Good Company To Grow With

The company’s focus on using technology efficiently, client acquisition and increasing business partner network augurs well for the stock.

Aditya Birla Money (ABM) is one of those stocks that have delivered spectacular returns to their shareholders. So, while Sensex and Nifty were touching new highs, ABM was quietly outperforming the broader markets.

ABM is in the business of offering investments and trading in stocks and securities through its various affiliations with stock exchanges. It offers portfolio management services to HNI and corporate investors. ABM also caters to investments in debt instruments and mutual funds through it digital platform to diversify asset allocation. As a depository participant, ABM has equity assets under custody worth around Rs25,000 crore, catering to over three lakh investors who hold stocks and securities, mutual funds and Insurance policies in electronic form. 

Apart from the investors who have been the biggest beneficiaries of a dream run in the stock market, the stock brokers and mutual fund distributors also stand to benefit from the bullish momentum in equity markets.

The underlying bullish tone of the markets has revived the IPO markets in India and the IPO launches are already touching multi-year highs, which augurs well for companies such as ABM. The retail participation is on the rise through mutual funds, even as the total folio count stands at 5.82 crore in May 2017. The data released by AMFI said that the gross commission earned by mutual fund distributors nearly doubled in the past three years, rising fromRs2,603 crore in FY14 toRs4,987 crore in FY17.

INDUSTRY TREND 

During FY17, average daily cash market volumes increased toRs24,000 crore, as compared toRs20,000 crore in the previous year, as the domestic economic recovery (along with global economic recovery) gained ground and equity emerged as the preferred asset class.

The daily derivatives turnover increased sharply fromRs280,000 crore toRs380,000 crore. The same can be attributed to the sharp increase in underlying asset prices. 

The Indian equity markets remain heavy on derivatives and light on cash trading. This suggests that the speculative activity is higher than investing activity in the markets. 

The broking industry over the years has suffered earnings pressure as higher share of lower yielding derivatives segment and lower share of higher yielding cash/delivery segment has been the reality for the industry players. The industry has been also facing cost pressures and low yield, which continue to dominate the business strategy for the players. 

ABM continues to improve its market share by targeting profitable segments. The company’s focus on using technology efficiently, client acquisition and increasing business partner network augurs well for the stock. The focus also is on rationalising costs and providing efficient trading tools and value-added research advice to its clients. 

The revenues and profitability is expected to be on rise owing to ABMs efforts in cost reduction and its initiatives for productivity enhancement. The buoyancy in equity markets just helps ABM leverage the resources optimally.

FINANCIALS 

On the financial front, Aditya Birla Money Limited posted an increase of 4 per cent to Rs32.89 crore in its total income in the fourth quarter of FY17, as compared to aRs31.6 crore total income in the previous quarter. The company recorded an increase of nearly 20 per cent in its total income, as against a total income of Rs27.5 crore in the first quarter of FY2017. The operating profit also more than doubled from a loss of Rs1.43 crore in the first quarter of the fiscal to Rs2.45 crore in Q4FY17. The net profit of the company also witnessed an upward trend, turning around from a loss of Rs1.28 crore in Q1FY17 to Rs2.95 crore in Q4FY17. On an annual basis, the total income of the company witnessed increase of 4.3 per cent to Rs133.11 crore in FY17, as against Rs127.65 crore in FY16. 

The net profit of the company increased by 119 per cent to Rs7.28 crore in FY17, ascompared to Rs3.33 crore in FY16. Owing to the steady performance of capital markets in India and healthy participation by retail investors, ABM is expected to do well in the future. However, the stock has seen a sharp run up, due to which its valuations have become expensive. We recommend a Hold on the counter