Beacon provides Debenture Trustee, Security Trustee, AIF Trustee, Trustee to ESOP, Securitization Trustee, Bond Trusteeship Services, Escrow Agent and associated services.
In AIF trustee they serve 200 out of the 1433 AIFs (~15% market share).
In Securities Trustee Beacon serves as custodian for syndicate loans mostly project financing to manage assets on behalf of lenders check covenants, exercise rights on behalf of lenders and in Securitization Trustee Beacon handles direct assignment of loans for CDOs/ loan pools of auto and micro finance acting as collection and payment agents (servicer) and maintain timely payouts.
In Debenture and Bond Trustee Beacon handles regulatory compliance, including filings with the ROC, SEBI, and stock exchanges to maintain transparency and track non-financial covenants outlined in transaction.
The company has very high quality management team, founder Pratapsingh Nathani launched the Loan Syndication franchise at JM Morgan Stanley, Post the JM-MS split, within JM Financial he was involved in marquee transactions in Leveraged Finance for an Auto ancillary & a large telecom tower company M&A Finance at JM Financial. he also ran the Loan Syndications & Debt Capital Markets at ING Vysya Bank. Other Board members and Senior management are from Axis Trustee and IDBI Trustee.
The Securities Trustee and Securitization Trustee business have grown very fast in the last 3 years (partially because of low base). There is trend among banks to outsource the monitoring of loans above 50 Cr. to these companies, this started 5-7 years back and has escalated in recent years.
Tailwinds like SEBI making it mandatory for large companies to have 25% of their fresh borrowing needs with a maturity of more than 1 year funded from the corporate bond and reduction in minimum investment size from 10 lakhs to 10K has helped the bond market grow.
While the bank backed incumbents have been in this business for 30 years and reached to the stage of ~50 Cr. + top line, newer entrant like Orbis and Beacon have grow substantially well, Beacon has grown from 0 to 21 Cr. top line in last 9 years with last 4 years being profitable.
The clientele of Beacon includes PSU like IRFC, NTPC, Hudco, IREDA and Corporates like IIFL, Bank of Baroda, Nomura and Indiabulls.
It’s very like that the market is not very large and they might hit a ceiling after certain stage. The management is cognizant of this and is trying their hand on new avenues of growth for eg - Trustee Subsidiary in Mauritius and Dubai, applying for RTA and DP license to accompany the services currently provided, the management is also guiding that the share of non debenture and bond related business will become 75% from current ~40%.
Their pricing is on par in some cases a bit higher(~20%) than the competitors, they also provide software automation do fund accounting to gain more wallet share.
The industry leaders have 60%+ EBITDA margin and 40%+ PAT Margins, beacon could reach to this stage given they do not price their services at a discount and subsidise other business verticals from cash flow of trustee services.
Risks
SEBI has come up with a consultation paper where they want the regulated business like trustee for bond and AIF and non regulated businesses like securities trustee to be carved out in a separate entity.
The promoter have guided they will merge other business of the promoter group Kratos Fund Accounting and Beacon Payroll into the listed entity, Kratos had Revenues & PAT of 4 Cr and 76 lakhs respectively in FY 24, the promoters have multiple other business related to capital markets.
Disclosure: I personally don’t have any position in this stock and have not bought or sold it in the last six months. Nothing should be construed as investment advice.
I had been doing research on Beacon – I was about to make a post when I saw there already exists one. Adding my research below –
1/ Background on Debenture Trustees
There is increasing demand for trust and transparency across capital markets globally. Debenture Trustees today play a vital role in providing the institutional framework for bond issuances in the economy and supporting the development of Corporate Bond market in India.
A Debenture Trustee (DT) is an independent entity appointed by the issuer of debentures to protect the interest of holders of debentures. To act as debenture trustee, the entity should either be a scheduled bank carrying on commercial activity, a public financial institution, an insurance company, or a body corporate. The entity should be registered with SEBI to act as a debenture trustee.
Debenture Trustee is systemically important intermediary in capital markets landscape playing a significant role in creating and enforcing investor confidence both retail and institutional. During the holding period of these issuances, DT is actively engaged to ensure investor protection through constant monitoring and reporting framework of issuances.
The DT would endeavor to get all information with respect to the bond issuances notified on timely basis to investors, regulators, agencies for any further action as necessary. Over a period, Debenture Trustees have effectively developed robust internal processes, frameworks, and IT systems to adapt to dynamic regulatory changes.
Debenture trustees in India have been instrumental in providing critical inputs with respect to ever changing market risks and assisting the regulator in policy formation to strengthen the regulatory framework. Over the years the responsibilities and scope of work of DT have increased leading to additional reporting requirements to the regulators, credit rating agencies, investors etc. The past two years or so have seen rapidly increasing stress in the Indian banking sector. The recent NBFC events have led to surge in defaults and DTs have acted promptly to undertake various actions under the existing legal framework of India including initiating legal proceedings for recovery of amounts due to debenture holders.
In event of default by issuer of debentures, the Debenture Trustee have exercised their powers and authority to bring the secured property to sale, following the provision laid down in the trust deed and applicable law considering the nature of security and proceeds of sale are applied to redeem the debentures.
2/ Main activities performed by the Debenture Trustees in India
Ensure creation of security charge by Issuer in favor of Trustee
Regulatory Compliances viz. Registrar of Companies (ROC), SEBI and Stock Exchange Filings
Monitoring of payment of financial obligations to debenture holders and reporting to credit rating agency, Depository, Stock Exchanges, and other agencies in case of delay
Monitoring various non-financial covenants as per transaction documents like downgrade of credit ratings, which might result in situation where Event of Default can be declared by Debenture holders
Calling for periodical reports from Issuers to ensure regulatory compliances and monitoring of covenants as per transaction documents
Enforcement Activities – Leading the Enforcement activities for Debenture Holders in case of default
Active role played by DT in resolving debenture holders’ grievances against the Issuer
3/ Indian Corporate Bond Markets
In order to understand the role of Debenture trustees properly, it is important to understand the debt market infrastructure and environment.
The Indian debt market is fairly large, with the bond market presently sized at around $2.34 trillion. Of this, $1.83 trillion is dedicated to government bonds, while $510 billion is allocated to corporate bonds (as of Mar-22, Source: CCIL, SEBI).
Government bonds constitute 78% of the overall outstanding bonds in the country, while corporate bonds account for 22% of the market.
Over the past five years, starting from March 2018, the total outstanding bonds have witnessed a remarkable growth of 77%, with government bonds experiencing an 85% rise and corporate bonds increasing by 53%.
The presence of a robust bond market makes it easier for governments and corporations to raise funds in a cost-effective manner. Furthermore, it assists the banking system in achieving enhanced asset-liability management. The debt market plays a crucial role in supporting these essential aspects by enabling the efficient allocation of capital, promoting transparency and ensuring financial stability. The primary and secondary markets serve as crucial foundations for the issuance, trading and settlement of fixed income securities in the debt market.
With the growing importance of investment for higher GDP growth, there is an urgent need for alternative sources of financing; and corporate bonds market can play an important role here. A well- developed and smooth functioning corporate bonds market serves as an important driver of economic growth as it provides an additional source of long term finance for industry.
In India, RBI and SEBI have taken various steps to develop and strengthen the corporate bonds market. However, while the size of the corporate debt market has expanded, it still remains relatively underdeveloped relative to the bank credit segment.
Private placement of debt remained the primary driver of resource mobilization in the debt segment, witnessing rise of 28 per cent in funds raised during 2022-23, relative to the previous fiscal year.
To improve liquidity and participation, the face value of debt securities issued on private placement basis was reduced to ` 1 lakh from existing ₹ 10 lakh with effect from January 2023.
In the coming days, SEBI proposes to reduce the minimum subscription level to INR 10000 which will propel the retail investors to start evaluating corporate debt as a real option for their savings. This will be further propelled by the onset and the grant of multiple Online Bond Platform Licenses by SEBI. These platforms have started democratizing bond trading and made Indian Corporate Bonds much more accessible to the wider spectrum of Indian investors including retail investors, HNIs, small corporates, treasuries and banks too. (E.g. of platforms Golden PI, Wint Wealth etc.)
With the objective of giving impetus to the corporate bond markets, in terms of increased participation and liquidity enhancement, SEBI permitted stock brokers to participate on Request for Quote (RFQ) platform on behalf of clients, directed AIFs to undertake at least 10 per cent of their secondary market trades through the RFQ platform and allowed them to participate in credit default swaps market.
4/ About Beacon Trusteeship
Promoted by a group of ex-Bankers, Beacon is governed by a senior board of Independent Directors and Advisors from reputed Institutions.
Beacon Trusteeship has been ranked amongst the Top 3 Debenture Trustee Companies by PRIME Database over the last 3 years Beacon Trusteeship manages a cumulative Asset base of INR 9,66,000 Crs including INR 2,10,000 Crs of Assets under Alternative Investment Funds (AIFs). {numbers based on FY 2024 AR)
With the help of technology, a dedicated legal and compliance team for each of our products viz. Debenture Trusteeship, Security Trustee for Loans, Alternative Investment Funds, Securitization and Escrow, we are able to give advise to our transacting clients and Offer bespoke solutions as per our client’s needs. We are India’s 1st tech-enabled Trustee platform to have built its own client-facing ERP System, a dedicated platform for Securitization & a Covenant Monitoring Tech Platform
5/ Range of services offered by Beacon
Beacon specializes in various disciplines of debenture trustee services in India. Its scope broadly includes transaction assessment, applicable regulatory frame work, facilitataion of regulatory compliances, creation & perfection of security offered if any, monitoring asset coverage & ensuring compliance with applicable regulations, acts, rules, terms of issue & covenants throughout the currency of such debenture/bond issue
In addition to Debenture Trusteeship, Beacon offers additional services as well:
The IPO came out in 2024 on the SME platform through which the company raised ~32 Cr (23 Cr fresh issue + 9 Cr OFS)
The money was raised to:
(1) Upgrade the technology infrastructure in its products like Bonds with client ERP to monitor their transactions, Securitization Platform – ProSec, AIF Platform and Covenant Monitoring Platforms to create better client relationships through its technology infrastructure.
(2) Apply for licenses in 2 products which will provide a cross opportunity along with our current suite of products: a. Registrar & Transfer Services (RTA) b. Depository Participant (DP) Services
(3) Open a Back office in Mumbai suburban area to get access to better resources and manpower.
(4) The IFSC GIFT City presence started giving yields as 25+ AIFs have already been registered. Given the increased International fund flows into India, Beacon is exploring options to open offices in Mauritius, UAE and Singapore to take advantage of the same
9/ Competition
While Beacon is the only listed pure-play DT, but the big boys have been in this business forever.
As of today, there are 25 registered DTs in India – most of them being the banks
Among the pure-play DTs, Beacon looks to be the oldest one
Growing importance of debt markets in a growth market like India
Relaxation of norms by RBI/SEBI that will drive more retail investor participation in debt markets (discussed above)
Beacon expanding its range of services and geographical expanse (refer to the IPO section)
12/ Risks
SME stocks are very risky
Regulatory risk – any adverse regulation can impact the business severely
Commoditized offering – there isn’t a real moat as such – as competition heats up the growth can get impacted
Currently, there are 69 employees with just 2 being in the IT department (I highlight that because management talks about their software product as a core strength – I wonder if 2 people are enough to maintain a cutting-edge software, let alone develop it {which they claim})
normally it is to support the stock price. i donot see any other reason why they would put an update within a span of 1 month
having said that, i find the stock valuable at this point. However unable to understand the growth trajectory or future growth prospects, especially when their revenue is NOT a function of the AUM.
Looking at their financial statement of Sept’24, i have following questions
Loans and Advances have increased to INR 12.05 crore, and Other Asset items have increased to INR 17.3 crore. Wonder where the operating cashflow is moving. Are any of these increases related to related party transactions? Are thise relevant to business operations.
Would be great to know insights from the members here…
