Arihant Capital Markets Ltd - Annual Report 2023-24 Analysis

Overview #

Detailed Analysis #

This analysis dissects Arihant Capital Markets Limited’s (ACML) 2023-24 annual report, covering financial performance, business segments, risk factors, and Environmental, Social, and Governance (ESG) initiatives.

I. Financial Performance:

ACML reported record-high performance in FY24, significantly exceeding the previous year’s figures. Key highlights (in ₹ crores):

• Standalone: Total Income increased from ₹132.47 to ₹229.37 (73% growth), with Profit After Tax (PAT) rising from ₹26.23 to ₹65.84 (151% growth).
• Consolidated: Total Income increased from ₹137.76 to ₹235.61 (71% growth), with PAT surging from ₹29.12 to ₹70.51 (142% growth).
• Earnings Per Share (EPS): Standalone EPS increased from ₹2.52 to ₹6.32 (151% growth), while consolidated EPS rose from ₹2.80 to ₹6.77 (142% growth).
• Return on Net Worth (RONW): Improved significantly from 11% to 21% (standalone) reflecting improved profitability. Consolidated RONW figures are not explicitly stated but likely show similar improvement.
• Dividend: The board recommended a 50% dividend (₹0.50 per share), marking the 7th consecutive year of dividend distribution.

II. Business Segments:

ACML operates across various interconnected segments:

• Retail Broking: Showed substantial growth in both online (ArihantPlus app) and offline channels, strengthening its presence in both B2C and B2B markets. The ArihantPlus app boasts a 4.5-star rating and achieved 99% uptime.
• Institutional Division: Experienced growth in institutional investor accounts across DIIs, FPIs, and AIFs. Successful execution of large deals and participation in investor roadshows contributed to this growth.
• Merchant Banking Division (MBD): Exhibited exceptional performance, exceeding targets with successful completion of SME and main board IPOs, block deals, and valuation assignments. A strong pipeline of future IPOs and other mandates indicate continued growth potential.
• Portfolio Management Services (PMS): Reached a milestone of ₹400 crore in Assets Under Management (AUM), reflecting consistent growth and market recognition.
• Third-Party Distribution: Demonstrated good growth in distribution of mutual funds and other financial products. Expansion initiatives are underway to further increase market reach.
• Margin Trading Facility (MTF): Focus on enhanced margins contributed to increased profitability.
• Research: Offers detailed research support with features like fundamental, technical analysis, and portfolio management services integrated into the mobile app.

III. Risk Factors:

The report identifies many key risk factors:

• Economic & Geopolitical: Vulnerability to global economic slowdowns and geopolitical instability. Mitigation strategies include revenue diversification and contingency planning.
• Technological: Risk of obsolescence and cybersecurity threats. Mitigated through investment in R&D, cybersecurity measures (firewalls, DLP, EDR), and regular system audits.
• Operational: System failures, security breaches, and fraud. Addressed through access controls, security assessments, and disaster recovery plans.
• Market: Market volatility and reduced investor confidence. Managed via portfolio diversification, various financial product offerings, and risk management strategies.
• Regulatory: Compliance with evolving regulations. Mitigation includes staying updated on regulations, compliance officers, and regular compliance audits.
• Reputational: Negative publicity and data breaches. Addressed through customer relationship management, open communication, and crisis management plans.
• Credit: Client defaults and market value fluctuations. Mitigated by thorough credit checks and credit limits.
• Competition: Intense competition with established and new players. Combated by focusing on customer satisfaction and unique value propositions.
• Litigation: Legal disputes. Addressed through liability insurance and contract management.

IV. ESG Initiatives:

ACML’s Business Responsibility and Sustainability Report (BRSR) highlights its commitment to ESG principles:

• Environmental: Focus on reducing paper usage (digitalization), promoting sustainable packaging, and conducting tree plantation drives. They aim to minimize their carbon footprint and promote sustainable investments.
• Social: CSR spending of ₹91.47 lakhs focusing on education, financial inclusion and awareness, healthcare, and rural development. Key initiatives include supporting underprivileged children’s education and empowering women through financial literacy programs. A commitment to diversity and inclusion is also stated.
• Governance: A robust corporate governance framework is in place, with independent directors, board committees (Audit, Nomination & Remuneration, Stakeholders Relationship, CSR, Risk Management), and a Whistleblower Policy. The company also demonstrates a commitment to transparency and ethical conduct.

V. Financial Statement Analysis (Standalone & Consolidated):

The financial statements reveal a strong financial position, with significant growth in revenue and profitability across both standalone and consolidated results. The substantial increase in other income in the consolidated statement (compared to standalone) suggests a greater contribution from subsidiary companies. A closer look at the notes to the financial statements is needed to understand the components contributing to the significant increase in financial assets and the increase in trade receivables, while still maintaining a relatively healthy Debt-to-Equity ratio. The increase in non-current financial liabilities is explained by the issuance of NCDs, a strategic move to improve financial flexibility.

VI. Conclusion:

ACML’s 2023-24 annual report demonstrates a year of impressive financial growth and strategic progress. The company’s focus on technology (ArihantPlus app), expansion into various business segments, and commitment to ESG principles indicate a promising trajectory. However, careful monitoring of the identified risks, especially in the areas of market volatility, increasing competition, and regulatory changes, will be essential for sustained success. A detailed analysis of the notes to the financial statements is recommended to gain a deeper understanding of the drivers of financial performance and the quality of earnings. Further scrutiny of the consolidated financial statements, especially pertaining to the performance of subsidiaries, is also necessary for a detailed evaluation.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

The provided annual report doesn’t neatly separate current assets from non-current assets in a single, easily accessible table. We have to piece together the information from various sections, which increases the chance of minor errors due to possible rounding discrepancies in the report itself. Therefore, the figures below should be considered estimates.

Standalone Financial Statements:

• Total Assets: ₹75,124.10 Lakhs (₹751.24 Crores)

• Current Assets (Estimate): This requires summing up all likely current assets: Cash and cash equivalents (₹1,678.24 Lakhs), Bank balances other than cash and cash equivalents (₹37,868.41 Lakhs), Derivative financial instruments (₹4.47 Lakhs), Securities for trade (₹2,905.39 Lakhs), Trade receivables (₹9,630.48 Lakhs), and other current assets (this is an estimated number from the balance sheet because other assets are not properly categorized). This gives an estimated current asset total of approximately ₹51,000 Lakhs (₹510 Crores). The exact value needs careful recategorization from the balance sheet.

• Cash and Cash Equivalents: ₹1,678.24 Lakhs (₹16.78 Crores)

• Accounts Receivable: ₹9,630.48 Lakhs (₹96.30 Crores)

• Inventory (Securities for Trade): ₹2,905.39 Lakhs (₹29.05 Crores)

Consolidated Financial Statements:

• Total Assets: ₹78,048.45 Lakhs (₹780.48 Crores)

• Current Assets (Estimate): Similar to the standalone figures, a precise calculation requires a detailed breakdown not clearly provided in the report. However, based on similar components (with the addition of subsidiaries’ assets) a reasonable estimate would be in the range of ₹600-₹650 Crores. Again, careful recategorization is required for accuracy.

• Cash and Cash Equivalents: ₹2,413.74 Lakhs (₹24.14 Crores)

• Accounts Receivable: ₹9,637.37 Lakhs (₹96.37 Crores)

• Inventory (Securities for Trade): ₹3,105.16 Lakhs (₹31.05 Crores)

Important Note: These are estimates based on the available information in the annual report. The report’s presentation makes precise separation of current and non-current assets difficult. To obtain the exact figures, a more detailed breakdown of assets is necessary. The values may also differ slightly depending on how certain items are categorized (for example, the inclusion of certain fixed deposits under “current assets” or “non-current assets” could affect this analysis.)

Liability Analysis #

Similar to the assets, the annual report doesn’t explicitly separate current and non-current liabilities in a single table. We must again piece together the information from different sections, leading to potential minor errors due to rounding. Therefore, the figures below are estimates.

Standalone Financial Statements:

• Total Liabilities: ₹44,579.96 Lakhs (₹445.80 Crores)

• Current Liabilities (Estimate): This requires summing up likely current liabilities: Trade Payables (₹31,138.48 Lakhs), Current Tax Liabilities (₹179.73 Lakhs), Other Financial Liabilities (₹4,195.29 Lakhs) , Other Non-Financial Liabilities (₹681.10 Lakhs), and Provisions (₹261.61 Lakhs), giving an estimated total of approximately ₹36,456.21 Lakhs (₹364.56 Crores). Precise calculation requires careful review and categorization of liabilities from the balance sheet.

• Long-term Debt: ₹4,325.00 Lakhs (₹43.25 Crores) – This represents the Redeemable Non-Convertible Debentures (NCDs). The report does not specify maturity periods. This is given as a single figure, indicating the total value of NCDs issued. A more detailed breakdown of the maturities is desirable to know current versus long-term portions more accurately.

• Accounts Payable: ₹30,973.59 Lakhs (₹309.74 Crores) – This is the portion of trade payables that excludes amounts owed to MSMEs.

Consolidated Financial Statements:

• Total Liabilities: ₹45,796.01 Lakhs (₹457.96 Crores)

• Current Liabilities (Estimate): Similar to the standalone figures, a precise calculation isn’t straightforward from the provided data. Summing up likely current liabilities gives an estimated total close to ₹370-₹380 Crores. The exact value necessitates detailed categorization from the balance sheet and including subsidiaries.

• Long-term Debt: ₹4,325.00 Lakhs (₹43.25 Crores) – Again, this represents NCDs, with no explicit maturity breakdown provided, so the portion classified as “long-term” is based solely on assuming all NCDs mature beyond one year.

• Accounts Payable: ₹30,241.98 Lakhs (₹302.42 Crores) – This excludes amounts owed to MSMEs.

Important Note: These are estimates. The report’s structure hinders precise current/non-current liability separation. To determine the precise figures, a more detailed classification of liabilities is necessary. Any minor discrepancies in the report itself could also lead to small differences in the estimated values.

Equity Analysis #

Again, we need to piece together information from different sections of the annual report to get these values. The presentation isn’t ideal for quick extraction of this data.

Standalone Financial Statements:

• Shareholders’ Equity: ₹29,354.14 Lakhs (₹293.54 Crores) - This is found at the bottom of the balance sheet.

• Retained Earnings: ₹1,709.59 Lakhs (₹17.10 Crores) - This is found within the “Equity” section of the balance sheet.

• Share Capital: ₹1,041.13 Lakhs (₹10.41 Crores) - This is directly stated in the balance sheet’s “Equity” section.

Consolidated Financial Statements:

• Shareholders’ Equity: ₹32,252.44 Lakhs (₹322.52 Crores) - This is from the bottom of the consolidated balance sheet.

• Retained Earnings: ₹2,004.01 Lakhs (₹20.04 Crores) - This is from the statement of changes in equity, consolidated section.

• Share Capital: ₹1,041.13 Lakhs (₹10.41 Crores) - This is directly from the consolidated balance sheet under “Equity”.

Important Note: These numbers are extracted directly from the provided financial statements. While I’ve presented them in a summarized format, always refer back to the original source for complete accuracy. There is a possibility of extremely minor discrepancies due to rounding errors within the original report itself.

Income Statement #

Operating Performance #

The provided annual report does not explicitly present a “Cost of Revenue” line item in either the standalone or consolidated statement of profit and loss. This is unusual for many types of businesses, but is typical for a brokerage firm which does not have directly attributable costs in the same way as a manufacturer or retailer. The income statement appears to directly list revenue components as the primary source of revenue, and then deduct expenses from the combined total revenue. Therefore, we cannot calculate a traditional “gross profit” in the way we typically would.

Here’s what we can extract from the available information:

Standalone Statement of Profit & Loss:

• Revenue (Total Income): ₹229.37 Crores
• Gross Profit: Not directly provided; a calculation isn’t feasible given the presentation of the income statement.
• Operating Expenses: ₹142.71 Crores (This is the sum of all expense items except for tax expenses and exceptional items.)
• Operating Income (Profit Before Exceptional Items and Tax): ₹86.65 Crores (This is explicitly listed in the statement.)

Consolidated Statement of Profit & Loss:

• Revenue (Total Income): ₹235.61 Crores
• Gross Profit: Not directly provided; a calculation isn’t feasible.
• Operating Expenses: ₹145.02 Crores (This is sum of all expenses excluding tax and exceptional items.)
• Operating Income (Profit Before Share of Profit/(Loss) of Associates, Exceptional Items, and Tax): ₹90.58 Crores (This is explicitly stated in the statement.)

Important Note: The absence of a separate “Cost of Revenue” line item significantly limits the standard profitability analysis. The report’s structure suggests that the “Expenses” section directly reflects the costs associated with generating the different revenue streams (brokerage, interest income, fees, etc.). To perform a more robust analysis, a detailed breakdown of expenses allocated to each revenue stream would be beneficial.

Bottom Line Metrics #

Here’s a summary of the Net Income, EBITDA, Basic EPS, and Diluted EPS values extracted from the provided annual report. Remember that EBITDA is not explicitly provided; we’ll need to calculate it.

Standalone Financial Statements:

• Net Income (Profit After Tax): ₹65.84 Crores

• EBITDA (Estimate): EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) requires adding back depreciation and amortization, interest expense, and taxes to the net profit. This yields an estimated EBITDA of approximately ₹110 Crores. (Calculations: ₹65.84 Crores (PAT) + ₹237.50 Lakhs (Depreciation and Amortization) + ₹1,228.65 Lakhs (Finance costs) + ₹2,115.62 Lakhs (Tax Expenses) ≈ ₹110 Crores). Precise calculation relies on adjusting for any non-cash items that might be included within the expenses reported.

• Basic EPS: ₹6.32

• Diluted EPS: ₹6.32 (Note: In this case, basic and diluted EPS are identical.)

Consolidated Financial Statements:

• Net Income (Profit After Tax): ₹70.51 Crores

• EBITDA (Estimate): Similar calculation as above is needed, yielding an estimated EBITDA of around ₹118 Crores. (Calculations: ₹70.51 Crores (PAT) + ₹240.56 Lakhs (Depreciation and Amortization) + ₹1,256.89 Lakhs (Finance Costs) + ₹2,218.53 Lakhs (Tax Expenses) ≈ ₹118 Crores). The precision again depends on detailed analysis of non-cash expense items.

• Basic EPS: ₹6.77

• Diluted EPS: ₹6.77 (Again, basic and diluted EPS are the same in the consolidated statement.)

Important Notes:

• EBITDA Estimates: The EBITDA figures are estimates because the income statement doesn’t explicitly state EBITDA. The accuracy of these estimates hinges on correctly identifying all non-cash items included within the reported expenses. Further clarification from the notes would be beneficial.
• EPS: The identical basic and diluted EPS values suggest that there are no dilutive securities (like convertible bonds or stock options) outstanding that would impact the diluted EPS calculation.

Always refer to the original financial statements for the most accurate figures. While my calculations are approximations, this analysis provides a reasonable indication of financial performance.

Cash Flow #

Cash Flow Components #

Here’s a summary of the operating, investing, and financing cash flows, extracted from the cash flow statements provided in the annual report. Remember that these are figures reported by the company and should be viewed in the context of the entire report for a complete picture.

Standalone Cash Flow Statement:

• Operating Cash Flow: -(₹359.13) Crores (Note: The negative sign indicates a net outflow of cash from operations.)
• Investing Cash Flow: ₹88.82 Crores (Net inflow from investing activities).
• Financing Cash Flow: -(₹362.10) Crores (Net outflow from financing activities).

Consolidated Cash Flow Statement:

• Operating Cash Flow: -(₹296.32) Crores (Net outflow).
• Investing Cash Flow: ₹619.09 Crores (Net inflow).
• Financing Cash Flow: ₹273.70 Crores (Net inflow).

Important Notes:

• Negative vs. Positive: Negative values indicate net cash outflows, while positive values show net cash inflows.
• Indirect Method: Both statements use the indirect method to calculate cash flow from operating activities. This means they start with net income and adjust for non-cash items and changes in working capital.
• Context is Key: Analyzing these cash flow figures in isolation can be misleading. Consider these alongside the income statement, balance sheet, and the management discussion and analysis to fully understand the company’s financial performance and liquidity position. For example, the large negative operating cash flow in the standalone statement might seem concerning, but it should be interpreted in light of the company’s revenue growth and potentially high receivables turnover. Similarly, the large positive investing cash flows in both statements likely reflect capital inflows and investments made.

Always refer to the original financial statements for complete accuracy. These numbers are reported by the company and represent their accounting of cash flows.

Cash Flow Metrics #

The annual report doesn’t directly provide a “Free Cash Flow” (FCF) figure. We must calculate it using the information available in the cash flow statement and balance sheet. Also, note that the definition and calculation of FCF can vary. I will provide a common calculation below.

Standalone:

• Capital Expenditure (CAPEX): This is not explicitly stated in a single line item. To estimate CAPEX, we need to look at changes in property, plant, and equipment (PP&E) from the balance sheet and adjust for any disposals. The information isn’t readily available to perform this calculation precisely from the annual report.

• Dividends Paid: ₹416.45 Lakhs (₹4.16 Crores) - This is stated in the cash flow statement and the Statement of changes in equity.

Consolidated:

• Capital Expenditure (CAPEX): Similar to the standalone, a precise CAPEX calculation requires more detailed information from the balance sheet that isn’t readily available in the provided report.

• Dividends Paid: ₹416.45 Lakhs (₹4.16 Crores) - This is found in the consolidated cash flow statement.

Free Cash Flow (FCF) Calculation (Estimate):

A common FCF calculation is:

FCF = Operating Cash Flow - Capital Expenditures + Proceeds from sale of investments - Dividend Paid

Since precise CAPEX figures are unavailable from the provided report, we cannot calculate a precise FCF. However, using the available data, we can get a rough estimate:

Standalone (Estimate):

FCF ≈ -(₹359.13 Crores) - (estimated CAPEX) + (Proceeds from sale of investments: ₹88.82 Crores) - ₹4.16 Crores

Note: We lack a specific CAPEX figure, so the standalone FCF calculation will remain incomplete without it.

Consolidated (Estimate):

FCF ≈ -(₹296.32 Crores) - (estimated CAPEX) + (Proceeds from sale of investments: ₹619.09 Crores) - ₹4.16 Crores

Important Notes:

• CAPEX Estimation: The lack of clearly stated CAPEX figures is a significant limitation in calculating accurate FCF values. To make this calculation, further analysis of the change in Property, Plant, and Equipment from the balance sheet is necessary. This would involve identifying whether any significant changes in PP&E were due to disposals, purchases, or other factors.
• FCF Estimates: Therefore, the FCF figures above are rough estimates, subject to error due to the uncertainty of CAPEX. A more detailed balance sheet is needed to estimate this better.

Always refer back to the original financial statements for precise data. My estimations provide an approximate sense of FCF, but they are incomplete without a clearer CAPEX figure.

Financial Ratios #

Profitability Ratios #

As noted previously, calculating a traditional gross profit margin is not possible due to the absence of a clearly defined “Cost of Revenue” line item in Arihant Capital’s financial statements. The income statement appears to directly present revenue components and then deducts expenses.

Here’s what we can calculate, keeping in mind these limitations:

Standalone Financial Statements:

• Operating Margin: (Operating Income / Revenue) * 100 = (₹86.65 Crores / ₹229.37 Crores) * 100 ≈ 37.7%
• Net Profit Margin: (Net Income / Revenue) * 100 = (₹65.84 Crores / ₹229.37 Crores) * 100 ≈ 28.7%
• Return on Equity (ROE): (Net Income / Shareholders’ Equity) * 100 = (₹65.84 Crores / ₹293.54 Crores) * 100 ≈ 22.4%
• Return on Assets (ROA): (Net Income / Total Assets) * 100 = (₹65.84 Crores / ₹751.24 Crores) * 100 ≈ 8.7%

Consolidated Financial Statements:

• Operating Margin: (Operating Income / Revenue) * 100 = (₹90.58 Crores / ₹235.61 Crores) * 100 ≈ 38.5%
• Net Profit Margin: (Net Income / Revenue) * 100 = (₹70.51 Crores / ₹235.61 Crores) * 100 ≈ 29.9%
• Return on Equity (ROE): (Net Income / Shareholders’ Equity) * 100 = (₹70.51 Crores / ₹322.52 Crores) * 100 ≈ 21.8%
• Return on Assets (ROA): (Net Income / Total Assets) * 100 = (₹70.51 Crores / ₹780.48 Crores) * 100 ≈ 9.0%

Important Notes:

• Gross Margin: Cannot be calculated due to the lack of a separate cost of revenue.
• Rounding: Minor variations may occur due to rounding in the original financial statements.
• Consolidated vs. Standalone: The slight differences between standalone and consolidated ratios reflect the contribution (and related expenses) of subsidiaries.

These ratios provide a useful overview of Arihant Capital’s profitability and efficiency. However, it is essential to compare these ratios to industry benchmarks and analyze trends over time for a complete assessment of the company’s performance. The absence of a clear gross profit margin calculation is a limitation.

Liquidity Ratios #

Calculating these liquidity ratios precisely is challenging due to the way the annual report presents the data. We need to estimate current assets and current liabilities, as explained in previous responses. The values presented below are therefore estimates.

Standalone Financial Statements (Estimates):

To calculate these ratios, we need estimates of current assets and current liabilities, which we previously estimated as ₹510 Crores and ₹364.56 Crores respectively:

• Current Ratio: (Current Assets / Current Liabilities) = (₹510 Crores / ₹364.56 Crores) ≈ 1.40
• Quick Ratio: (Current Assets - Inventory / Current Liabilities) = (₹510 Crores - ₹29.05 Crores / ₹364.56 Crores) ≈ 1.29
• Cash Ratio: (Cash and Cash Equivalents / Current Liabilities) = (₹16.78 Crores / ₹364.56 Crores) ≈ 0.05

Consolidated Financial Statements (Estimates):

We previously estimated current assets and current liabilities for the consolidated statements as approximately ₹600-₹650 Crores and ₹370-₹380 Crores, respectively. Using the midpoints for these estimates:

• Current Ratio: (Current Assets / Current Liabilities) = (₹625 Crores / ₹375 Crores) ≈ 1.67
• Quick Ratio: (Current Assets - Inventory / Current Liabilities) = (₹625 Crores - ₹31.05 Crores / ₹375 Crores) ≈ 1.57
• Cash Ratio: (Cash and Cash Equivalents / Current Liabilities) = (₹24.14 Crores / ₹375 Crores) ≈ 0.06

Important Notes:

• Estimates: These are estimates because the annual report does not clearly separate current from non-current assets and liabilities. More precise calculations require a detailed line-item breakdown not provided.
• Inventory: Inventory (Securities for Trade) is subtracted from current assets in the quick ratio calculation.
• Interpretation: A current ratio above 1 generally indicates the company has sufficient current assets to cover its short-term obligations. The quick ratio and cash ratio offer even more conservative views of liquidity, excluding less liquid assets. The estimated ratios suggest that ACML maintains a relatively healthy liquidity position, especially in the consolidated figures.

It’s essential to consider these estimates within the context of the overall financial statements and industry benchmarks to draw meaningful conclusions about ACML’s liquidity.

Efficiency Ratios #

Calculating efficiency ratios precisely requires more detailed information than is readily available in the provided annual report. The values below are therefore estimates, based on previously calculated figures. The lack of a clearly defined Cost of Revenue also impacts the calculation of Inventory Turnover.

Standalone Financial Statements (Estimates):

• Asset Turnover: (Revenue / Average Total Assets) We need to calculate the average total assets, which requires the beginning-of-year total assets (not explicitly stated) and the end-of-year total assets (₹751.24 Crores). Assuming a similar beginning-of-year figure, the average would be approximately ₹750 Crores. Therefore, Asset Turnover ≈ (₹229.37 Crores / ₹750 Crores) ≈ 0.31

• Inventory Turnover: (Cost of Goods Sold / Average Inventory). Because “Cost of Goods Sold” (COGS) is not explicitly stated (and a direct equivalent is hard to determine for a brokerage), we cannot calculate inventory turnover accurately.

• Receivables Turnover: (Revenue / Average Accounts Receivable) Similar to asset turnover, we need the beginning-of-year accounts receivable. Assuming this is roughly equal to the year-end amount, the average would be approximately ₹96 Crores. Thus, Receivables Turnover ≈ (₹229.37 Crores / ₹96 Crores) ≈ 2.4

Consolidated Financial Statements (Estimates):

• Asset Turnover: (Revenue / Average Total Assets) The average consolidated total assets would be estimated as ₹780 Crores. Therefore, Asset Turnover ≈ (₹235.61 Crores / ₹780 Crores) ≈ 0.30

• Inventory Turnover: Cannot be reliably calculated due to the unavailability of COGS data.

• Receivables Turnover: (Revenue / Average Accounts Receivable) Assuming a similar beginning-of-year receivables figure, the average would be approximately ₹96 Crores. Receivables Turnover ≈ (₹235.61 Crores / ₹96 Crores) ≈ 2.4

Important Notes:

• Estimates: These are estimates. The accuracy depends on the accuracy of our estimated average asset and receivables figures. A more complete balance sheet would significantly increase the precision of these calculations.
• COGS and Inventory Turnover: The inability to directly determine a COGS figure (or an equivalent applicable to this type of business) renders an accurate inventory turnover calculation impossible.
• Industry Benchmarks: These ratios need to be compared to industry averages to understand how Arihant Capital performs relative to its competitors.

Therefore, while these figures give a directional sense of ACML’s efficiency, a more detailed breakdown of the financial data is required for a conclusive analysis of its efficiency ratios.

Leverage Ratios #

Calculating use ratios requires careful consideration of how “debt” is defined within the context of Arihant Capital’s business model. The company has various financial instruments which could be classified as debt, and some of this may be related-party debt.

Below are estimates, keeping in mind the limitations of the provided information and the need for further clarification on specific financial items.

Standalone Financial Statements (Estimates):

To calculate these ratios, we use previously estimated values for Total Liabilities, Shareholders’ Equity, and Total Assets.

• Debt to Equity Ratio: (Total Debt / Shareholders’ Equity) Total debt would be the sum of the Long-term debt (₹43.25 Crores) and current portion of borrowings. This will give an estimated total debt figure of approximately ₹50 Crores. Therefore, Debt to Equity Ratio ≈ (₹50 Crores / ₹293.54 Crores) ≈ 0.17

• Debt to Assets Ratio: (Total Debt / Total Assets) Using the estimated total debt figure, Debt to Assets Ratio ≈ (₹50 Crores / ₹751.24 Crores) ≈ 0.07

• Interest Coverage Ratio: (Earnings Before Interest and Taxes (EBIT) / Interest Expense). EBIT can be estimated as Operating income (₹86.65 Crores) + Interest expense (₹12.29 Crores). This gives EBIT ≈ ₹98.94 Crores. Therefore, Interest Coverage Ratio ≈ (₹98.94 Crores / ₹12.29 Crores) ≈ 8.05

Consolidated Financial Statements (Estimates):

Using previously estimated values for Total Liabilities, Shareholders’ Equity, and Total Assets:

• Debt to Equity Ratio: (Total Debt / Shareholders’ Equity). Assuming an approximate total debt figure of ₹50 Crores (Long-term debt + current portion of borrowings), Debt to Equity Ratio ≈ (₹50 Crores / ₹322.52 Crores) ≈ 0.15

• Debt to Assets Ratio: (Total Debt / Total Assets) Using the estimated total debt of ₹50 Crores, Debt to Assets Ratio ≈ (₹50 Crores / ₹780.48 Crores) ≈ 0.06

• Interest Coverage Ratio: (EBIT / Interest Expense). Estimating EBIT as Operating Income (₹90.58 Crores) + Interest Expense (₹12.57 Crores), we get EBIT ≈ ₹103.15 Crores. Therefore, Interest Coverage Ratio ≈ (₹103.15 Crores / ₹12.57 Crores) ≈ 8.21

Important Notes:

• Estimates: These are estimates due to the absence of clearly defined “total debt” and the need to estimate EBIT. The precise values depend on further clarification from the annual report.
• Debt Definition: The definition of “debt” can affect the calculation. The report includes items like NCDs, borrowings, and possibly other liabilities that could be considered debt. A more precise definition would improve the accuracy.
• Interpretation: Lower debt ratios generally indicate lower financial risk. A higher interest coverage ratio signifies the company’s ability to comfortably cover its interest payments.

These estimates provide a general idea of ACML’s leverage. For a more accurate assessment, a thorough review of the notes to the financial statements and a clear definition of what constitutes “debt” is needed. Also, comparing these ratios to industry averages is essential for a complete evaluation of the company’s financial risk.

Market Analysis #

Market Metrics #

To calculate these market-based ratios, we need information not provided directly within the annual report itself. We require the current market price per share and the total number of outstanding shares. The annual report only gives us the number of outstanding shares (1,041,12,800), and the year-end share price. We will need to look up the current market price per share from a financial data source (like Google Finance, Yahoo Finance, or Bloomberg) to calculate these ratios.

Assuming we obtain a current market price per share (CMP) from a financial data source, here’s how we would calculate each ratio:

• Market Capitalization (Market Cap): (Number of outstanding shares * Current Market Price per share) = (1,041,12,800 * CMP)

• Price-to-Earnings Ratio (PE Ratio): (Current Market Price per share / Earnings Per Share (EPS)) = (CMP / EPS) We can use either standalone or consolidated EPS for this calculation, depending on the market data used to obtain the CMP.

• Price-to-Book Ratio (PB Ratio): (Current Market Price per share / Book Value per share) = (CMP / (Shareholders’ Equity / Number of outstanding shares)) Again, we can use either standalone or consolidated shareholders’ equity for this depending on the available CMP data.

• Dividend Yield: (Annual Dividend per share / Current Market Price per share) * 100 = (₹0.50 / CMP) * 100

• Dividend Payout Ratio: (Dividends Paid / Net Income) * 100 = (₹4.16 Crores / Net Income) Use either standalone or consolidated net income depending on which set of data the CMP aligns with.

Important Notes:

• Data Dependency: The calculations above are dependent on the current market price per share which must be looked up externally, therefore these are placeholder calculations.

• Standalone vs. Consolidated: When using the annual report data, it’s important to be consistent in using either standalone or consolidated figures for EPS and shareholders’ equity depending on the market data being used.

• Data Source: Choose a reliable financial data provider to obtain the current market price per share to ensure the accuracy of the ratios.

• Time Sensitivity: Market cap, PE ratio, PB ratio, and dividend yield are all time-sensitive and will change based on the current stock price.

Once you obtain the current market price per share, you can plug that value into the formulas above to calculate the market-based ratios for Arihant Capital Markets Limited.

Business Analysis #

Segment Analysis #

Arihant Capital’s annual report does not provide a complete breakdown of revenue, operating margins, and market share for each segment. The report offers a qualitative overview of each business segment’s performance but lacks the granular quantitative data needed for a detailed analysis in this manner. Therefore, the data below is a combination of qualitative insights and estimates, with the limitations clearly stated.

Business Segments Summary (with limitations):

Limitations of this Data:

• Revenue Estimates: Revenue figures are estimations based on the overall company revenue and the qualitative descriptions of each segment’s performance. A precise revenue breakdown is not provided in the report.

• Growth Rate Estimates: Growth rates are estimated based on the available qualitative descriptions and overall revenue growth figures.

• Operating Margin Estimates: Operating margin estimates are broad ranges, lacking precise data from the report.

• Market Share: The report offers no information on market share for any segment.

• Geographic Presence: This information is generally qualitative rather than quantitative, relying on general descriptions of company reach.

• Interdependence: Many segments are interconnected, making precise segregation challenging. The MTF is an example of a service woven into both the Retail and Institutional segments. Research is similarly integrated across many areas.

For a more detailed and precise breakdown of the performance of each business segment, a more granular data presentation within the annual report would be necessary. The provided report focuses more on the overall success of the company as a whole.

Risk Assessment #

Arihant Capital’s annual report outlines many key risk factors. However, the report lacks a formal risk matrix explicitly detailing the impact severity and likelihood of each risk. The information below combines the identified risks with qualitative assessments of their potential impact and likelihood based on the descriptions given. A quantitative risk matrix is not explicitly presented in the report, making detailed assessment of the risks somewhat limited.

Key Risk Factors Summary:

Important Considerations:

• Qualitative Assessment: The impact severity and likelihood assessments above are qualitative and subjective, based on the descriptions in the report. A more rigorous quantitative analysis would require more specific data.
• Interdependence: These risks are interconnected. For example, market volatility can exacerbate credit risk, and technological failures can damage reputation.
• Mitigation Effectiveness: The success of the mitigation strategies depends on their consistent implementation and adaptation to changing circumstances.

This analysis provides a structured overview of the risks, but a full risk assessment would need a more detailed and quantitative approach from the company’s perspective and professional assessment.

Strategic Overview #

Management Assessment #

Arihant Capital’s management discussion and analysis section highlights many key strategic focuses, competitive advantages, market conditions, challenges, and opportunities. Here’s a summary:

I. Key Strategies:

• Technology Enhancement: Significant investments in building world-class trading platforms and tools (ArihantPlus app), focusing on user experience and advanced features. A goal is to use technology to expand reach and increase efficiency.

• Client Acquisition: Targeting new clients, especially from Tier 2 and 3 cities, millennials, and DIY investors. This involves expanding both online and offline distribution channels.

• Product Diversification: Expanding revenue streams through additional offerings such as mortgage banking, portfolio management services (PMS), alternative investment funds (AIFs), and institutional business.

• Expansion in Tier II and III cities: A focus on gaining a stronger foothold in Tier 2 and 3 cities, utilizing a digital-first approach.

• Financial Literacy: Initiatives to educate and empower Indian investors through financial literacy programs.

II. Competitive Advantages:

• Client-First Approach: Prioritizing client satisfaction and building strong, long-term relationships.

• 30+ Years of Experience: A long-standing reputation built on trust, reliability, and expertise in the Indian capital markets.

• Robust Technology: The ArihantPlus platform is highlighted as a major strength, providing a superior trading experience compared to competitors.

• Strong Network: An extensive network of authorized partners across India.

III. Market Conditions:

• Booming Indian Economy: India’s rapid economic growth, favorable demographics, digitalization, and rising incomes create significant opportunities for growth.

• Fintech Revolution: The broking industry is being transformed by technology, creating both opportunities and challenges. The number of demat accounts continues to increase, showing strong growth in retail investor participation.

• Increased Equity Participation: A rising number of retail investors entering the market, especially from Tier 2 and 3 cities, is a positive market trend. However, this growth is creating more competition.

• Global Uncertainty: Global economic slowdowns, inflationary pressures, and geopolitical tensions create volatility and uncertainty in the market.

IV. Challenges:

• Intense Competition: The Indian broking industry is highly competitive, with many established players and new entrants vying for market share. This includes both traditional and digital-first brokerages.

• Regulatory Changes: The regulatory environment is dynamic. Adapting to frequent changes and ensuring compliance is ongoing challenge.

• Market Volatility: Stock market volatility can impact trading activity and profitability.

V. Opportunities:

• Untapped Investment Potential: A significant portion of the Indian population remains untapped in terms of investment. This presents immense potential for growth.

• Digitalization: The increasing adoption of digital platforms for trading and investment creates opportunities to reach a broader customer base and improve service delivery.

• Growth in Advisory and Merchant Banking: Increased demand for advisory and corporate finance services is creating new opportunities.

• Financial Inclusion: Initiatives to promote financial inclusion can contribute to growth and improve the company’s social impact.

In summary: ACML’s management sees a positive outlook for the Indian capital markets, with significant opportunities for growth. However, the company needs to effectively navigate the challenges of intense competition, regulatory changes, and market volatility to maintain its momentum and capitalize on its strategic initiatives. The focus on technology, expansion, and client relationships is key to this strategy.

ESG Ratings #

The provided annual report does not include ESG ratings from any external rating agencies. While the report details ACML’s ESG initiatives and commitments, it does not cite any scores or rankings from organizations that specialize in ESG assessments (like MSCI, Sustainalytics, Refinitiv, etc.). To find ESG ratings, you would need to consult independent ESG rating providers directly.

ESG Initiatives #

Arihant Capital Markets Limited’s annual report details its ESG initiatives, although it doesn’t quantify many aspects (like precise carbon footprint data). Here’s a summary:

I. Environmental Initiatives:

• Paperless Operations: Encouraging clients to adopt paperless statements and confirmations to reduce paper consumption.

• Sustainable Packaging: Promoting the use of eco-friendly packaging materials. The report specifically mentions a move away from plastic bags towards biodegradable alternatives.

• Tree Plantation Drives: Supporting and organizing tree plantation campaigns to improve green cover and combat climate change. This involves both direct company involvement and financial support for larger initiatives.

• Reduced Plastic Consumption: Minimizing the use of single-use plastics within its offices by providing reusable bottles and filtered water.

• Digital Initiatives: The company’s shift towards digital platforms and technology is positioned as contributing to reduced paper usage and a smaller digital carbon footprint.

II. Carbon Footprint:

The report does not provide a quantified measure of its carbon footprint (Scope 1, 2, and 3 emissions). While it mentions initiatives to reduce its environmental impact, the specific reductions achieved are not numerically detailed. This is a key limitation in assessing the effectiveness of its environmental efforts. The BRSR section attempts to quantify scope 1 and 2 emissions, but only at the Head Office, and admits to using proxy-based approaches elsewhere.

III. Social Initiatives:

• Education: Supporting various programs that provide access to education for underprivileged children, including infrastructure projects for schools.

• Financial Inclusion: Efforts to increase financial literacy and awareness, especially among women and underserved communities. This is done via educational initiatives and investor awareness seminars.

• Healthcare: Contribution to healthcare initiatives including preventive healthcare and the distribution of medical equipment and medicines.

• Women’s Empowerment: Specifically mentioned as a focus area for social initiatives, especially financial education and training.

• Rural Development: Supporting rural development projects.

• Diversity and Inclusion: The company states a commitment to fostering a various and inclusive workplace and strongly opposing discrimination.

• CSR Spending: In FY24, ACML allocated and spent ₹91.47 Lakhs (approximately ₹9.15 Crores) on CSR initiatives. This represents a significant commitment to social responsibility.

IV. Governance Practices:

• Board of Directors: A various board with a mix of executive, non-executive, and independent directors.

• Board Committees: Multiple Board committees (Audit, Nomination and Remuneration, Stakeholders Relationship, CSR, Risk Management) provide oversight and guidance.

• Independent Directors: The company emphasizes the independence and expertise of its independent directors.

• Whistleblower Policy: A whistleblower policy and vigil mechanism is in place to encourage the reporting of unethical behavior or misconduct.

• Code of Conduct: A code of conduct for directors and senior management ensures ethical and responsible behavior.

• Compliance: The company highlights its commitment to compliance with relevant laws, regulations, and corporate governance requirements. The compliance report indicates no material non-compliances during the reporting period.

V. Sustainability Goals:

The report does not explicitly state long-term, measurable sustainability goals. While the initiatives described aim towards sustainability, the absence of clearly defined, quantitative targets makes it difficult to objectively assess progress.

In summary: ACML demonstrates a commitment to ESG principles through various initiatives. However, a significant limitation is the lack of quantitative data to measure the true impact and effectiveness of many of these programs, especially in the environmental area. A more rigorous, data-driven approach to reporting on ESG performance would improve transparency and allow for a more detailed assessment of the company’s sustainability efforts.

Additional Information #

Operational Metrics #

Based on the annual report:

• R&D Expenditure: ₹273 Lakhs (₹2.73 Crores) for the year ended March 31, 2024. The previous year’s R&D expenditure was Nil.

• Employee Count: 341 employees as of March 31, 2024. This includes 277 permanent employees and 64 other (non-permanent) employees. The report does not provide a breakdown of this number by gender or other categories.

Key Events #

The annual report highlights many significant events during the fiscal year 2023-24:

• Record Financial Performance: ACML achieved its highest-ever total revenue and net profit, significantly exceeding the previous year’s results. This was driven by increased trading activity, especially among retail investors, and success in other business segments.

• ArihantPlus App Success: The ArihantPlus mobile trading app continued to gain traction, achieving a 4.5-star rating and high uptime, contributing significantly to increased trading volumes and new client acquisitions.

• Successful IPOs and M&A Activities: The Merchant Banking Division successfully completed IPOs for RBZ Jewellers and Organic Recycling Systems, and also played a key role in the large acquisition of Unichem Laboratories by IPCA Laboratories.

• Significant Milestone in PMS: The Portfolio Management Services (PMS) division crossed ₹400 crore in AUM, highlighting consistent growth.

• Issuance of NCDs: The company successfully raised ₹43.25 Crores through the issuance of Non-Convertible Debentures (NCDs), a strategic move to bolster its financial position.

• Bharat Connect Conference and Investor Roadshows: The company hosted its annual flagship event, Bharat Connect Conference: Rising Stars Summit and conducted investor roadshows in Dubai.

• Launch of Algo Trading Platform: Introduced an algo trading platform designed to provide retail customers with automated trading solutions.

• Cessation of Directors: Two independent directors completed their tenure and retired; another executive director retired. The company appointed new chief financial officers during the year.

These events illustrate a year of significant growth and strategic progress for Arihant Capital. However, it is important to consider these events within the context of the broader market conditions and the overall financial performance as presented throughout the report to understand their impact fully.

Audit Information #

Auditor’s Opinion:

The independent auditor, Dinesh Ajmera & Associates, issued an unqualified opinion on both the standalone and consolidated Ind AS financial statements for the year ended March 31, 2024. This means the auditors found the financial statements to be presented fairly, in all material respects, in accordance with Indian Accounting Standards (Ind AS) and other generally accepted accounting principles in India. There were no material misstatements, reservations, or qualifications in their opinion.

Key Accounting Policies:

The annual report outlines many key accounting policies employed in preparing the financial statements. Key aspects include:

• Basis of Preparation: The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS).

• Revenue Recognition: The five-step model outlined in Ind AS 115 (Revenue from Contracts with Customers) is used to determine revenue recognition, with revenue typically recognized when performance obligations are satisfied.

• Income Tax: Both current and deferred tax liabilities are recognized using the liability method. Deferred tax assets are recognized only when it is probable that future taxable amounts will be available to utilize them.

• Cash and Cash Equivalents: Cash and cash equivalents are defined to include cash on hand, demand deposits, and short-term, highly liquid investments with original maturities of three months or less.

• Financial Instruments: Financial assets and liabilities are classified and measured based on their nature and how they are managed. The fair value measurement framework is employed for certain assets and liabilities. The expected credit loss (ECL) model is used for impairment of financial assets.

• Property, Plant, and Equipment: Assets are measured at cost less accumulated depreciation, using the straight-line method.

• Intangible Assets: Intangible assets are amortized using the straight-line method over their useful lives.

• Leases: Short-term and low-value leases are expensed on a straight-line basis.

• Provisions and Contingencies: Provisions are recognized when an outflow of resources is probable and can be reliably estimated, using a discounted cash flow model.

• Employee Benefits: Short-term employee benefits are expensed at their undiscounted amounts, while post-employment benefits (like gratuity) are recognized using actuarial valuations.

• Foreign Currency Transactions: Foreign currency transactions are translated at the exchange rate prevailing on the transaction date, with exchange differences recognized in profit or loss.

• Investments in Subsidiaries and Associates: The equity method is used for accounting for investments in associates. Subsidiaries are fully consolidated. Investments in subsidiaries are accounted for at cost less impairment losses.

• Earnings Per Share: Both basic and diluted earnings per share are calculated in accordance with Ind AS.

• Segment Reporting: Segment reporting is performed according to Ind AS 108.

• Related Party Transactions: These are disclosed in accordance with Ind AS 24.

This is not an exhaustive list, but it covers the most significant accounting policies. Always refer to the full note on accounting policies within the annual report for complete details. The accounting policies used must be viewed in the context of the entire annual report for a full understanding of how the company presents its financial information.