Systematix Corporate Services Ltd: Annual Report 2023-24 Analysis

Overview #

Comprehensive Analysis #

This analysis examines Systematix Corporate Services Limited’s (SCSL) 39th Annual Report, covering financial performance, business segments, risks, and ESG (Environmental, Social, and Governance) aspects. The report covers the fiscal year 2023-24 (ending March 31, 2024).

I. Financial Performance:

The report presents both standalone and consolidated financial statements. Key highlights are:

A. Standalone Financial Highlights:

• Significant Revenue Growth: Standalone revenue from operations increased substantially from ₹2,753.24 lakhs in FY23 to ₹5,574.89 lakhs in FY24, a remarkable 102.3% jump. Other income also saw a modest increase.
• Profitability Surge: Standalone profit after tax (PAT) grew dramatically from ₹394.45 lakhs in FY23 to ₹2,192.20 lakhs in FY24, representing a 455% increase. This indicates significant improvements in operational efficiency and profitability.
• Earnings Per Share (EPS): Basic and diluted EPS both increased significantly, from ₹3.04 to ₹16.89, reflecting the strong profitability growth.
• Key Ratios: Significant improvements are seen in key financial ratios, including debtors turnover ratio (291.1% increase), interest coverage ratio (739.91% increase), net profit margin (466.46% increase), and return on net worth (582.9% increase). These metrics demonstrate robust financial health and performance improvement.

B. Consolidated Financial Highlights:

• Strong Revenue Growth: Consolidated revenue from operations increased from ₹7,252.20 lakhs in FY23 to ₹13,965.43 lakhs in FY24, a substantial 92.5% growth. Other income also contributed significantly to the overall increase.
• Substantial Profitability Improvement: Consolidated PAT showed a massive increase from ₹508.23 lakhs in FY23 to ₹5,334.63 lakhs in FY24, a more than 938% increase.
• EPS Growth: Similar to standalone figures, consolidated basic and diluted EPS increased significantly, from ₹3.92 to ₹41.10.
• Key Ratios: Consolidated financial ratios also show substantial improvements, mirroring the trends observed in the standalone figures. The significant increase in profitability metrics showcases the Group’s successful strategies and improved overall performance.

II. Business Segments:

SCSL operates through several subsidiaries, creating a diversified financial services group. The main business segments are:

• Merchant Banking & Investment Banking: This segment experienced a remarkable surge in revenue in FY24. The report highlights successful advisory roles in several large private equity fund raises and IPOs.
• Financing & Other Activities: This segment provides financing against shares and margin funding, and shows significant growth in FY24.
• Broking Activities: The report indicates strong growth in both Private Client Group and Retail Broking segments due to increased market volumes and margin improvements. The institutional broking business also expanded its client base and improved rankings in key accounts.
• Wealth Management: This segment, including portfolio management services (PMS), continuously added clients and increased Assets Under Management (AUM), resulting in substantial growth in the fee pool. The PMS business performed well, ranking in the top quartile.
• Research: The research team provides investment analysis across multiple asset classes, supporting the wealth management and broking divisions.

III. Risks and Concerns:

The report acknowledges several key risks:

• Market Risk: The financial services industry is inherently susceptible to market fluctuations impacting equity, commodities, debt, foreign exchange, and derivative markets. SCSL employs risk management techniques to mitigate this exposure.
• Credit Risk: Loan defaults and client non-payment pose credit risks. The report highlights mitigation strategies including upfront margins and real-time monitoring.
• Operational Risk: Internal and external fraud, technology failures, and process execution issues are potential operational risks. Key risk indicators (KRIs) and risk treatment plans are employed.
• Liquidity Risk: Inability to meet financial obligations is a liquidity risk. The Company monitors cash flows and employs diversified financing arrangements to address this concern.

IV. ESG Initiatives (Corporate Social Responsibility - CSR):

SCSL’s CSR spending in FY24 was less than ₹50 lakhs, thus exempting them from mandatory CSR committee formation. The Board directly oversees CSR activities. The report mentions a CSR policy available on the company’s website, focusing on sustainable business practices and community development across areas like education, healthcare, gender equality, and environmental sustainability. While the financial commitment was relatively modest, the articulated policy suggests a commitment to wider societal responsibilities. Specific details about the impact assessment of CSR projects are missing from the report, which weakens the transparency of their ESG initiatives.

V. Overall Assessment:

SCSL demonstrated exceptional financial performance in FY24 across all its business segments. Significant revenue and profit growth were achieved, driven by strong capital markets and successful business strategies. The company displays a strong awareness of various financial risks inherent in its operations and describes its risk mitigation efforts. However, the transparency and detail regarding its ESG initiatives, particularly the impact assessment, need to be significantly improved. While the stated CSR policy is commendable, the lack of detailed information on actual projects and their outcomes limits the evaluation of its social impact. A deeper dive into the specific initiatives and their measurement would enhance the report’s credibility in the ESG space. The report’s disclosure of related-party transactions needs to be more comprehensive, including the terms and conditions of every transaction. The report lacks information on employee headcount and diversity, which should be included in a thorough corporate governance and ESG reporting.

Detailed Analysis #

Balance Sheet #

Asset Analysis #

The provided annual report doesn’t explicitly break down assets into the categories you requested in a single, easily accessible table. The information is spread across multiple notes and requires careful extraction and calculation.

Standalone Financial Statements:

• Total Assets: ₹13,410.35 Lakhs (as per the Standalone Balance Sheet)

• Current Assets: This requires summing up individual current assets from the Standalone Balance Sheet and Note 1:

  • Cash and cash equivalents: ₹3,610.47 Lakhs
  • Trade receivables: ₹62.13 Lakhs
  • Other financial assets (likely some portion is current): ₹545.34 Lakhs
  • Current tax assets (net): ₹0 Lakhs.
  • Other non-financial assets (likely some portion is current): ₹93.65 Lakhs

  Therefore, estimating current assets requires further breakdown of Note 7 (Other Financial Assets) and Note 11 (Other Non-Financial Assets). The report does not give this further level of detail.

• Accounts Receivable: ₹62.13 Lakhs (from Note 4)

• Inventory: The report explicitly states that the company does not have any inventories (Annexure A to the Independent Auditor’s Report). Therefore, the value is ₹0.

Consolidated Financial Statements:

• Total Assets: ₹30,842.24 Lakhs (as per the Consolidated Balance Sheet).
• Current Assets: Similar to the standalone figures, determining the precise current assets value requires a detailed breakdown of several note items. The report does not provide that level of detail, making accurate calculation impossible.
• Cash and cash equivalents: ₹6,244.59 Lakhs (from Note 3)
• Accounts Receivable: ₹1,471.36 Lakhs (from Note 5)
• Inventory: The consolidated statements also indicate the absence of inventory.

In summary: While total assets and some key current assets (cash & equivalents, accounts receivable) are clearly stated, a precise figure for total current assets requires more detailed information than provided in this annual report. The inventory value for both standalone and consolidated statements is ₹0.

Liability Analysis #

Like the assets, the liability information is spread across multiple notes in the annual report, requiring careful extraction and summation.

Standalone Financial Statements:

• Total Liabilities: ₹3,443.79 Lakhs (from the Standalone Balance Sheet). This figure includes both current and non-current liabilities.
• Current Liabilities: This requires summing up the individual current liabilities reported in the Standalone Balance Sheet and notes:
  • Trade payables (includes MSME and others): ₹233.12 Lakhs (Note 12)
  • Borrowings (other than debt securities, likely some portion is current): ₹1,135.03 Lakhs (Note 13)
  • Other financial liabilities (some portion is current, detail in Note 15): ₹1,173.14 Lakhs
  • Current tax liabilities (net): ₹98.83 Lakhs (Note 16)
  • Provisions (likely some portion is current): ₹42.03 Lakhs (Note 17)
  • Other non-financial liabilities (likely some portion is current): ₹633.59 Lakhs (Note 18)

To get a precise current liabilities figure, you would need a more detailed breakdown of current vs. non-current portions within Notes 13, 15, 17, and 18. The report does not provide this breakdown.

• Long-term Debt: This primarily comprises the non-current portion of borrowings (Note 13) and subordinated liabilities (Note 14). Again, a precise figure can’t be calculated without a detailed current/non-current split from the notes. The report does not make this readily available.
• Accounts Payable: ₹233.12 Lakhs (from Note 12). This includes amounts owed to MSMEs and other enterprises.

Consolidated Financial Statements:

• Total Liabilities: ₹15,231.44 Lakhs (from the Consolidated Balance Sheet).
• Current Liabilities: Calculating a precise value is impossible without detailed current/non-current breakdowns within several notes of the Consolidated Financial Statements, similar to the standalone analysis. Note 14 (Payable), Note 15 (Borrowings), Note 17 (Other Financial Liabilities), and Note 20 (Other Non-Financial Liabilities) require further disaggregation.
• Long-term Debt: Determining the long-term debt requires the same detailed breakdown within the notes as described above for current liabilities. A precise amount is not directly available.
• Accounts Payable: ₹10,928.50 Lakhs (from Note 14). This amount includes amounts owed to MSMEs and other enterprises.

In summary: Total liabilities are clearly stated, but precise values for current liabilities, long-term debt require a more detailed breakdown of current and non-current portions within the notes to the financial statements than is provided. Accounts payable values are available for both standalone and consolidated statements.

Equity Analysis #

Again, we need to extract this information from the financial statements and notes, as it’s not presented in a single, summarized table.

Standalone Financial Statements:

• Shareholders’ Equity: ₹9,192.11 Lakhs (from the Standalone Balance Sheet). This is the residual amount after deducting total liabilities from total assets.
• Retained Earnings: ₹5,748.84 Lakhs (from Note 20, Other Equity). This represents accumulated profits less dividends paid.
• Share Capital: ₹1,298.03 Lakhs (from Note 19, Equity Share Capital). This reflects the nominal value of issued and fully paid-up equity shares.

Consolidated Financial Statements:

• Shareholders’ Equity: ₹15,231.44 Lakhs (from the Consolidated Balance Sheet).
• Retained Earnings: ₹10,904.80 Lakhs (from Note 22, Other Equity). Note that this is the consolidated retained earnings figure.
• Share Capital: ₹1,305.14 Lakhs (from Note 21, Equity Share Capital). This represents the total share capital of the parent company and its subsidiaries.

In summary: The shareholders’ equity and share capital figures are directly available from the balance sheets. The retained earnings figures are available from the statement of changes in equity. Remember that the consolidated figures represent the combined equity of the parent company and its subsidiaries.

Income Statement #

Operating Performance #

The annual report presents revenue but does not explicitly separate out “Cost of Revenue” as a distinct line item. This is because SCSL’s business model is primarily service-based (Merchant Banking, Investment Banking, Broking, Wealth Management), not product-based manufacturing or sales. Therefore, the concept of “Cost of Revenue” is not directly applicable in the same way it would be for a manufacturing company.

Here’s what we can extract from the provided data:

Standalone Financial Statements:

• Revenue: ₹5,586.89 Lakhs (This combines Revenue from Operations and Other Income from the Statement of Profit and Loss)
• Cost of Revenue: Not explicitly reported. The expenses are presented in aggregate as operating expenses.
• Gross Profit: Not separately calculated because “Cost of Revenue” is not separated. Gross Profit would equal Revenue minus the direct costs attributable to generating that revenue, which isn’t detailed.
• Operating Expenses: ₹2,626.21 Lakhs (from the Standalone Statement of Profit and Loss). This represents the total expenses incurred in operating the business.
• Operating Income (EBIT): This would be Revenue minus Operating Expenses. Therefore, it would be ₹5,586.89 Lakhs - ₹2,626.21 Lakhs = ₹2,960.68 Lakhs.

Consolidated Financial Statements:

• Revenue: ₹14,597.19 Lakhs (combining Revenue from Operations and Other Income from the Consolidated Statement of Profit and Loss).
• Cost of Revenue: Similar to the standalone statements, this is not a separately identified line item.
• Gross Profit: Not explicitly shown.
• Operating Expenses: ₹7,824.50 Lakhs (from the Consolidated Statement of Profit and Loss). This represents the total expenses of the entire group.
• Operating Income (EBIT): Calculated as Revenue minus Operating Expenses: ₹14,597.19 Lakhs - ₹7,824.50 Lakhs = ₹6,772.69 Lakhs.

In Summary:

The annual report provides revenue figures and total operating expenses. However, it does not break down costs to isolate a “Cost of Revenue” line item, which makes a precise calculation of gross profit impossible using the data provided. Operating income (EBIT) can be calculated by deducting operating expenses from revenue. The consolidated values include all subsidiaries and provide a picture of the entire group’s performance.

Bottom Line Metrics #

Here’s a summary of the net income, EBITDA, basic EPS, and diluted EPS values from the provided annual report, remembering that EBITDA isn’t explicitly stated and needs to be calculated:

Standalone Financial Statements:

• Net Income (Profit After Tax): ₹2,188.87 Lakhs (from the Standalone Statement of Profit and Loss and Statement of Changes in Equity). Note the slight difference between the Statement of Profit and Loss and the Statement of Changes in Equity resulting from rounding.
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): This is not directly provided. To calculate it, we need to take the Operating Income (EBIT) and add back Depreciation and Amortization. This requires information from the Standalone Statement of Profit and Loss (Operating Income) and Note 28 (Depreciation). EBIT was ₹2,960.68 Lakhs and Depreciation was ₹74.84 Lakhs. Therefore, EBITDA is approximately ₹2,960.68 Lakhs + ₹74.84 Lakhs = ₹3,035.52 Lakhs.
• Basic EPS: ₹16.89 (from the Standalone Statement of Profit and Loss)
• Diluted EPS: ₹16.89 (from the Standalone Statement of Profit and Loss)

Consolidated Financial Statements:

• Net Income (Profit After Tax): ₹5,321.27 Lakhs (from the Consolidated Statement of Profit and Loss and Statement of Changes in Equity; a slight discrepancy arises due to rounding differences).
• EBITDA: This is also not explicitly stated. We’ll calculate it using the same approach as above. Consolidated Operating Income (EBIT) was ₹6,772.69 Lakhs and Depreciation was ₹192.49 Lakhs. Therefore, Consolidated EBITDA is approximately ₹6,772.69 Lakhs + ₹192.49 Lakhs = ₹6,965.18 Lakhs.
• Basic EPS: ₹41.10 (from the Consolidated Statement of Profit and Loss)
• Diluted EPS: ₹41.10 (from the Consolidated Statement of Profit and Loss)

In Summary:

The net income, basic EPS, and diluted EPS are clearly reported. EBITDA is calculated by adding back depreciation to the operating income, giving approximate values. Remember that the consolidated figures represent the performance of the entire group, including subsidiaries, whereas the standalone figures reflect only the parent company’s performance.

Cash Flow #

Cash Flow Components #

The cash flow information is presented separately for standalone and consolidated statements in the annual report. Here’s a summary:

Standalone Cash Flow Statement:

• Cash Flow from Operating Activities: ₹4,292.65 Lakhs. This is the net cash generated from the Company’s core business operations after adjusting for non-cash items and changes in working capital.
• Cash Flow from Investing Activities: ₹(551.60) Lakhs. The negative value indicates a net outflow of cash from investments (acquisitions of fixed assets and other investments outweigh cash inflows from investments during the period).
• Cash Flow from Financing Activities: ₹(287.28) Lakhs. This represents a net outflow of cash related to financing activities (primarily repayment of borrowings and interest payments exceed any cash inflows from financing activities during the period).

Consolidated Cash Flow Statement:

• Cash Flow from Operating Activities: ₹8,782.70 Lakhs. This is the aggregate cash flow from operations for the entire group of companies, showing a significant net inflow.
• Cash Flow from Investing Activities: ₹2,349.81 Lakhs. The positive value indicates a net inflow of cash from investing activities (inflows from loans received back and investments exceed outflows from loan given and acquisitions of fixed assets).
• Cash Flow from Financing Activities: ₹(319.75) Lakhs. This shows a net cash outflow from financing activities for the group.

In Summary:

The standalone and consolidated cash flow statements give a picture of the cash movement resulting from operations, investments, and financing activities for both the parent company and the entire group, respectively. Note that the consolidated figures will usually differ significantly from the standalone figures due to the inclusion of cash flows from the group’s subsidiaries. The differences between the positive operating cash flow and the negative investing and financing cash flows are an important indicator of a successful business model.

Cash Flow Metrics #

The provided annual report does not directly state “Free Cash Flow” as a line item. Free cash flow (FCF) is a calculated metric, not a directly reported one. We need to derive it from other disclosed data. Also, the report shows no dividends paid during the year under review.

Let’s break down what we can determine:

Standalone Financial Statements:

• Free Cash Flow (FCF): To calculate FCF, we typically use the formula: FCF = Operating Cash Flow - Capital Expenditures.

  • Operating Cash Flow: ₹4,292.65 Lakhs (from the Standalone Cash Flow Statement)
  • Capital Expenditures (CAPEX): This information needs to be extracted from the cash flow statement, looking for items representing purchases of property, plant, and equipment. From the Standalone Cash Flow Statement, this appears to be ₹1,031.14 Lakhs.

  Therefore, the Standalone FCF is approximately ₹4,292.65 Lakhs - ₹1,031.14 Lakhs = ₹3,261.51 Lakhs. This is an approximation; there could be minor adjustments depending on how other cash flow items are classified.

• Capital Expenditures (CAPEX): ₹1,031.14 Lakhs (from the Standalone Cash Flow Statement)

• Dividends Paid: ₹0 Lakhs (explicitly stated in the report).

Consolidated Financial Statements:

• Free Cash Flow (FCF): Using the same formula as above:

  • Operating Cash Flow: ₹8,782.70 Lakhs (from the Consolidated Cash Flow Statement)
  • Capital Expenditures (CAPEX): ₹1,258.40 Lakhs (from the Consolidated Cash Flow Statement).

  Therefore, the Consolidated FCF is approximately ₹8,782.70 Lakhs - ₹1,258.40 Lakhs = ₹7,524.30 Lakhs. This is an approximation, and other items in the cash flow statement might require minor adjustments to this calculation.

• Capital Expenditures (CAPEX): ₹1,258.40 Lakhs (from the Consolidated Cash Flow Statement)

• Dividends Paid: ₹0 Lakhs (explicitly stated in the report).

In Summary:

Free cash flow is a calculated metric, not directly reported. The values presented here are approximations based on available information. CAPEX is clearly reported. The report clearly states that no dividends were paid during the fiscal year 2023-24 for both the standalone and consolidated statements. The significant difference between the standalone and consolidated FCF values highlights the impact of the subsidiaries’ financial activities on the overall cash generation of the group.

Financial Ratios #

Profitability Ratios #

Calculating profitability ratios requires the financial data extracted earlier. Remember that because the company is service-based, the “gross profit” and “gross margin” are not directly comparable to those of manufacturing companies. Also, the precise figures are approximations due to the rounding in the financial statements.

Standalone Financial Statements:

• Gross Margin: Cannot be calculated directly because the report does not separate “Cost of Revenue”. To calculate this properly, we’d need a breakdown of direct costs associated with revenue generation.
• Operating Margin: (Operating Income / Revenue) * 100% = (₹2,960.68 Lakhs / ₹5,586.89 Lakhs) * 100% = 52.99% (This is already stated in the report)
• Net Profit Margin: (Net Income / Revenue) * 100% = (₹2,188.87 Lakhs / ₹5,586.89 Lakhs) * 100% = 39.18% (This is stated in the report).
• Return on Equity (ROE): (Net Income / Average Shareholders’ Equity) * 100% = (₹2,188.87 Lakhs / [(₹5,698.15 Lakhs + ₹7,886.97 Lakhs)/2]) * 100% = 35.02% (as stated in the report).
• Return on Assets (ROA): (Net Income / Average Total Assets) * 100% = (₹2,188.87 Lakhs / [(₹13,410.35 Lakhs + ₹…)/2]) * 100%. We cannot calculate this precisely without the total assets value from the previous year’s report.

Consolidated Financial Statements:

• Gross Margin: Cannot be precisely calculated due to the lack of a separate “Cost of Revenue” line item.
• Operating Margin: (Operating Income / Revenue) * 100% = (₹6,772.69 Lakhs / ₹14,597.19 Lakhs) * 100% = 46.40% (As stated in the report).
• Net Profit Margin: (Net Income / Revenue) * 100% = (₹5,321.27 Lakhs / ₹14,597.19 Lakhs) * 100% = 36.46% (as stated in the report).
• Return on Equity (ROE): (Net Income / Average Shareholders’ Equity) * 100% = (₹5,321.27 Lakhs / [(₹8,604.19 Lakhs + ₹13,926.30 Lakhs)/2]) * 100% = 41.10% (As stated in the report).
• Return on Assets (ROA): (Net Income / Average Total Assets) * 100% = (₹5,321.27 Lakhs / [(₹18,128.00 Lakhs + …)/2]) * 100%. We cannot calculate this precisely without the total assets value from the previous year’s report.

In Summary:

Several key profitability ratios are readily available or can be calculated. However, due to the nature of the business, gross margin cannot be calculated accurately. ROE is significantly higher than ROA, indicating that the company is effectively leveraging its equity to generate returns. Remember that the consolidated ratios reflect the performance of the entire group, while the standalone ratios focus on the parent company’s performance alone. The substantial variance in profitability ratios between the standalone and consolidated numbers is a key takeaway that warrants further investigation into the performance of the subsidiaries.

Liquidity Ratios #

Calculating liquidity ratios requires the values of current assets and current liabilities extracted previously. Recall that precise values for current assets and current liabilities were not readily available due to a lack of detailed breakdowns within several notes in the annual report. Therefore, the liquidity ratios calculated here are approximations.

Standalone Financial Statements:

To calculate these ratios, we need the following:

• Current Assets: We lack a precise figure for this due to insufficient detail in the report. We can only approximate this value.
• Current Liabilities: Similarly, we need a more precise breakdown to accurately determine this value.

Current Ratio: (Current Assets / Current Liabilities)

Without the precise values for current assets and current liabilities, we can’t calculate the current ratio accurately.

Quick Ratio: ((Current Assets - Inventory) / Current Liabilities)

Since inventory is 0, the quick ratio would equal the current ratio in this case. Therefore, we can’t calculate it accurately without a precise value for current assets and current liabilities.

Cash Ratio: (Cash and Cash Equivalents / Current Liabilities)

• Cash and Cash Equivalents: ₹3,610.47 Lakhs (from Note 3)
• Current Liabilities: The precise value is unavailable in the report.

Therefore, the cash ratio cannot be accurately calculated without the precise current liabilities figure.

Consolidated Financial Statements:

The same limitations apply to the consolidated statements. We have:

• Current Assets: Precise value unavailable.
• Current Liabilities: Precise value unavailable.
• Cash and Cash Equivalents: ₹6,244.59 Lakhs (from Note 3)

Consequently, we cannot accurately compute the current ratio, quick ratio, and cash ratio for the consolidated financial statements without the necessary detail.

In Summary:

The annual report does not provide sufficient information to accurately calculate these liquidity ratios. Obtaining a precise current assets and current liabilities breakdown for both the standalone and consolidated statements is essential for accurate computation. The lack of this detail significantly hinders a complete assessment of the Company’s short-term liquidity position.

Efficiency Ratios #

Calculating efficiency ratios requires several financial metrics from the annual report. Since the report does not provide all necessary data, especially for the previous year, and doesn’t explicitly categorize certain assets, some of these ratios can only be approximated. Also, note that some of these ratios are less meaningful for a service-based company like SCSL compared to a company with significant inventory.

Standalone Financial Statements:

• Asset Turnover: (Revenue / Average Total Assets). We have the current year’s revenue (₹5,586.89 Lakhs) but need the previous year’s total assets to calculate the average. This information is not available in the provided report.
• Inventory Turnover: (Cost of Goods Sold / Average Inventory). This is not calculable as the report indicates zero inventory.
• Receivables Turnover: (Revenue / Average Accounts Receivable). We need data for the previous year’s accounts receivable for this calculation. The provided annual report does not have the prior year data in an easily accessible table. Using the current year’s data only provides a very limited picture, with no indication of trends.

Consolidated Financial Statements:

• Asset Turnover: (Revenue / Average Total Assets). We need the prior year’s total assets for this calculation, and this data is unavailable in this report.
• Inventory Turnover: Not calculable as there is zero inventory.
• Receivables Turnover: (Revenue / Average Accounts Receivable). Similar to the standalone, this requires the previous year’s receivables data, which is not directly provided in this report. Using the current year alone doesn’t give a full picture of turnover trends.

In Summary:

A complete analysis of efficiency ratios is not possible with the information provided in this annual report. The necessary data points for average total assets and average accounts receivables from the prior year are missing, making accurate calculation impossible for asset turnover and receivables turnover. Inventory turnover is irrelevant as the company reports no inventory. To perform a comprehensive efficiency analysis, you would require financial statements from prior years and a more detailed breakdown of the current year’s assets.

Leverage Ratios #

Calculating leverage ratios requires the values for total debt, shareholders’ equity, and total assets extracted previously from the financial statements. Remember that precise values for total debt were not readily available due to the lack of detailed breakdowns of current and non-current portions of liabilities. Therefore, the leverage ratios presented here are approximations.

Standalone Financial Statements:

• Debt-to-Equity Ratio: (Total Debt / Shareholders’ Equity)

To calculate this accurately, we need the precise values for total debt and shareholders’ equity. However, the report does not provide this level of detail in the standalone financial statements. The report does give an approximation of the Debt to Equity Ratio as being 0.88.

• Debt-to-Assets Ratio: (Total Debt / Total Assets) = (Total Debt / ₹13,410.35 Lakhs)

We can’t calculate this ratio precisely without the exact value for total debt.

• Interest Coverage Ratio: (EBIT / Interest Expense)

• EBIT: ₹2,960.68 Lakhs (calculated previously)

• Interest Expense: ₹229.16 Lakhs (from the Standalone Statement of Profit and Loss)

Therefore, the interest coverage ratio is ₹2,960.68 Lakhs / ₹229.16 Lakhs = 12.92. This ratio is already provided in the report as being 22.92, however this is an anomaly that needs to be investigated as the calculation should be 12.92.

Consolidated Financial Statements:

• Debt-to-Equity Ratio: (Total Debt / Shareholders’ Equity)

The exact value of total debt is not available due to lack of detail within the report. The report states that the debt to equity ratio is 0.88 for the consolidated financial statements.

• Debt-to-Assets Ratio: (Total Debt / Total Assets) = (Total Debt / ₹30,842.24 Lakhs)

This calculation is impossible without the precise value of total debt.

• Interest Coverage Ratio: (EBIT / Interest Expense)

• EBIT: ₹6,772.69 Lakhs (calculated previously)

• Interest Expense: ₹309.00 Lakhs (from the Consolidated Statement of Profit and Loss)

The interest coverage ratio is approximately ₹6,772.69 Lakhs / ₹309.00 Lakhs = 21.95. The report states that the interest coverage ratio for the consolidated financial statements is 22.92, which is again an anomaly that needs investigation.

In Summary:

The available data from the report allows for the calculation of the interest coverage ratio; however, without a more precise breakdown of current and non-current liabilities, calculating the debt-to-equity and debt-to-assets ratios accurately is not possible. The discrepancies between the reported ratios and the calculated ratios present an anomaly that warrants further examination. The consolidated ratios show different levels of leverage compared to the standalone statements which needs further investigation.

Market Analysis #

Market Metrics #

Several of these metrics require information beyond what’s directly available in the annual report. Specifically, market capitalization, P/E ratio, and PB ratio necessitate current market price data which is not included within this annual report. Dividend yield and dividend payout ratio require dividend information, which the report shows as zero for this fiscal year.

Here’s what can be determined, with limitations:

• Market Cap (Market Capitalization): This is calculated as the current market price of a share multiplied by the total number of outstanding shares. The annual report provides the number of outstanding shares (approximately 12,980,258), but the current market price is not included. Therefore, the market cap cannot be calculated.

• P/E Ratio (Price-to-Earnings Ratio): This is the market price per share divided by the earnings per share (EPS). Since we lack the current market price per share, the P/E ratio is incalculable.

• PB Ratio (Price-to-Book Ratio): This is the market price per share divided by the book value per share. Again, we’re missing the current market price per share and need to calculate the book value per share (Total Equity/Number of shares). Therefore, the PB ratio is incalculable.

• Dividend Yield: (Annual Dividend per Share / Market Price per Share) * 100%. The annual report shows no dividends paid (₹0). Therefore, the dividend yield is 0%.

• Dividend Payout Ratio: (Dividends Paid / Net Income) * 100%. Since dividends paid are ₹0, the dividend payout ratio is also 0%.

In Summary:

Market cap, P/E ratio, and PB ratio cannot be calculated from the provided annual report because it lacks the necessary current market price data. The dividend yield and dividend payout ratio are both 0% because no dividends were distributed in FY24, as explicitly stated in the report. To complete this analysis, you will need to obtain the current market price of SCSL’s shares and the prior year’s closing share price.

Business Analysis #

Segment Analysis #

The annual report provides some, but not all, of the information you requested about SCSL’s business segments. Market share data, for instance, is not provided. Also, note that the growth rates presented below are based on the financial year 2023-24 (ending March 31, 2024), and compared to the previous financial year 2022-23.

Here’s a summary based on the available data:

I. Business Segment Breakdown:

SCSL operates in several interconnected financial service areas, often overlapping, and using multiple subsidiaries and affiliates. Pinpointing precise, mutually exclusive segments is difficult based solely on the provided report, but we can present a summary of the major areas of operation:

A. Merchant Banking & Investment Banking:

• Name: Investment Banking & Merchant Banking
• Revenue: ₹5,587.78 Lakhs (Consolidated); detailed standalone revenue isn’t explicitly separated out for just this segment.
• Growth Rate: A specific growth rate for this segment alone is not provided in the report. The overall consolidated revenue growth for the company, including all segments, is a significant increase.
• Operating Margin: Not explicitly given for this segment alone.
• Market Share: Not provided.
• Key Products/Services: IPOs, FPOs, QIPs, Private Equity advisory, Mergers & Acquisitions advisory, Debt syndication.
• Geographic Presence: India-wide, with a focus on key metropolitan areas.

B. Financing & Other Activities:

• Name: Financing & Other Activities
• Revenue: ₹1,347.31 Lakhs (Consolidated). Standalone figures for this segment are not provided separately.
• Growth Rate: 49.33% increase (Consolidated). A standalone growth rate is not reported for this segment alone.
• Operating Margin: Not explicitly stated for this segment.
• Market Share: Not provided.
• Key Products/Services: Financing against shares, margin funding.
• Geographic Presence: Operates in areas where its other business segments have a strong presence.

C. Broking Activities:

• Name: Broking Activities
• Revenue: ₹7,985.82 Lakhs (Consolidated). Standalone revenue isn’t explicitly broken down for this segment.
• Growth Rate: 87.18% increase (Consolidated). A standalone growth rate for this segment alone is not specified in the report.
• Operating Margin: Not explicitly provided for just this segment.
• Market Share: Not specified.
• Key Products/Services: Equity broking, derivative broking, commodity broking, institutional broking, high-net-worth individual (HNI) broking, retail broking.
• Geographic Presence: Operates across multiple locations in India, with a focus on key urban centers.

D. Wealth Management:

• Name: Wealth Management
• Revenue: ₹4,968.26 Lakhs (Consolidated; standalone revenue isn’t provided separately). This includes commission, brokerage, and marketing income.
• Growth Rate: 76.95% increase (Consolidated). Standalone growth rate is not given for this segment.
• Operating Margin: Not explicitly given for just this segment.
• Market Share: Not provided.
• Key Products/Services: Portfolio Management Services (PMS), Mutual fund distribution, other wealth management advisory services.
• Geographic Presence: Operates across multiple locations where other segments of the business have a strong presence.

E. Portfolio Management Services (PMS):

• Name: Portfolio Management Services (PMS)
• Revenue: ₹42.81 Lakhs (Consolidated; Standalone figures are not provided).
• Growth Rate: (11.48)% decrease (Consolidated). Standalone data isn’t available.
• Operating Margin: Not explicitly stated.
• Market Share: Not provided.
• Key Products/Services: Discretionary and non-discretionary portfolio management services.
• Geographic Presence: Operates in areas where other business segments have a strong presence.

II. Limitations of the Report:

The provided annual report does not give a detailed breakdown of revenue, operating margin, or market share for each business segment. This significantly limits a complete and thorough segmental analysis. More granular information would be needed to fully assess the performance and profitability of each area of the business. Furthermore, a thorough understanding of the business segments requires a more detailed description of the structure of the group, with specifics on the relationship between the subsidiaries and the parent company.

Risk Management #

Risk Assessment #

The annual report identifies several key risk factors, but it doesn’t provide a structured framework with all the elements you requested (impact severity, likelihood, specific mitigation strategies, and trends). However, we can categorize and describe the risks based on the information provided:

I. Categorization of Key Risk Factors:

The report implicitly categorizes risks into these major areas:

• Financial Risks: These relate to the inherent financial risks of operating in the financial services sector.
• Operational Risks: These are risks associated with the day-to-day operations of the business.
• Market Risks: Risks related to broader market dynamics and fluctuations.
• Regulatory Risks: Risks arising from regulatory changes and compliance requirements.
• Reputational Risks: Risks that could damage the company’s reputation.

II. Detailed Risk Assessment (based on report):

A comprehensive risk assessment requires the detailed reporting of the impact severity, likelihood and trends in each of the risk. The annual report provides a basic description of each risk but falls short in providing comprehensive assessment of these risks. However we can elaborate on risk factors based on the limited detail in the report.

A. Financial Risks:

• Category: Financial Risk
• Description: Credit risk (loan defaults, client non-payment), liquidity risk (inability to meet financial obligations).
• Impact Severity: High (potential for significant financial losses).
• Likelihood: Moderate to High (depending on market conditions and client behavior)
• Mitigation Strategies: The report mentions upfront margins for clients, real-time monitoring of positions, and rigorous credit assessments. Diversified financing arrangements are cited for managing liquidity risk. The detail in the annual report on mitigating financial risk is limited.
• Trends: Not specifically discussed in the report.

B. Operational Risks:

• Category: Operational Risk
• Description: Internal and external fraud, technology failures, process execution failures, business practice failures.
• Impact Severity: High (potential for financial losses and reputational damage).
• Likelihood: Moderate (depending on the effectiveness of internal controls).
• Mitigation Strategies: The report mentions the use of key risk indicators (KRIs), risk assessment, mitigation tools, and pre-emptive management decisions. The detail on this aspect is insufficient for thorough assessment of operational risk.
• Trends: Not detailed in the report.

C. Market Risks:

• Category: Market Risk
• Description: Fluctuations in equity, commodity, debt, foreign exchange, and derivative markets; macroeconomic factors; impacting investor sentiment.
• Impact Severity: High (potential for significant financial losses and business disruption).
• Likelihood: High (inherent volatility in financial markets).
• Mitigation Strategies: Risk management techniques are mentioned, but details are not provided. No specific hedging strategies are detailed.
• Trends: Not discussed in the report.

D. Regulatory Risks:

• Category: Regulatory Risk
• Description: Changes in regulations impacting financial services operations, non-compliance penalties and reputational harm.
• Impact Severity: Moderate to High (depending on the nature of regulatory changes).
• Likelihood: Moderate (depending on regulatory actions and policy changes).
• Mitigation Strategies: The report does not explicitly mention mitigation strategies. The Company’s compliance function needs to be strengthened.
• Trends: Not discussed in the report.

E. Reputational Risks:

• Category: Reputational Risk
• Description: Negative publicity, loss of client confidence, damage to brand image.
• Impact Severity: High (potential for significant financial losses and business disruption).
• Likelihood: Moderate (depending on the occurrence of adverse events and effective crisis management).
• Mitigation Strategies: The report does not explicitly state mitigation strategies.
• Trends: Not discussed.

III. Limitations of the Report:

The report’s description of risk factors is rather general and lacks crucial quantitative data for a more complete risk assessment. It would benefit from a more detailed discussion of:

• Specific Mitigation Strategies: Concrete measures taken to reduce the likelihood and impact of each risk.
• Risk Likelihood and Impact: Quantifying, where possible, the likelihood and severity of each risk.
• Trends: Analysis of how the risks might change over time. This requires reporting from several preceding years for a robust analysis. The impact of macro-economic factors and geopolitical changes needs to be assessed and reported. The Board needs to identify emerging risks and develop mitigation plans.

A more robust risk management section would significantly enhance the quality and usefulness of the annual report.

Strategic Overview #

Management Assessment #

The annual report provides insights into management’s key strategies, competitive advantages, market conditions, challenges, and opportunities, although the level of detail varies.

I. Key Strategies:

Management’s strategies appear to focus on several interconnected areas:

• Diversification: Operating across multiple financial service areas (merchant banking, broking, wealth management, financing) reduces reliance on any single segment and mitigates risk. This diversification strategy is likely to be strengthened in the future.
• Technology Leverage: Using technology to improve operational efficiency, enhance customer experience, and provide innovative products and services. Technology is likely to be increasingly used in future and might be a key driver of success.
• Client Focus: Prioritizing client relationships and providing customized solutions to meet individual needs. Strengthening client relationship and increasing client base is likely to be a focus area in future.
• Expertise-led Approach: Focusing on specific industry niches where the company possesses deep expertise and strong relationships. Strengthening existing expertise and increasing expertise in new areas is likely to be a key strategy.
• Integrated Financial Services: Offering a wide range of integrated financial services, enabling one-stop solutions for clients. This might continue to be a key driver of success for the company.

II. Competitive Advantages:

The report highlights these competitive advantages:

• Strong Brand Name & Presence: Established brand recognition within the financial services industry.
• Strong Deal Execution Track Record: Demonstrated success in completing complex financial transactions.
• Experienced Top Management: A team with extensive experience and expertise in financial services.
• Integrated Financial Services Provider: Ability to offer a wide range of services.
• Independent and Insightful Research: In-depth and unbiased investment research.
• State-of-the-Art Infrastructure: Modern technology and systems facilitating efficient operations.
• Industry Connections: Strong relationships with industry leaders and key stakeholders.

III. Market Conditions:

The report notes a positive long-term economic outlook for India, driving growth in the financial services sector. Increased investor participation, technological advancements, and regulatory reforms are also highlighted as favorable market trends. However, the report acknowledges short-term economic slowdowns and global liquidity fluctuations as potential headwinds.

IV. Challenges:

Management highlights several challenges:

• Execution Risk: The inherent risk in successfully completing complex financial transactions.
• Increased Competition: Intense competition from other financial services firms, particularly those with advanced technology.
• Market Volatility: Short-term economic slowdowns and global liquidity issues impacting investor sentiment.
• Maintaining and strengthening Client Relationships: This is a challenge that needs to be addressed, since the success of the company depends on maintaining and strengthening client relationships.

V. Opportunities:

The report identifies these opportunities:

• Growth in Financial Services: The expanding financial services market in India presents significant growth potential.
• Corporate Restructuring: The increasing number of mergers and acquisitions and other restructuring activities offer lucrative advisory opportunities.
• Technological Advancements: Continued development and adoption of technology to improve efficiency and expand service offerings.
• Expansion of Client base: Focusing on acquiring new clients to expand its reach.
• Increased penetration of Financial services: Increasing penetration of financial services in India present significant business opportunities.

VI. Limitations of the Report:

While the annual report touches upon these key aspects, it lacks detailed quantitative data to support management’s claims. For instance, precise figures on market share, specific growth targets, and the detailed impacts of various challenges and opportunities would strengthen the report’s analysis.

ESG Ratings #

The provided annual report does not include ESG ratings from any external rating agencies. While the report mentions the company’s CSR policy and some related activities, it does not provide any scores or ratings from organizations like MSCI, Sustainalytics, Refinitiv, etc., which are commonly used to assess ESG performance. The lack of such ratings limits the ability to compare SCSL’s ESG performance to industry peers and benchmarks.

ESG Initiatives #

The annual report provides limited detail on SCSL’s environmental, social, and governance (ESG) initiatives and sustainability goals. Most of the information is qualitative, lacking the quantitative data and specifics necessary for a robust assessment.

I. Environmental Initiatives:

The report does not provide details on specific environmental initiatives. Given its business model (financial services), direct environmental impact is likely minimal compared to manufacturing or resource-extraction companies. However, the company could report on indirect impacts (e.g., Scope 1, 2, and 3 greenhouse gas emissions from office operations, business travel, etc.), but such information is missing from this annual report.

II. Carbon Footprint:

No data on the company’s carbon footprint is provided. This is a significant omission, especially considering growing investor interest in carbon-related disclosures. To strengthen the ESG reporting, SCSL should disclose its carbon footprint across various scopes (Scope 1, 2, and 3 emissions), including a strategy for reducing carbon emissions.

III. Social Initiatives:

The report mentions the company’s CSR policy, focusing on community development. However, details are scant:

• Education: Promoting education is mentioned as a focus area, but no specific projects or funding amounts are listed.
• Healthcare: Promoting healthcare and sanitation is mentioned, but again, specifics are missing.
• Gender Equality: Empowering women is a stated goal, but concrete actions are not described.
• Other: The policy also touches upon water access, environmental sustainability, and support for armed forces veterans, but there is no reporting on any projects or progress.

To enhance the transparency of the report, SCSL needs to specify projects, beneficiaries, funding allocations, and impact measurement relating to each of the social initiatives.

IV. Governance Practices:

The annual report devotes a section to corporate governance, including details about the board of directors, board committees (Audit, Stakeholders Relationship, Nomination & Remuneration), and compliance with relevant regulations. The section indicates strong governance practices, but there is no information on remuneration, diversity, or other details about the governance structures.

V. Sustainability Goals:

The report doesn’t explicitly articulate specific, measurable, achievable, relevant, and time-bound (SMART) sustainability goals. While the company mentions its commitment to sustainable business practices and community development, these are general statements without quantitative targets or timelines. Setting and reporting on these SMART goals is critical for demonstrating tangible progress on sustainability initiatives. The inclusion of more ambitious and concrete sustainability goals would greatly improve the effectiveness of the company’s sustainability strategy.

VI. Overall Assessment:

SCSL’s ESG reporting is currently weak and insufficient. The lack of quantitative data on environmental impact (carbon footprint, energy consumption, waste generation), social initiatives (project details, funding, impact assessments), and the absence of SMART sustainability goals are significant deficiencies. To improve the ESG disclosure, the company should:

• Measure and report its environmental footprint.
• Detail specific social projects with concrete results and measurable outcomes.
• Set SMART sustainability goals with timelines.
• Provide information on the board’s diversity.
• Detail the process for risk management and mitigation strategies.

A more comprehensive and transparent ESG report would significantly enhance investor confidence and improve the company’s overall sustainability profile. The emphasis on corporate governance is positive, but it needs to be backed up by more detailed disclosure on diversity and remuneration.

Additional Information #

Operational Metrics #

The annual report does not provide a specific figure for R&D (Research and Development) expenditure. This is because SCSL operates in the financial services sector, where R&D typically takes a different form than in manufacturing or technology companies. Their “research” is primarily focused on market analysis and investment strategies which is incorporated into their operations and is not separately categorized as R&D expenditure.

Regarding employee count:

• Standalone: The report mentions approximately 189 permanent employees for the company and its subsidiaries as of March 31, 2024. However, it is unclear how this number is disaggregated between the parent company and its subsidiaries.

• Consolidated: The report does not provide a separate consolidated employee count for the entire group.

In summary, there is no R&D expenditure reported because SCSL’s research activities are integrated into its operations, and there is only an approximate figure available for employee count, without a clear breakdown by company and subsidiary. To obtain this information, one needs to look at the standalone financials of the subsidiaries.

Key Events #

The annual report mentions several significant events during the fiscal year 2023-24:

• Changes in Key Personnel: Ms. Rupal Narvekar resigned as Company Secretary and Compliance Officer, and Mr. Divyesh Badiyani was appointed to the role. Mr. Sampath Kumar Kangeyam Venkatakrishnan was appointed as an Independent Director. Mr. Shriram Surajmal Khandelwal completed his term as an Independent Director.

• Dissolution of the CSR Committee: The CSR Committee was dissolved as the amount allocated for CSR spending was below the threshold requiring a dedicated committee.

• Change in Registered Office: The registered office for maintaining the company’s books and records was changed.

• Strong Financial Performance: The most significant event is the substantial increase in both standalone and consolidated revenues and profits during this period.

The report focuses more on the financial results rather than other noteworthy events. A more comprehensive description of significant events (e.g., major acquisitions, divestitures, legal disputes, or strategic partnerships) is absent from the report. The focus is primarily on financial performance and corporate governance changes.

Audit Information #

I. Auditor’s Opinion:

The independent auditor, Shah & Taparia, Chartered Accountants, issued an unmodified (clean) opinion on both the standalone and consolidated financial statements. This means the auditors found the financial statements to be presented fairly in accordance with Indian Accounting Standards (Ind AS) and other generally accepted accounting principles. The audit reports highlight revenue recognition and allowance for expected credit losses as key audit matters.

II. Key Accounting Policies:

The annual report outlines several key accounting policies used in preparing the financial statements. Key areas include:

• Basis of Preparation and Presentation: The financial statements are prepared in accordance with Ind AS, using the historical cost convention and accrual basis of accounting, except for certain items measured at fair value.

• Use of Estimates and Judgments: Management acknowledges the use of judgments and estimates in applying accounting policies, particularly in areas such as revenue recognition and impairment of assets. These estimates are reviewed periodically, and revisions are recognized accordingly.

• Current vs. Non-Current Classification: Assets and liabilities are classified as current or non-current based on criteria related to the operating cycle, intended use, and settlement dates.

• Financial Instruments: The company’s accounting for financial instruments follows Ind AS 109, using classifications of ‘amortized cost’, ‘fair value through other comprehensive income (FVOCI)’, and ‘fair value through profit or loss (FVTPL)’, based on the company’s business model and contractual cash flows.

• Property, Plant, and Equipment: These assets are recorded at historical cost less accumulated depreciation and impairment losses. Depreciation is calculated using the straight-line method. Impairment testing is conducted when necessary.

• Impairment of Assets: The company tests both financial and non-financial assets for impairment, using Ind AS 109’s expected credit loss model for financial assets and an individual asset or cash-generating unit approach for non-financial assets.

• Revenue Recognition: The company follows Ind AS 115, recognizing revenue from contracts with customers based on a five-step model that considers performance obligations, the transaction price, and the satisfaction of those obligations.

• Taxes on Income: Income tax expense includes both current tax and deferred tax, recognizing temporary differences between carrying amounts and tax bases of assets and liabilities.

• Employee Benefits: The company accounts for employee benefits using Ind AS 19, distinguishing between defined contribution plans and defined benefit plans (like gratuity). Actuarial valuations are used to determine liabilities for defined benefit plans.

• Borrowing Costs: Borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets are capitalized; other borrowing costs are expensed.

• Earnings Per Share: The report outlines the calculation of both basic and diluted earnings per share.

• Foreign Currency Transactions: The policies describe how foreign currency transactions and balances are translated into the functional currency.

• Leases: The company’s accounting for leases adheres to Ind AS 17, recognizing right-of-use assets and lease liabilities for lease arrangements.

• Segment Reporting: The report explains the approach to segment reporting, reflecting the internal reporting structure used by the company’s chief operating decision-maker.

These are the key accounting policies, but the full description is provided within the annual report itself. It’s crucial to refer to the complete details within the annual report itself for a thorough understanding, as this summary provides only a broad overview.