I have been following this company for some time. I have been in and out at various levels. Let me just point out some things
It’s true that bnp paribas holds 32% stake in the company, but the French banking giant is not involved in running the company. Earlier the company was called Geojit BNP Paribas and the bank wanted to take majority stake in the company which the management thwarted and finally they went on to acquire sharekhan and BNP Paribas nominees resigned from the board and the JV was dissolved and the company was renamed Geojit Financial services. However, the bank is still holding on to the shares.
The company has 792 crores and cash equivalents as on Q2’21, but it includes a bit of customer balances as well. As per the Q2 concall the cash position equivalent was around 500 from which a dividend of 1.5 rupees were paid. But the company came out with a q3 eps of around Rs 1.16. So the cash position should be around 500 crores which works out to be around Rs.21 per share.
There may be some calculation issue with
the receivable days, there is no way a traditional brokerage can have such a long receivable period. I saw this data in screener and got confused. Will try to find out why
It’s true that customer additions has not been as good as the discount brokers. But I don’t think the company will find it difficult to switch to the discount broker concept, if the existence of traditional brokerage business is threatened as it boasts about being the first to launch internet and mobile trading in India. And has also an arm called geojit technologies eventhough not a major contributor to revenue. But the management has time and again reiterated that they have no plan to go the discount broker way.
The contribution from middle list JVs are pretty low. But the company has a good old clientele from the middle east.
The company over the past few years have been trying to diversify from a traditional brokerage to a financial services player by concentrating more on their distribution business. The company was to a certain extend successful in improving their mutual fund and insurance distribution business which are currently about 14% of their revenue as on Q3 end. Due to the pandemic the distribution business was negatively affected. The idea was to cross sell other financial products and increase the wallet share.( mutual funds, gold etf, insurance, gold bonds etc). Fact that 74% of their revenue is from equity and equity related products shows that the company’s earnings are cyclical. Past demonetisation when market interests went down drastically, there were reports about increasing retail participation in equity related instruments and financialisation of Savings. And there was a bull run in all the brokers, but things went back to how it was before demonetisation.
However, there was large scale retail participation in equity during lockdown period, but the major beneficiaries were the discount brokers. From what I have seen it was zerodha which grabbed the bulk of these new customers. And geojit also accepted that they had some glitches in online account opening in initial periods of lockdown. If you scrutinize the new clientele added it is more or less in line with the precovid periods. Geojit mostly gets customers through their existing clients, so I expect them to be more sticky.
Geojit is trying to improve its customer experience, they have launched a few PMS funds, some smart folios and recently announced a tie up with lotus dew to launch an AI based portfolio . The company has also enabled global investments. No idea how much of this will be converted into earnings.
There was a mention of company starting loan intermediation services, however due to the pandemic it didn’t take off well. I have no idea how the company plans to execute the idea. But the idea looks good. As per the management there will be a very small contribution from this services in the current year.
All said, the company is still cyclical due to its very high dependence on equity and equity related income.
Dividend yield is currently close to 5 % which is close to risk free interest rate, this may go down if earnings are affected.
Being a company which has negligible working capital requirements why is the company holding close to 500 crores of cash. Are they looking for acquisitions?
Discl: invested as a cyclical bet. May exit at any point of time.