SMCGLOBAL - SMC Global Securities Limited Share Price

Management provided a constructive outlook during the earnings call for Q3 and 9M FY 2025-26. Key forward-looking points include:

1. Broking Segment Growth: The broking business anticipates growth between 10% to 14% due to increasing penetration and a shift towards online trading models. The company aims to enhance its cash market presence and commodity trading, which has reportedly increased from 4% to 10% of revenues.

2. Digital Engagement: Management is optimistic about integrating algorithm-based trading into mobile platforms, which is expected to enhance trading volumes as more retail investors participate.

3. Mutual Fund AUM: An estimated AUM growth of 20% to 25% is anticipated, with a target to reach over Rs.6,000 crores by the end of FY'27. Approximately 21% of net inflows are attributed to SIPs, with 80% of AUM being equity.

4. Financing Segment Adjustments: A conscious decision has been made to change the loan portfolio focus towards Micro LAP from LAP, expecting stabilization and AUM growth to regain traction after initial moderation due to the transition.

5. Cost of Borrowing: The current cost of borrowing is 10.57%, with expectations of additional reductions of 15 to 20 basis points over the next six months which could improve net interest margins.

6. Continued Investment: Investment in technology and risk management is ongoing, allowing the company to navigate volatility and enhance the growth potential across diverse business lines.

Overall, the outlook suggests resilience and proactive strategies aimed at fostering long-term growth across all segments, adapting to market conditions while leveraging technological advancements for improved engagement and efficiency.

Question 1: "We saw a growth of around 17.3% on year-on-year basis in the broking and distribution segment on the top line. What was the basis of this growth and what growth do we expect for the full financial year?"

Answer: "The growth is primarily driven by increased penetration in the broking business, particularly in the commodity sector where our share has risen from 4% to nearly 10%. Looking ahead, we expect growth to be in the range of 10% to 14% for the full financial year, focusing on enhancing our cash market and commodity business."

Question 2: "Can you elaborate on the differences between online and offline channel margins and how this impacts overall segment profitability?"

Answer: "About 70% of our business is now online, and for discount broking, it's nearly 100% online. Margins do not significantly differ between online and offline; the brokerage model changes only in discount broking. Currently, we're integrating algo trading into our mobile platform, which we anticipate will enhance online trading volumes and profitability further."

Question 3: "What proportion of mutual fund AUM growth is from SIPs versus other segments, and what are the expectations for ending FY'27 AUM?"

Answer: "Around 21% of our net inflows come from SIPs, with about 80% of our AUM being in equity. We project an AUM growth rate of 20% to 25% over the next couple of years, aiming to close above Rs.6,000 crores by the end of FY'27."

Question 4: "What percentage of policies are sourced via digital channels versus physical POS, and how does this affect the cost to acquire per policy?"

Answer: "Only 0.01% of our policies are sourced digitally; we primarily rely on the POS model. Our average acquisition cost per POS is approximately Rs.1,000, emphasizing the cost-effectiveness of our distribution strategy."

Question 5: "Is the AUM reduction a strategic slowdown or driven by funding constraints or demand softness?"

Answer: "The decrease in AUM is a conscious decision to refine our portfolio. We have shifted from LAP to Micro LAP, which has temporarily moderated portfolio size. We expect AUM growth to regain momentum once these strategic changes stabilize."

Question 6: "With the cost of borrowing at 10.57% and ROA at 2.42%, how much room is there to expand NIM if policy rates ease further?"

Answer: "We anticipate another 15 to 20 basis points in reduction within the next six months, following recent repo rate cuts. Most of our loans are MCLR-based, so the impact may take time. We expect gradual improvements in NIM as these reductions materialize."