20% YoY. Motilal Oswal Asset Management (MOAMC) launched 2 funds in
FY12. In line with its earlier funds, the new ones were also based on
innovative investment strategies which would enjoy a product
differentiation in the market.
MOAMC launched MOSt 10 Year Gilt Fund, India`s 1st fund giving access to
the 10 Year Benchmark Government Bond. The fund saw good response in its
NFO. It also launched MOSt Shares Gold ETF, India`s 1st Gold ETF of its
kind which enables investment as well as consumption of gold for retail
investors, who can redeem the ETF units for physical gold. These 2 products
marked the company`s foray into asset classes beyond the traditional
equities.
MOAMC also organized the 1st edition of the Motilal Oswal MOSt Shares ETF
Conclave in FY12. It is envisaged as an annual event to educate investors,
increase awareness about the ETF opportunity, strategies, advantages and
outlook and address popular myths.
The PMS business managed assets of Rs.13.6 bn as of March 2012, up from
Rs.12.6 bn in March 2011. As per SEBI`s data on discretionary-listed equity
PMS assets, MOAMC`s PMS business had a market share of 8% in terms of
assets managed, as of Aug. 2011 (last available data by SEBI).
The strong investment culture entrenched within the Group has helped to
deliver superior returns to the investors. MOAMC continued to see net
additions to PMS client assets, an achievement given the challenging equity
markets currently. The PMS product is empanelled as an approved product
across several banks, national distributors, third party distributors and
niche wealth platforms for selling the PMS products on their platforms,
thus widening our customer reach.
Private Equity
Industry Facts
With public markets drying up and debt route becoming costly, Indian
corporates have increasingly turned towards private equity for fund
raising. This is indicated by the increase in the number of deals this
year, from 387 in FY11 to 448 in FY12. The average value per deal declined
21% to Rs.0.9 bn in FY12, indicating a reduced appetite for high-value
deals. Only 19 deals saw values over US$ 100 mn in FY12, as compared to 23
in the previous year.
Despite private equity finding favour as a fund raising option, overall
deal value slipped in FY12 as many companies froze expansion plans and
differences in valuation perceptions arose. Although, on a CY basis, CY11
had seen higher deal values, the fourth quarter of FY12 was a major drag,
which impacted the total tally for FY12. Q4 FY12 saw much lower deal value,
although the same quarter last year had been boosted by the Bain-Hero deal.
As a result, deal value declined by 9% to Rs.407 bn in FY12, as compared to
Rs.447 bn in FY11. Most of the deal interest was in healthcare, ITES, e-
commerce/mobile services, engineering, foods, logistics, thermal and
renewable energy.
Exits have been a concern this year, owing to the lackluster primary
markets, volatile stock markets and less than anticipated economic
performance. Funds are now increasingly looking at secondary sales as a
potential exit route.
Our Private Equity Business
The private equity subsidiary, MOPE currently manages and advices funds in
the growth capital and the real estate space.
The strong investment culture within the Group of identifying companies
with sustainable business models and strong management teams has helped
Motilal Oswal Private Equity (MOPE) identify companies which can deliver
good returns for the stakeholders. MOPE is an investment manager to India
Business Excellence Fund (IBEF), which has commitments of US$ 125 mn from
investors in India and overseas. The fund is aimed at providing growth
capital to Indian SMEs, with investments typically in the range of US$ 5 mn
to US$ 15 mn. As of March 2012, it had made investments in 13 companies and
has committed 83% of its funds under management.
MOPE was appointed as investment manager to India Realty Excellence Fund
(IREF), a domestic real estate fund in FY09. IREF had its final closing in
December 2009 with total assets under management/advice at Rs.2 bn. The
fund had already made investments across 6 deals till 31st March, 2012,
committing 74% of its funds under management. MOPE has been able to build a
strong deal pipeline for IREF and is evaluating several investment
opportunities.
The track record established through successful advisory mandates of these
two funds has given the company the confidence to grow the private equity
business to much bigger scale. During FY12, MOPE concluded the first
closing of its 2nd sector-agnostic growth capital fund - India Business
Excellence Fund II (IBEF-II), achieved at an equivalent of Rs.3.50 bn
raised through a combination of domestic and offshore investors.
Wealth Management Industry Facts
India offers a large untapped pool of wealth, presenting an exciting
opportunity for financial advisory. HNI count in India grew 20% to 153,000
in 2010. India features amongst the top 12 countries in terms of HNI count.
With economic performance expected to hold strong over the next few years
relative to global peers, HNI wealth is expected to remain on an upward
trend, from Rs.86 tn in FY11 to Rs.249 tn in the next five years. The
proportion of equities to HNI wealth is estimated to increase further. In
terms of HNI categories, a higher proportion of wealth into equities is
held by professionals, as compared to inheritors and self-made businessmen
who favour realty.
Our Wealth Management Business
The Wealth Management platform caters to High Networth and mass affluent
clients through an offering called `Purple` providing a complete range of
financial products best suited to clients. The focus is on advisory and
product mix, deepening relationships with clients and providing strong
advisory as per individual client`s risk-return profile. The existing
offerings of PMS, Private Equity, mutual funds, insurance, debt and broking
were enhanced with the inclusion of structured products this year.
With assets under management of ~R 14.7 bn, as of 31st March 2012, and a
presence across Mumbai, Delhi, Kolkata, Pune and Ahmedabad, the company
believes that its holistic wealth management offering and strong
relationship management skills will enable it to build a scalable and
profitable wealth management business.
Opportunities and Threats Opportunities
* Economy is growing at healthy rate leading to investment / capital
requirement
* Growing Financial Services industry`s share of wallet for disposable
income.
* Huge market opportunity for wealth management service providers as Indian
wealth management business is transforming from mere wealth safeguarding to
growing wealth.
* Regulatory reforms would aid greater participation by all class of
investors
* Leveraging technology to enable best practices and processes
* Corporates looking at consolidation / acquisitions / restructuring opens
out opportunities for the corporate advisory business Threats
* Execution risk
* Slowdown in global liquidity flows
* Increased intensity of competition from local and global players
* Unfavourable economic conditions
Strengths
Strong Brand name
`Motilal Oswal` is a well-established brand among retail and institutional
investors in India. MOFSL believes that its brand is associated with high
quality research and advice as well as corporate values like integrity and
excellence in execution. The company has been able to leverage its brand
awareness to grow its businesses, build relationships and attract and
retain talented individuals.
Experienced top management
The promoters, Mr Motilal Oswal and Mr. Raamdeo Agrawal are qualified
chartered accountants with over two decades of experience each in the
financial services industry. The top management team comprises qualified
and experienced professionals, with a successful track record. The company
believes that its management`s entrepreneurial spirit, strong technical
expertise, leadership skills, insight into the market and customer needs
provide it with a competitive strength, which will help to implement its
business strategies.
Integrated financial services provider
The broad range of offerings under Broking and Distribution, Institutional
Equities, Asset Management, Wealth Management, Investment Banking, Private
Equity and Principal Strategies business, helps to foresee client
requirements and provide full-fledged services under single platform. The
production and distribution of all financial products and services helps
the company`s advisors and clients to attain client`s financial objectives
with best in class in-house services.
Independent and insightful research
MOFSL believes that its understanding of equity as an asset class and
business fundamentals drives the quality of its research and differentiates
it from its competitors. The research team is focused on equities,
derivatives and commodities. MOSL won 4 awards at the ET-Now Starmine
Analyst Awards 2010-2011 putting it amongst the Top 3 award winning brokers
at the awards. It was also ranked No. 2 by AsiaMoney Brokers Poll 2010 in
the Best Local Brokerage category.
One of largest distribution network - 1,579 outlets across 552 cities
MOFSL`s financial products and services are distributed through a pan-India
network. The business has grown from a single location to a nationwide
network spread across 1,579 business locations operated by business
associates or directly through own branches in 552 cities. This extensive
network provides opportunities to cross sell products and services,
particularly as the company diversifies into new business streams. In
addition to the geographical spread, MOFSL also offers an online channel to
service customers.
Established leadership in Franchisee business
One of the key strengths has been the successful establishment of the
franchisee business. The company`s relationship with the franchisees has
become stronger as they grew, to become a key strength. MOFSL has multiple
business partner models in franchising and is strongly committed to growth
and profitability of each of its franchisee.
Strong risk management
Risk exposure is monitored and controlled through a variety of separate but
complementary financial, credit, operational, compliance and legal
reporting systems. Risk management department analyses this data in
conjunction with the company`s risk management policies and takes
appropriate action where necessary to minimize risk.
Financial prudence
MOFSL`s operating margins continue to remain stable despite the
fluctuations in market volumes and revenues. This is a result of creating a
robust business model that can withstand the cyclical fluctuations in
business volumes and simultaneously capture the opportunities provided by
the structural growth of India.
The company has a low gearing ratio as at 31 March, 2012 which augers well
to manage market volatilities. During FY12, the company enjoyed the highest
rating of `A1+` assigned by CRISIL Limited to its short-term debt programme
of Rs.1.5 billion. The rating indicates the highest degree of safety with
regard to timely payment of interest and principal on the instrument.
CRISIL Limited also reaffirmed the rating of `A1+` to the short-term debt
programme of Rs.1 billion of Motilal Oswal Securities Limited, a subsidiary
of the Company. This facility provides MOFSL the flexibility to avail funds
at competitive rates when business opportunities arise.
Risks and concerns
The company is primarily exposed to credit risk, interest rate risk,
liquidity risk and operational risks. Internally, it has constituted the
Asset Liability Management Committee to manage these risks. This team
identifies, assesses and monitors all principal risks in accordance with
defined policies and procedures. The committee is headed by the Chairman &
Managing Director.
The Board Level Committees viz. Audit Committee and Risk Management
Committee oversee risk management policies and procedures. It reviews
credit and operational risks while the Asset Liability Management Committee
reviews policies in relation to investment strategy and other risks like
interest rate risk and liquidity risk.
Internal control systems and their adequacy
The company`s internal control systems are adequate and provide, among
other things, reasonable assurance of recording transactions of operations
in all material respects and of providing protection against significant
misuse or loss of company assets.
Internal audit is conducted by M/s. Pricewaterhouse, to assess the adequacy
of the internal controls procedures and processes, and their reports are
reviewed by the Audit Committee of the Board. Policy and process
corrections are undertaken based on inputs from the internal auditors.
Financial and operational performance
The financial statements have been prepared in compliance with the
requirements of the Companies Act, 1956, and Generally Accepted Accounting
Principles (GAAP) in India.
Table 1: Arbidged profit and loss account (Rs. in millions) - Standalone
Particulars 2011-2012 % to Total 2010-2011 % to Total
income income
Revenue
Income from operations 464.30 56.66 496.00 77.09
Other income 355.18 43.34 147.41 22.91
TOTAL 819.48 100.00 643.41 100.00
Expenditure
Finance Cost 8.97 1.09 11.42 1.77
Employee Cost 64.73 7.90 26.36 4.10
Depreciation 9.27 1.13 0.07 0.01
Other Expenses 74.31 9.07 40.18 6.24
TOTAL 157.28 19.19 78.03 12.13
Profit Before Tax 662.20 80.81 565.38 87.87
Tax 99.24 12.11 138.79 21.57
PAT 562.96 68.70 426.60 66.30
Earnings per share
(Basic) Rs. 3.89 2.96
Earnings per share
(Diluted) Rs. 3.89 2.96
Standalone Financials
During the year under review, the standalone revenues for the year were
Rs.819.48 mn, a growth of 27.37% as compared to Rs.643.41 mn last year.
Interest income went up by 13.90% to Rs.452.60 mn, on account of an
increase in the average loan book size. Income from arbitrage operations
was lower as compared to last financial year due to lower deployment of
surplus funds in arbitrage. Other income includes dividend from
subsidiaries (including interim dividend declared in current year)
Rs.346.29 mn compared to Rs.134.06 mn in the last year.
Due to higher operating expenses and provision created for Sub-Standard
Assets, the total expenses (before depreciation and interest) registered a
108.98% jump to Rs.139.04 mn this year.
Profit before depreciation, interest, and taxation (EBITDA) increased by
17.95% this year, from Rs.576.88 mn to Rs.680.44 mn. With a reduction in
the Company`s average borrowing this year, interest and finance charges
fell by 21.44%. Profit before tax (PBT) increased by 17.12% to Rs.662.20
mn. Profit after tax (PAT) went up 31.97% to Rs.562.96 mn in the year under
review.
As of March 31, 2012, the long-term investments increased to Rs.987.02 mn,
from Rs.832.63 mn last year. Current assets mainly comprise of stock in
trade, cash and bank balances, and other current assets. As of March 31,
2012, these increased to Rs.3,519.81 mn, up from Rs.3,177.93 mn last year.
The cash and bank balances were Rs.11.60 mn, out of which Rs.10 mn were in
bank fixed deposits.
Total loans and advances increased to Rs.3,592.78 mn as of March 31, 2012,
from Rs.3,285.53 mn a year back. Current liabilities and Provisions
principally consist of liabilities in respect of provision for expenses and
tax deduction at source. Current liabilities (including short term
provisions) increased from Rs.360.61 mn to Rs.657.09 mn as of March 31,
2012, on account of cheques issued but not cleared at the end of the year.
Consolidated Financials
Table 2: Abridge profit and loss account (Rs. in millions)
Particulars 2011-2012 % to Total 2010-2011 % to Total
income income
Revenue
Income from operations 4613.19 98.88 5900.73 98.22
Other income 42.08 0.90 106.84 1.78
TOTAL 4655.27 100.00 6007.57 100.00
Expenditure
Finance Cost 35.99 0.77 56.64 0.94
Employee Cost 1138.57 24.46 1372.40 22.84
Depriciation 129.70 2.79 131.28 2.19
Administartive &
other Expenses 1954.72 41.99 2340.19 38.95
TOTAL 3258.98 70.01 3900.51 64.93
Profit Before Tax and
Exceptional Items 1396.30 29.99 2107.06 35.07
Exceptional Items -
Income (Exp) 129.87 2.79
Profit Before Tax 1526.17 32.78 2107.06 35.07
Current Tax 442.26 9.50 672.47 11.19
Deferred Tax (Income)/Exp 45.16 0.97 32.97 0.55
Tax-Earlier years (2.98) (0.06) 6.57 0.11
Profit after Tax (PAT) 1041.72 22.58 1395.05 23.22
Earnings per share
(Basic) Rs. 7.17 9.52
Earnings per share
(Diluted) Rs. 7.17 9.52
Due to challenging market conditions, the consolidated revenues of the
Company were Rs.4,655.27 mn for the year under review, as compared to
Rs.6,007.57 mn in the previous year, a decline of 22.51%.
Total expenses for the year (before depreciation and interest) at
Rs.3,093.29 mn registered a 16.68% decline over last year. The decline in
brokerage commission earned reduced the brokerage shared with
intermediaries by 19.94% to Rs.1,164.33 mn. People costs at Rs.1,138.57 mn
declined by 17.04% compared to last year. Other operating costs which
include facilities, marketing, communication, travel and other costs
declined by 10.78% to Rs.790.38 mn. The profit before depreciation,
interest, exceptional items and taxation (EBITDA) decreased by 31.94% to
Rs.1,561.99 mn. EBITDA margin reduced from 38% to 34%.
Towards consolidation of office premises at the Corporate Headquarters at
Prabhadevi, some of the existing office premises in South Mumbai area were
sold during the current quarter for a profit of Rs.129.87 million. Reported
net profit for the year after minority interest stood at Rs.1,038.86 mn, a
decline of 24.20%.
As of March 31, 2012, the long-term investments increased by Rs.353.09 mn
to reach Rs.941.48 mn. Current assets mainly comprise of sundry debtors,
stock in trade, cash and bank balances, and other current assets. As of
March 31, 2012, the cash and bank balances were Rs.2,710.48 mn, out of
which Rs.1,781.44 mn were in bank deposits (fixed deposits). Total loans
and advances increased to Rs.4,253.48 mn as of March 31, 2012, from
Rs.4,194.17 mn a year back.
Current liabilities mainly consist of current liabilities in connection
with margin monies deposited by customers to facilitate trading on their
behalf and amounts payable to customers on whose behalf we undertake trades
as well as amounts payable to exchanges. Current liabilities (including
short term provisions) decreased from Rs.4,413.60 mn to Rs.3,885.12 mn as
of March 31, 2012. Total provisions, which mainly include provisions for
taxation and for proposed dividend, decreased from Rs.692.27 mn to
Rs.403.95 mn as of March 31, 2012.
Performance of Subsidiaries (Rs. in millions)
Motilal Oswal Securities Limited (MOSL):
Particulars FY12 As on FY11 As on Growth (YoY)
March 31, 2012 March 31, 2011
Total Revenues 3577.03 4873.83 (26.61)
EBIDTA 1181.57 1666.31 (29.09)
PBT 1031.24 1489.34 (30.76)
PAT 815.22 1008.02 (19.13)
Motilal Oswal Private Equity Advisiors Pvt. Ltd. (MOPEAPL):
Particulars FY12 As on FY11 As on Growth (YoY)
March 31, 2012 March 31, 2011
Total Revenues 193.64 127.53 51.84
EBIDTA 31.28 34.27 (8.71)
PBT 29.61 33.41 (11.38)
PAT 20.33 22.73 (10.57)
Motilal Oswal Investment Advisors Pvt. Ltd. (MOIAPL):
Particulars FY12 As on FY11 As on Growth (YoY)
March 31, 2012 March 31, 2011
Total Revenues 115.90 417.58 (72.24)
EBIDTA (45.49) 196.50 (123.15)
PBT (46.95) 195.53 (124.01)
PAT (31.07) 129.86 (123.92)
Motilal Oswal Commodities Broker Pvt. Ltd. (MOCBPL):
Particulars FY12 As on FY11 As on Growth (YoY)
March 31, 2012 March 31, 2011
Total Revenues 213.42 96.31 121.60
EBIDTA 102.42 38.96 162.86
PBT 84.94 37.76 124.93
PAT 57.75 25.38 127.57
Motilal Oswal Asset Management Company Limited (MOAMC):
Particulars FY12 As on FY11 As on Growth (YoY)
March 31, 2012 March 31, 2011
Total Revenues 318.11 195 62.75
EBIDTA (9.14) (84.23) (89.14)
PBT (11.32) (85.47) (86.75)
PAT (30.94) (85.47) (63.80)
Segment with Performance (Rs. in millions):
Particulars 31.03.2012 31.3.2011
1. Segment Revenue
(a) Equity Broking & Other related activities 3662.6 4829.9
(b) Financing & Other activities 819.5 508.4
(c) Investment Banking 113.5 405.2
(d) Unallocated 779.8 493.1
TOTAL 5375.3 6236.6
Less: Inter Segment Revenue 590.1 229.1
Income From operations, Other Operating
income & Other Income 4785.2 6007.5
2. Segment Results Profit/(Loss) before tax
and interest from each segment
(a) Equity Broking & Other related activities 1140.8 1495.5
(b) Financing & Other activities 315.7 431.4
(c) Investment Banking (49.20) 183.2
(d) Unallocated 172.6 52
TOTAL 1579.9 2162.1
Less: Interest 53.7 55.1
Profit/(Loss) from Tax 1526.2 2107
3. Capital Emplyoed (Segment Assets -
Segment Liabilities)
(a) Equity Broking & Other related activities 5495.6 5184.2
(b) Financing & Other activities 5731.3 5414.9
(c) Investment Banking 59.5 105
(d) Unallocated 167.4 (109.0)
TOTAL 11453.7 10595.1
Human Resources
The company profoundly believes that an engaged employee is a productive
and active employee. Hence a great deal of importance is given to
recreational activities which serve as an indulgence during times of stress
and monotony. We are also at the forefront with regards to employee health.
Initiatives such as doctor@work i.e. availability of a doctor every day of
the week, give the employees the benefit of having their health check up
done in the office premises at their convenience. This also helps in saving
employee`s time and serves as an immediate treatment option; saving one
form procrastination and delay. The doctor is provided by the company from
Monday to Friday.
Many health camps were carried out during the year keeping the overall
health of the employee in mind. A blood test camp, dental camp, and vision
test camp were done for employee awareness and treatment. A very
significant facility we continue to be a part of is the Employee Mental
health - Wellness and Wellbeing programme. Under this program, a distress
helpline is available 24 x 7 x 365 not only to the employee but also to
his/her immediate family member to discuss and seek help with regards to
mental stress or depression or any tormenting event which may mentally
affect an individual thereby deteriorating his/her performance at work.
Numerous sports activities pump in the energy and vitality in employees.
Cricket, Table Tennis, and Carrom competitions were held during the year.
All major festival like Navratri, Christmas, and Diwali are celebrated with
traditional jest and fervor. An evening of dance, music, and food gives way
to a dazzling Navratri night. A dance session on a Jive; chocolate making
workshop; mocktail making session provided a healthy and refreshing break
from the tiresomeness work life.
In our endeavour to recognize and reward superior employee performance,
employee awards are presented across various categories at the Foundation
Day function. The process of deciding the winners is well evolved and
democratic; one that gives each department a fair platform to recognize
high performers. Furthermore a monthly reward system called the `Super
Achiever Awards` has been initiated to recognize high performers under
every vertical across locations.
Goal - setting and performance evaluation are significant areas in an
employee`s professional life. The entire process was seamlessly carried out
online and the bonus credited in the month of April itself. |