Falling equity market volumes, few initial public offerings, and rising cost have made it difficult for capital market intermediaries to stay afloat.
However, IDBI Capital is looking to maintain its profitability by cutting losses in retail broking and focusing more on corporate debt restructuring and SME IPOs, says Abhay L. Bongirwar, MD & CEO, in an interview to Business Line.
We have a revenue expectation of Rs 125 crore and a profit before tax (PBT) target of about Rs 57 crore for FY;14, which is higher than last year.
We are not making money in retail but have been successful in curtailing losses. We lost Rs 18 crore in FY’12, Rs 15 crore in FY’13 and are poised to restrict our losses in FY’14 at about Rs 4.5 crore.
In terms of regular clients how does that work out?
If 2,500 people regularly give us brokerage of Rs 2,500 a day, we break even. As on date, we have about 1,800 people regularly giving us brokerage between Rs 1,800-2,000 daily. Our client base is about 65,000.
Our brokerage is predominantly from the cash segment with clients from the middle and higher middle class preferring online broking.
We use the IDBI Bank network to tap retail clients. The bank gives a three-in–one account to its retail clients willing to invest. It provides a savings and demat account, while IDBI Capital offers the trading account.
You had invited bids from manpower service providers a few months back?
Outsourcing manpower is the way to keep our cost down and most retail brokers do this. We have 257 full-time employees. Of this, 104 are professionals (MBA/ CA/ICWA/ CS). Graduates from IIMs come to us for the exposure we offer, though we pay lower salaries.
You make your money from debt restructuring?
We are the second largest in general restructuring and advisory business. Thirty per cent of our clients are from IDBI Bank. We do syndication mandates of up to Rs 150 crore. Above that, we refer them to the bank.
We have about 200 corporate clients. Four clients are being helped to come out of CDR. We also syndicate loans against property to help SMEs avoid restructuring and help banks recover money by advising corporates.
Lead banks refer CDR cases to us. We did three to four deals of Rs 100-200 crore this year.
Is working capital an issue in such cases?
It is an issue. A huge land bank is with banks as collateral, which is an idle asset. If developed into affordable housing, we can syndicate structured/construction finance and the profits generated can become margin money for the companies — for either projects or working capital. However, this is possible if the profit visibility is not more than three years.
What is the latest on your investment banking businesses?
We did two SME listings on the NSE- Thejo Engineering and Opal Luxury Time Products. Mitcon Engineering & Consultancy Services will be done shortly.
What needs to be done to revive interest in equity?
Domestic Institutional Investors have to give buoyancy to mid caps and small caps.
If banks and insurers participate in market-making then liquid stocks will emerge. This would work as banks fund their working capital and give them term loans.
I am very hopeful on listing without IPOs. If we do not have confidence in our SMEs then how will FIIs invest.
What should be done to prop up the secondary debt market?
Credit rating requirement is the biggest issue. DIIs do not invest in papers below AA or A+. Mark-to-market loss provisioning requirement is putting off banks.
Ninety per cent of corporates get excluded once the benchmark becomes A+ or AA. But, they need the money. You find only BFSI papers, especially private NBFCs. The point here is lower the NPA, higher the rating. Manufacturing companies are just not there.