Microcap Financial Services Company with Massive Potential
Proxy to Capital Markets + Strong Promoters with Experienced Management + Improvement in Results + Strong Offline & Online Presecnece
Founded in 1992, this BFSI company has grown into a small-cap player in its sector. Over time, it has developed into a full-stack business, offering a range of services that include broking, depository services, merchant banking, distribution of third-party products, and advisory services, with a good presence across the country.
The company's main offerings revolve around two products: a trading-based mobile app and a website. These platforms form the core of the company's trading and investment services, enabling clients to buy stocks, currencies, and commodities with relative ease. Designed to cater to both seasoned traders and beginners, these platforms offer real-time market data, advanced charting, and various tools to enhance the user experience.
In a highly competitive brokerage industry, the company is always looking for ways to stay ahead. While its growth might not be as fast as that of larger, well-funded players like Groww or heavy balance sheet players like Zerodha, it has carefully built a compelling product with unique features and strengths. The company continues to explore new ways to keep existing clients and attract new ones.
There’s also a broader sense of optimism around India's economic growth, especially with the financialization of savings starting to impact capital markets. This trend is expected to benefit both established and emerging players in the financial sector, as they tap into the growing savings and improved efficiencies in capital markets.
The company also provides comprehensive research services, covering both fundamental and technical aspects of various companies in the capital markets. These research services are aimed at different types of investors, from traders to long-term value investors. In addition, the company offers loan services, including loans against stocks at competitive interest rates. These flexible loan options are particularly helpful during market downturns when selling stocks may not be the best option.
They have also set up an educational platform that provides professional courses for young individuals looking to start a career in finance. Moreover, it offers mutual fund services and an insurance portal to help clients with purchasing and managing claims. In the investment and merchant banking space, the company provides essential services for businesses looking to raise capital, including company valuation, funding, and IPO management. Their expertise in the SME IPO space has helped them carve out a significant market share, aiding small companies in navigating the complexities of going public.
The company operates as a full-stack player in wealth management, offering services across various segments, from retail to HNI, mass affluent, and UHNI clients. Their approach is to cater to individuals as they mature financially from one category to another over their lifetime. This represents a significant "blue ocean" opportunity in the wealth management space, as very few players offer such a broad range of services across all these segments.
The company’s product offerings are tailored to different market segments:
Retail: Equity Broking, Insurance, Mutual Funds.
HNI and Mass Affluent: Loan Against Securities, Unlisted Securities, Alternative Investments (AI), Portfolio Management Services (PMS).
Ultra HNI: Trust Services, Asset Monetization, Wealth Structuring, Investment Advisory, Managed Accounts.
With an extensive network across India, the company can reach a wide audience and offer personalized services. They have 102 branches both within and outside India, serving a diverse range of clients—from HNIs in big cities to small investors in tier 2 and tier 3 towns. The company’s network also includes around 2,200 sub-brokers and 700 team members, which helps in building and maintaining strong relationships with their 200,000 to 250,000 customers.
The company's revenue streams are spread across several key segments, contributing to its stability and growth. About 20% of its revenue comes from interest income generated by loan products, including loans against stocks, which benefit from a low cost of funds. Around 60-70% of the revenue comes from fee and commission income tied to trading activities, mutual fund distribution, and other services. This income is scalable, meaning that as the company gains more clients and trading volumes rise, revenue can grow significantly without a matching increase in costs. The sale of shares and securities through proprietary trading contributes around 2%, while ancillary services make up about 6-7%, further diversifying the company’s primary business lines.
At present, the company is a small-cap entity with a market capitalization in the early triple-digit crores. It trades at a fairly low P/E ratio compared to industry standards. The company’s return on equity (ROE) is healthy, and its profit growth has been strong at around 200%, with sales growth of 50% year on year.
The company is keen on leveraging technology to its full potential. They are working on in-house tools for trading and CRM systems, aiming to be at the forefront of technological innovation to drive efficiencies. They also plan to expand their service offerings, particularly in high-growth areas such as algo trading and merchant banking. Cost control remains a key focus for the company, ensuring that it can grow revenue while managing expenses effectively.
India's economic landscape presents a compelling case for being bullish on the financial services space, especially when considering the trends in savings and wealth accumulation. With the country's savings rate standing at 30% of GDP and annual household savings nearing $800 billion—growing at a consistent CAGR of 10%—there is a substantial pool of capital ready to be deployed into various investment avenues.
The affluent, HNI, and UHNI segments are experiencing explosive growth, with income and wealth increasing at a CAGR of 15-16%. This surge in wealth creates a significant demand for sophisticated financial management services, positioning financial asset management as a critical focus area. Currently, institutional platforms manage 50% of the $1.2 trillion in financial assets held by Indian HNIs. This indicates a strong preference for structured, professional management of wealth, which is only expected to increase as these segments expand.
Within the ultra-HNI segment, institutional wealth managers hold a commanding 80% market share, underscoring their dominance in a space where global players are increasingly losing ground. Smaller banks, often lacking the capacity for personalized wealth management solutions, are struggling to compete, thereby consolidating market power in the hands of the largest, most capable players.
Looking ahead, large wealth managers are poised for substantial growth, with an anticipated CAGR of 20-25% over the next few years. This growth will be driven by their ability to capture a high share of new wealth creation and expand their geographic footprint. Additionally, regulatory changes, particularly the move towards a full-trail commission model, are enhancing the long-term revenue viability of these firms. While fee rates for active AUMs may experience slight compression, the growing advisory share and rising client RM vintage are expected to lower cost-to-income ratios by 3.5%, further boosting earnings growth.
The company is also looking at international expansion, particularly through initiatives like Gift City in India. They are exploring business models targeting NRI and foreign investors interested in the Indian markets. New client acquisition is another critical area of focus, with an emphasis on quality over quantity, as they believe that high volume per user aligns better with their long-term approach.
The management team at this company brings together a diverse range of expertise and experience, playing a crucial role in its growth and success.
The founder and managing director has a solid educational background in science and business administration. His vision and leadership have been central to the company’s journey, guiding its expansion from a focus on leasing and finance to becoming a significant player in equity, currency, and commodity trading, as well as merchant banking.
On the technology front, the company benefits from the expertise of two chief technology officers. One of them is an IIT Delhi graduate, bringing a strong technical foundation and understanding of the Indian market. The other CTO has gained international experience, having studied at San Jose State University and worked with global tech giants like Google and Oracle. This blend of domestic and international experience enables the company to stay competitive and innovative in the fast-evolving tech landscape.
The financial operations of the company are overseen by the CFO, who has more than 20 years of experience in the industry. His steady hand ensures the company’s financial stability, reflected in its consistent track record of dividend payments for over 17 years.
Overall, this company has built a solid foundation in the BFSI sector, with diversified revenue streams, a strong focus on technology, and a commitment to sustainable growth. As they continue to expand their offerings and explore new opportunities, both domestically and internationally, they are well-positioned to benefit from India's growing economy and the financialization of savings.
The risks in this sector are a slowdown in the sector/bear markets, massive competition from old & new players, reducing margins across categories & regulations which may affect them or their clients and eventually their business
We do see this company becoming a part of the core portfolio but in SIP mode.
Summary
Focused on capital / financial services where we see continuing tailwinds
Diverse service offerings with a strong focus on technology being a core part of product building and distribution.
Ability to spot and work on new growth drivers earlier than the competition - they are expanding its footprint and exploring international opportunities, particularly targeting NRI and foreign investors
Family run with the father and his two sons driving the business with experienced management. The sons have spent some time in the business and are well-qualified.
Massive improvement in results overall though a large part of it may be attributed to the bull markets
Strong leeway for growth given online and offline expansion
Growth can be non-linear over a long time and can result in even a 100-bagger
Risks include massive competition, a slowdown in the economy, regulations, and thinning margins.
We want to emphasize that this communication should not be misconstrued as a recommendation, as we are not SEBI RIAs. Readers must conduct their due diligence and exercise caution. Therefore, we urge all readers to approach this opportunity with prudence and carefully consider the potential risks involved. While the prospects appear promising, it is essential to maintain a cautious approach and stay informed of the inherent dynamics of the industry.
Happy to chat and discuss this in detail
About Us -
Govind Shorewala - Entrepreneur (Mining, Textiles) & Investor (Private & Public Markets) → Reach out at: govind.shorewala@gmail.com
Aaroah Mittal - Early Stage VC → Reach out at: aaroah.m@people-group.com
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