MANAGEMENT DISCUSSION AND ANALYSIS 1. ECONOMIC OVERVIEW Amidst the gloomy mood of pessimism and uncertainties in the emerging and developed economies, India reemerged with the most promising growth outlook. Global macro fundamentals have also unfolded in favour of India, the bust in the commodity super cycle has placed India on a stronger footing compared to its peers. India's growth phase started at a leisure pace. Domestic structural impediments continued to pose a hurdle to sustainable growth story. However, structural and geopolitical uncertainties are looming large on the peers making India as the most brferred investment destination for investors. Lower commodity prices have aided in bringing down the current account deficit to favourable levels, slowing down of inflation and narrowing down of government's revenue deficit. The sustained disinflationary brssures in the economy enabled RBI to shift its tight monetary policy stance to accommodative stance. The new GDP series has been quite confounding. The new GDP series suggests that India is likely to have outpaced the fastest growing economy, China, in FY15 by growing at a pace of 7.4%. Breaking down the growth dynamics, growth will largely be contributed by amelioration in performance of basic infrastructure industries while sluggishness has persisted in consumer and infrastructure oriented industries. Agriculture sector which depends largely on the weather conditions, remained a drag to the growth. Demand conditions continued to remain weak likely driven by subdued rural as reflected by the sustained drop in rural core inflation. Despite augmenting foreign investment inflows and favourable current account deficit, INR continued to remain under brssure which was largely due to sharp upswing in US dollar. INR in comparison to its major trading partners leaving aside US reflected a sizeable apbrciation. 2. INDUSTRY OVERVIEW Exuberance witnessed in equity markets is due to renewed foreign and domestic investors' interests turned favourable for the domestic brokerage industry. Ample liquidity and limited global investment opportunities coupled with optimism spurting from change in domestic political scenario have channelized the huge quantum of foreign inflows into the Indian capital markets. FII's have invested USD 46 billion in Indian markets of which USD 18 billion have been in equities and rest have been in debt markets. This year has witnessed highest ever FII investment in debt markets. Overall AUMs have expanded by nearly 35% to INR 12 trillion in FY15. Retail Investors' interests have also revived as investor accounts in mutual funds have resurged to over 42 million in Mar'15 from 40 million in Sep'14. 3. BUSINESS OVERVIEW Emkay Global Financial Services Ltd. is an established name in the financial services arena, offering the entire gamut of wealth management and advisory services under one roof. The Company's operations include broking in equities and derivatives on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), commodities, insurance, investment banking, and portfolio management among others. It is also a Depository Participant with CDSL (Central Depository Services Ltd.). Equity Emkay is an INR 113.80 crore net worth group with over 300 retail outlets across the country. It caters to both institutional and non-institutional clients. Backed by one of the strongest equity research team in the country, Emkay assists in adding wealth-creating equities to its clients' portfolios. It strongly believes in the principle of value investing, which involves identifying under-valued stocks through in-depth qualitative and quantitative analysis. During the year, the institutional segment contributed 58% of the total equity broking business, while the non-institutional segment accounted for the remaining. The total number of institutional clients increased from 248 in FY14 to 261 in FY15 while the number of non-institutional clients stood at 1,29,677. The AUM went up from Rs. 1,584 crore to Rs. 7,403 crore and the number of active DP accounts was 87,247. Research Emkay's research capabilities are well demonstrated and apbrciated across the industry. The many awards that have been conferred upon our research and analysts over years substantiate our clients' views. We have a competent team of 34 analysts and associates who are assisted by a production support team and database analysts. All the analysts are experienced and professionally qualified, with many of them coming with strong domain knowledge from their respective industries. Our research team covers 250 stocks across various sectors like Agri Input & Chemicals, Auto & Auto Ancillaries, Banks & Financial Services, Cement, Construction & Infrastructure, Consumers, Engineering & Capital Goods, IT Services, Media & Entertainment, Metals & Mining, Oil & Gas, Paper, Pharmaceuticals, Power and Telecommunications. During the year, the team released numerous industry and thematic reports. It also organized many national and international road shows, conducted many meetings and conference calls with corporate and industry experts. Investment Banking The capital market has been buoyant during FY14-15 with the new NDA Govt taking charge with full majority. The activity in the IPO market is picking up and many existing listed companies have raised money through QIP or rights issues. We believe that the investment cycle will kick-in during FY15-16 that would give further boost to the fund raising exercise of corporate India. During the year, 46 IPOs (including SME IPOs), 51 QIPs and 18 Rights Issues have successfully raising Rs. 3,039 crore, Rs. 29,102 crore and Rs. 6,750 crore respectively. Emkay's Investment Banking division is focused on the small to mid-market segment and has been fairly successful in raising money for quality companies. Majority of the fund raising was by way of QIPs and will remain same in the next year. During the year, the investment banking team completed 8 transactions including QIPs of Dynamatic Technologies Limited, Mold-Tek Packaging Limited, MPS Limited & IRB Infrastructure Developers Limited. The clients who subscribed to the issues are top mutual funds and FIIs in India. Emkay also provided advisory services on others products to Mandhana Industries Limited & Shaily Engineering Plastics Limited and also completed EICL delisting offer during the year. PMS & Distribution Services Your Company is a SEBI registered Portfolio Manager since 2003 and conducts the portfolio management business through its wholly owned subsidiary Emkay Investment Managers Ltd. (EIML). EIML offers six different types of PMS, catering to individual risk appetite, goals and investment brference. The PMS team is focused on offering its clients a superior research based portfolio which effectively manages risk and optimizes returns. Emkay PMS follows a judicious mix of both bottoms up and tops down method, with more emphasis on the bottoms up approach especially for stock selection. Emkay PMS also offers highly customized & personalized advisory services to large HNI / NRI & corporate investors. All of EMIL's PMS strategies have consistently out-performed the index over the years, thereby building substantial wealth for its clients. Below is the performance for last two years of Emkay PMS's flagship product - Emkay Capital Builder. Commodity Emkay offers commodity trading through Emkay Commotrade Ltd., a wholly owned subsidiary of Emkay Global. In spite of the adverse business environment, Emkay Commotrade continued to add clients, on the back of its unparalleled customer service, strong research capabilities and trustworthiness in the market. Currency Foreign exchange is the world's largest and most traded market, with an average daily global turnover of nearly $4.3 trillion (Rs. 200 Lac crore). This is more than 12 times the average daily turnover of the global equity markets. India's daily forex turnover is around $60billion of which nearly $4.5billion is contributed through Exchange traded derivatives. As per RBI, India's foreign exchange (Forex) reserves have moved to its highest levels ever in this FY to touch $351billion. India's average CAD was 1.3% of the GDP as against 1.7% of the GDP in the brvious fiscal - CAD dropped on sharp contraction in imports, particularly gold imports. In FY15, the total turnover of the currency market in India decreased by 23% yoy to Rs. 49,12,370 crore. Emkay's turnover in the currency fell ~27% yoy to Rs. 10,421 crore. Market share dropped to 0.22% from 0.27% in FY13. Insurance Emkay services life and non-life insurance businesses catering to corporates as well as individuals through its 100% subsidiary Emkay Insurance Brokers Limited. As an Insurance broker, Emkay caters to all the insurance needs of its clients and provides technical expertise and value enhancements to them. During FY15, The non-life insurance business contributed 91% of total revenue while the life segment brought in the remaining 9%. Credit & Finance Emkay Fincap Limited, a 100% subsidiary, carries out NBFC activities like financing against shares and margin funding. The amount deployed in margin funding increased from Rs. 3,290 Lac in FY14 to Rs. 4,493 Lac in FY15. The Profit/Loss After Tax from this business was reported at Rs. 286 Lac as against Rs. 240 Lac in the brvious year. 4. OPPORTUNITIES & THREATS Renewed optimism riding on back of promises made by Modi government and favourable outcome of global dynamics have scaled the domestic markets to its new peaks in FY15. Sentimental optimism has been riding high on the markets, however going forward it would depend a lot on delivery of these expectations. Near term growth outlook remains subdued in case government bites the bullet to bring about sustainable growth. Channelizing foreign liquidity into creating productive assets is currently essential else it might lead to creation of a fresh bubble. Policy constraints, continuous & elevated inflation and weak demand conditions have together slackened the private investment cycle. Whereas in the trade-off between maintaining the fiscal deficit target v/s pro-growth policies, public investment suffered. The conversion of projects from the announced stage to completion stage has dropped sharply from nearly 6.0% during FY08-FY10 to less than 2.0% in FY15. Cost overruns of these projects have already augmented in the last couple of years, which was not only contributed by escalation in land prices but also by commodity super-cycle. Now with China slowing down, this year augmentation in input cost has been miniscule. However, the projects which have been stalled in the last couple of years have lost their sheen due to sharp buildup in, input cost. Renewal of these projects is a daunting challenge, the blockage of funds and past experience is likely to deter any further private investment activity atleast for some time now. For confidence buildup in the private segment, basic infrastructure needs to be in place along with pro-investment policies. 5. FUTURE OUTLOOK A year has passed post the decisive victory of the new government. The year 2016, is expected to be the year of implementation of these promises made by the new government. Channelizing the input prices and foreign liquidity to the productive assets will aid in providing the right support to the growth. Government's intention of tackling fiscal deficit by compromising on the pro-growth expenditure has adversely impacted the recovery cycle. However, the future growth is impeded on the government reforms, declining trend in oil prices, further monetary easing and normal monsoon. Government reforms such as shifting of expenditure focus from consumption oriented to capital intensive, passage of land acquisition bill, implementation of GST are required to boost the growth. Long term job creation is critical for sustainable and overall progress of the economy. Private investment climate is still sentimentally frail. Weak corporate balance sheets, impaired banking system, volatility in currency & international commodities, deficiencies of PPP model and insignificant pickup in government investment activity are some of the concerns that has and will hold back the private investment activity. Government's prudence management of its finances on the backdrop of sharp fall in international crude oil prices has to some extent offset the shortfall in tax revenue collection. Drop in crude oil prices by nearly 50% in FY15 of which 34% has been passed on to the consumers while government has retained the rest 66%. The rationale behind government retaining a larger portion is to provide for the cushion to absorb the future volatility of oil prices. This prudent decision is likely to augur well in reducing the government's subsidy burden in the next few years. Global liquidity will continue to flow to high-growth potential Indian capital market given its most attractive historical return. GDP growth seems to have bottomed out and is likely to show a further improvement from a penciled in number of 7.4% in FY15. The twin deficits concerns have been curtailed and contained and the next investment boom seems to be underway. During the year, broad based inflation tapered off from its peak on account of sharp correction in global commodity prices mainly energy inflation. Retail inflation tapered down sharply from a peak of 8.5% in Apr'14 to 5.3% towards the fiscal year end. With these comfortable inflation numbers, RBI reduced the interest rates twice this year to the extent of 50bps that too in between the scheduled policy meets. Notwithstanding the weather vagaries, inflation continued to remain soft. Also, despite the forecast of a below-normal monsoon by the IMD, the current inflation trajectory provides the RBI with the room to cut Repo rate by another 25-50bps from the current levels of 7.5% during FY16. 6. RISKS & CONCERNS Economic Risk Volatility in the Indian and global markets may affect the Company's results - operation and performance. Any unfavorable changes in government policies, economic conditions, demographic trends, income and employment levels, social and political instability or natural calamites may negatively impact our business. Market Risk The Company, as a part of the financial services sector, stands exposed to market risks. Economic conditions and events in India and the world could adversely impact the Company's financial performance. However, the Company has sufficiently mitigated this risk through diversification of its revenue across multiple business lines. Competition Risk The Company may face growing competition from existing players and new entrants. The performance of the Company and profitability may hence be adversely affected. However, we have always considered competition as a favorable factor since it drives us further towards growth. The Company with its well diversified service offerings, nationwide reach, strong brand equity, coupled with the latest technological infrastructure and strong risk management systems will facilitate continuous growth in the coming years. Human Resource Risk Availability of highly skilled labour is a key for any business' success. The Company's growth depends on its ability to attract and retain skilled manpower. We are taking all the necessary steps by continuously strengthening our HR practices to retain the key personnel in all our divisions. The Company has a well defined performance appraisal system, HR policies, induction programs and training programs. All policies and programmes are implemented to enable the employees to constantly develop and upgrade their skills. Regulatory Risk The Company's growth and goodwill can be negatively affected if there is a violation of / non-compliance with regulatory norms. The Company has always maintained the highest level of compliance with regulatory norms. Our legal department is well experienced and trained to ensure conformity to all the legal requirements. Hence, we do not expect to be significantly affected by this risk. 7. HUMAN RESOURCES 'Your Success is our Success' is the guiding principle of our organization work culture. We partner our people in realizing their personal goals and in giving wings to their dreams. We provide them tools needed to reach their full potential, hone their skills and develop new ones through training programs and continuous mentoring. In the year 2014 -15, we have taken various initiatives towards this like we - • Introduced Induction Program with a walk through for all New Joinees at Head Office that included Head HR Welcome Speech, MD Message, Video of Departments, Employee Speak, Web Meeting and Interactive Chat Software with all the New Joinees on a Conference at the branches. • Streamlined HR Processes through an in-house online HR Software for Recruitment, New Joinee On-boarding, Induction and Exits to provide accurate real time status report for all employees. • Revamped the content of Newsletter for engaging all employees to contribute articles at Branches and Head Office, introduced Employee Connect, Industry Connect, Book Review and Employee Apbrciation section. • Recruited Management Trainees and Summer Trainees through various B-School campuses across India. • Conducted around 50 training workshops across the various verticals covering more than 300 man days of training of employees across all locations giving emphasis to our employee growth and development strategy. • Online Peer Review to increase inter-functional coordination and give feedback to peers. We believe in making work an enjoyable experience by providing right balance between fun and work. To fuse our talented people and synergize their sparkling energies, we organized the annual Emkay Diwali Bash "Emkay Fusion". We also brsented Awards to employees who have put in long years of service (10 years plus) at a special function organized during our annual Diwali Bash. To promote employee bonding and a sense of belonging and pride in working for the organization, we organized multi-facet events such as Emkay's Master Chef, Independence Day, Secret Santa, Carom Championship, Women's Day and Maharashtra Day. We believe that people are our greatest assets and continuous efforts are made to invest in people by providing ample learning and growth opportunities. In our endeavor to recognize and give recognition to the hidden talents of our people, training programs and workshops towards the development of our employees were organized to chisel them into masterpieces. Programs were customized for various departments right from the back office operations teams to the top management. We organized training programs on Leadership Development, Coaching, Planning & Organizing, Effective Communication Skills, Advanced Excel and Research Report Writing. 8. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACIES The Company's internal control systems are adequate, operating effectively and are commensurate with the size of business and the same is provided through competent management, implementation of standard policies and processes, maintenance of an appropriate audit program with internal control environment, effective risk monitoring and management information systems. Moreover, the Company continuously upgrades these systems in line with the best available practices. The internal control systems are supplemented by extensive internal audits, regular reviews by management and standard policies and guidelines to ensure reliability of financial and all other records to brpare financial statements and other data. The Management Information System (MIS) forms an integral part of the Company's control mechanism. The Company has regular checks and procedures through internal audits conducted by an independent audit firm periodically. The reports are deliberated and executive summary of the same along with action taken report (ATR) for steps taken by the Management to address the issues are placed before the Audit Committee Meeting / Board Meeting for their review. Reports of internal auditors are reviewed by the Audit Committee, and corrective measures, if any, are carried out towards further improvement in systems and procedures in compliance with Internal Control System. The Board also recognizes the work of the auditors as an independent check on the information received from the management on the operations and performance of the Company. 9. FINANCIAL OVERVIEW Consolidated: Income: The Company recorded a total income of Rs. 11,687 Lac in FY15, as against Rs. 8,267 Lac in FY14, an increase of 41.37%. EBIDTA: The Company's EBIDTA stood at Rs. 3,297 Lac compared to Rs. 595 Lac in FY14, an increase of 454.12%. PAT: The Profit/(Loss) after tax stood at Rs. (1,573) Lac as against Rs.(395) Lac in FY14, an increase of 298.23% due to exceptional item of Rs. 3,587.06 Lac. Standalone: Income: The Company recorded a total income of Rs. 10,380 Lac, as against Rs. 6,828 Lac in FY14, a increase of 52.02%. EBIDTA: The Company's EBIDTA stood at Rs. 2,691 Lac, as against Rs. 317 Lac in FY14, an increase of 748.90%. PAT: The Profit/(Loss) after tax stood at Rs. (1,594) Lac, as against Rs. (521) Lac in FY14, an increase of 205.95%. due to exceptional item of Rs. 3,587.06 Lac. 10. CAUTIONARY STATEMENT Statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates, expectations may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could influence the Company's operations include economic developments within the country, demand and supply conditions in the industry, input prices, changes in government regulations, tax laws and other factors such as litigation and industrial relations. |