Keynote Financial Services Ltd Management Discussions

Industry structure and developments

Capital markets are becoming more prominent in Indias growth story, with an expanding share in capital formation and investment landscape on the back of technology, innovation and digitisation," according to the Economic Survey 2023-24 tabled in Parliament on July 22, 2024. Indian capital markets have witnessed a broad-based expansion across various sub-markets, with the countrys equity market capitalisation reaching Rs.415 lakh crore or USD 5 trillion in May 2024, placing it fifth in the global rankings. Amid healthy domestic economic performance and a favourable investment climate, primary markets remained robust during FY24, facilitating capital formation of Rs.10.9 lakh crore compared to Rs.9.3 lakh crore in FY23. Fund mobilisation through all three modes-Equity, Debt, and Hybrid soared by 24.9%, 12.1% and 513.6%, respectively, in FY24 compared to the previous year.

The number of IPOs rose 66% in FY24 to 272 from 164 in the previous financial year, while the amount grew by 24% to Rs.67,995 crore in FY24 from Rs.54,773 crore in FY23. Even average listing gains in IPO were in double digits. The fund flow in the equity markers continue to be strong with monthly SIP investements of ~ Rs.20,000 Crores in Mutual Funds.

Your Company continued to provide services to various clients across the entire ECM segment - IPOs, Buy Back, Takeover Offers & Rights Issues. Infact, your Company acted as BRLM to three main board IPOs in the FY 2023-24.The Company also concluded a few corporate finance mandates & continued to provide valuations & advisory services to various Corporate/ESOP clients. The Company also established its practice of providing services to Alternative Investment Funds (AIFs) as mandated by SEBI and issued more than 50 Due Diligence Certificates for various AIFs. Further, Company has many more mandates to be serviced in this area.

Opportunities & Threats

Your Company is committed to provide efficient services boosted by its strength in ECM and execution capabilities. We look at various opportunities to secure mandates in the mid-market segment.

The volatility in the capital market on account of various developments in domestic as well as global markets is likely to continue.

Segment-wise performance

During the financial year, ECM mandates were executed besides Corporate Finance mandates in the form of M&A, Valuation services & ESOP advisory services. A new vertical of providing Due Diligence services to AIFs is now well established and company provided services to various AIFs during the financial year.

The total revenue from sale of services for the F.Y.2023-24 was Rs.1,687.46 lakhs as compared to Rs.604.62 lakhs for the financial year ended 2022-23

Outlook

The outlook for the current financial year in the industry segment in which your Company operates remains optimistic. Though the pipeline for IPOs is strong, the IPO activity is likely to remain muted for the first couple of quarters in the next financial year because of combination of domestic & foreign developments.

Risks & Concerns

The size of your Company is a concern given the segment in which it operates. However, your Company also enjoys a niche in the segment in which it operates for providing value added and efficient services to its clients. It may be difficult for your Company to compete for large size global ECM mandates.

Internal Control systems and their adequacy

Your Company is in existence as Merchant Banker since past several years has developed well-structured internal control systems to conduct business within the framework of Regulations. The present structure & systems are adequate and commensurate to the size of operations of your Company.

Discussion on financial performance with respect to operational performance

Your Company has adopted a policy of being selective while accepting assignments. Your Company has been able suceesful in making a mark as a Life Cycle Banker & Advisor to several coprporates over the years. Improved capital markets is likely to have positive impact on financial performance of the company. The management is striving hard to grow the existing pipeline for mandates and focus on timely execution enabling the company to sustain its performance.

Material developments in Human Resources/Industrial Relations front, including number of people employed

Your Company has adopted a policy of appointing key personnel for various segments. There are no material adverse developments in human resources/industrial relations front. Although, the Company has recently expanded its manpower strength, it would like to continue to operate with a lean and robust employee structure.

Significant changes in Key Financial Ratios (i.e. change of 25% or more as compared to the immediately previous financial year) along with detailed explanations thereof

(i) Debtors Turnover

Debtors to turnover ratio was at around 6.95 times as against around 6.44 times as at the end of previous financial year. Your company is a service provider & have adopted the policy of raising the invoices on the clients on completion of the milestone as per respective engagement letters. As a result, the outstanding debtors are not significant. However, some of the debtors remain outstanding at the end of financial year which are mostly recovered in the next financial year.

(ii) Inventory Turnover

Being into services business not applicable.

(iii) Interest Coverage Ratio

Your company is debt free.

(iv) Current Ratio

Current Ratio for this financial year is about 8.01% as against 17.35% for the previous financial year. This is particularly on account of provision for fair value adjustments in current investment as per requirements of IND-AS.

(v) Debt Equity Ratio

Your company is debt free.

(vi) Operating Profit Margin (%)

The operating profit margins stood at 0.57% as against the profit 0.11% reported in the previous financial year. During the year profitability is reduced on account of decline in net gain on fair value of investments as per accounting standards.

(vii) Net Profit Margin (%)

The net profit margin is at 0.43% during current financial year as against 0.07% previous year.

(viii) Sector-specific equivalent ratios:

Not applicable

Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof.

There has been a fall in Return on networth which stood at 0.15% as against 0.01% during previous financial year. Same is attributed to completion of very few assignments on hand, substantial decrease in net gain on fair value of investments coupled with constant expenses on account of salary & administrative costs.

DISCLOSURE OF ACCOUNTING TREATMENT

Your Company follows Accounting Standards as prescribed by Institute of Chartered Accountants of India (ICAI) for preparation of financial statements; there is no other such different treatment followed for the same.