SMCGLOBAL - SMC Global Securities Limited Share Price

In the Q2 and H1 FY26 earnings call, management provided a cautious but optimistic outlook for SMC Global Securities Limited. The following key points were highlighted:

1. Revenue Performance: Consolidated revenue from operations for Q2 FY26 was reported at Rs. 440.3 crores, reflecting a 3.6% quarter-on-quarter growth. Despite softer trading volumes and higher funding costs impacting profitability, management expressed confidence in recovery as market conditions stabilize.

2. Future Growth Expectations: Management suggested that although trading volumes had been affected, the potential for recovery was strong. They noted expectations for improved trading activity and investor participation in H2 FY26, forecasting that PAT for the second half could reach Rs. 90 to 100 crores, suggesting a rebound compared to the first half's total of Rs. 51 crores.

3. Market Dynamics: The broader market faced challenges due to regulatory changes and tighter margin norms impacting derivatives and cash market volumes. However, they noted that the industry remains fundamentally strong with robust growth in active demat accounts and mutual fund SIP inflows.

4. Sector Resilience: The non-banking financial services sector is predicted to slow in growth to 13%-15% for FY25-26, a moderation from previous years, yet management emphasized that asset quality among large NBFCs remained stable, indicating resilience.

5. Insurance Sector Growth: The insurance broking business showed strong growth, with revenue from the insurance division increasing 21% YOY to Rs. 162.5 crores in Q2 FY26, driven by increasing demand for life and general insurance products.

6. Client Base Expansion: As of September 2025, the company reported an expanding client base with 2,152 authorized persons across 412 cities and 6,573 financial distributors, underpinning their broad market presence.

Management reaffirmed their commitment to leveraging their diversified business model and digital capabilities to navigate challenges and capitalize on future growth opportunities, expecting market conditions to improve, thereby enhancing overall performance in the coming quarters.

Here are the major questions and their detailed answers from the Q&A section of the earnings transcript:

Question 1: "Your EBITDA margins dropped from 19.2% to 26.4% year-on-year. What specific cost pressures or revenue mix changes contributed to this decline?"
Answer: The decline in EBITDA margins can be attributed to two main factors. Firstly, our exchange commission income decreased by Rs. 35 crores, reflecting the reduced exchange turnover. Secondly, fair value gains on investments dropped significantly, from around Rs. 25 crores last half-year to Rs. 7 crores this year. Together, these factors reduced our profit before tax, which impacted EBITDA.

Question 2: "Are these pressures expected to persist in H2?"
Answer: We anticipate an improvement in H2. The industry faced significant changes in the derivative segments last year, which affected market activities. As these pressures ease and market conditions stabilize, we expect a rebound in activity, leading to better performance in the upcoming quarters.

Question 3: "Your PAT fell 54% year-on-year in Q2. Could you elaborate on the key drivers behind the decline and when a rebound is expected?"
Answer: The main factors behind the decline in PAT are the same as those affecting EBITDA margins. We expect recovery in the subsequent quarters due to market stabilization and improved trading activity, so we foresee a potential rebound in profitability.

Question 4: "You mentioned borrowing rose from Rs. 1500 crore in March' 25 to Rs. 1700 crore as of now. What portion relates to NBFC operations? How is the cost of borrowing trending?"
Answer: The increase in borrowing is primarily due to raising Rs. 220 crores through two series of NCDs, which were essential for our working capital needs. The cost of borrowing remains stable, as anticipated, with no significant rise concerning NBFC operations.

Question 5: "Looking at the first half, do you think hitting 20% growth is achievable, or should guidance be revised?"
Answer: The industry has indeed faced turnover declines in both F&O and cash markets. However, we remain optimistic about the second half, expecting improved results that could align us closer to our initial guidance. We believe that proactive measures taken could facilitate better performance.

Question 6: "What is happening in the insurance industry? Why have margins come down, and do you expect them to improve?"
Answer: The insurance sector's performance remained steady, with PAT slightly above previous year levels. However, the market dynamics mean it's a low-margin business influenced by competitive pressure and regulatory changes. We anticipate improvements, especially in Q4, which traditionally performs better.

Question 7: "Could you explain the reasons for the slight rise in GNPA and NNPA?"
Answer: The slight rise in GNPA and NNPA is due to a few secured accounts facing recovery delays due to legal processes. We've made adequate provisions for these accounts and expect to recover effectively in due time.

Question 8: "Are you planning to rebalance your portfolio towards secured or short-tenure assets?"
Answer: We plan to reduce our exposure to unsecured business loans further, having already decreased it from over 50% to 35% of AUM. Our focus will remain on secured lending, aligning with tightened underwriting standards to support better asset quality in the future.