About Rikhav Securities Limited

BUSINESS OVERVIEW

Rikhav Securities Limited (RSL), established in 1995, is a prominent player in equity broking, investing, and trading activities, registered with SEBI as a stockbroker. It holds memberships with BSE Limited (BSE), the National Stock Exchange of India (NSE), and the Multi Commodity Exchange (MCX). RSL offers a wide range of services, including cash delivery, intraday trading, futures, and options, along with active participation in derivative and commodity segments.

As a Self-Clearing Member of the Indian Clearing Corporation Limited (ICCL) and NSE Clearing Limited (NCL), RSL ensures seamless trade settlements. It facilitates Initial Public Offerings (IPOs), provides depository services such as demat account maintenance, and acts as a mutual fund advisor and distributor to guide clients in making informed investment decisions.

The company is a leader in Market Making, supporting newly listed companies by enhancing liquidity and market efficiency. Registered as a Market Maker with BSE in 2012 and NSE in 2016, it has managed market-making mandates for 66 SME-listed companies, providing two-way quotes during trading hours and earning revenue through fixed corporate fees and secondary market spreads.

RSL also engages in proprietary investments across securities, derivatives, and currencies with strategic arbitrage-focused approaches. Its services are delivered through online platforms and a robust network of Authorized Persons, including 24 for NSE Equity, 23 for NSE Derivative, and 8 for NSE Currency segments, with a pan-India outreach. Additionally, the company excels in financial product distribution, offering diversified wealth solutions to clients nationwide.

As on September 30, 2024, the company have around 394 personnel on their payroll to look after the day-to-day business operations, administrative, secretarial, legal and accounting functions in accordance with their respective designated duties. The Bankers o the Company are HDFC Bank Limited, ICICI Bank Limited, SBM Bank (India) Limited and Axis Bank Limited.

INDUSTRY ANALYSIS

Indian Services Industry
The reforms of the 1990s have been associated with the expansion of the service sector in India. Midway through the 1980s, the service sector began to expand, but it took off in the 1990s when India started a series of economic reforms in response to a serious balance of payments issue.

The services sector is not only the dominant sector in India’s GDP but has also attracted significant foreign investment, has contributed significantly to exports, and has provided large-scale employment. India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction. To enhance India's commercial services exports, share in the global services market from 3.3% and permit a multi-fold expansion in the GDP, the government is also making significant efforts in this direction.

The service sector has over 50% contribution to India’s GDP, and it had witnessed a growth of 9.1% in 2022-23. Out of 8.12 million jobs in FY23, service sector companies in IT, banking, and finance accounted for almost half of the new jobs generated. The services sector of India remains the engine of growth for India’s economy and contributed 55% to India’s Gross Value Added at current prices in FY24 (as per advance estimates). The services category ranked first in FDI inflows, as per data released by the Department for Promotion of Industry and Internal Trade (DPIIT).

India is a unique emerging market in the globe due to its unique skills and competitive advantage created by knowledgebased services. The Indian services industry, which is supported by numerous government initiatives like smart Cities, clean India, and digital India is fostering an environment that is strengthening the services sector. The sector has the potential to open up a multi-trillion-dollar opportunity that might stimulate symbiotic growth for all nations. Service providers in India continued to signal positive demand trends in June, which underpinned a stronger increase in new business volumes and further job creation.

In December 2023, services exports grew by 1.3% to US$ 31.6 billion, driven by software, business, and travel services. While Imports declined by 1.2%, resulting in record high net earnings of US$ 16.0 billion.

During October-December 2023, India experienced a 5.1% YoY to US$ 87.7 billion with a trade surplus of US$ 44.9 billion, growth in services exports, driven by software, business, and travel services.

The services industry performed well in H2:2022-23, boosted by contact-intensive services and building activities. India ‘s IT and business services market is projected to reach US$ 19.93 billion by 2025.

The PMI services reduced in April 2024, to reach at 60.8. PMI for services continued to expand, but at a slower pace. With the fastest growing (9.2%) service sector globally, the sector accounts for a 66% share of India's GDP and generates about 28% of the total employment in India. As per the First India's medical tourism industry is poised for a robust resurgence, with projections indicating a significant rebound in the number of medical tourists surpassing pre-pandemic levels. Approximately 7.3 million medical tourists are expected to visit India in the calendar year 2024.

Both domestic and global factors influence the growth of the services sector. An extensive range of service industries has experienced double-digit growth in recent years, supported by digital technologies and institutional frameworks made possible by the government. The ease of doing business in India has significantly increased for domestic and foreign firms due to considerable advancements in culture and the government outlook. Due to ongoing changes in the areas of lowering trade barriers, easing FDI regulations, and deregulation, India's services sector is poised to grow at a healthy rate in the coming years. Over the next 10 years, the National Digital Health Blueprint can unlock the incremental economic value of over US$ 200 billion for the healthcare industry in India.

India’s digital economy is estimated to reach US$ 1 trillion by 2025. By the end of 2023, India’s IT and business services sector is expected to reach US$ 14.3 billion with 8% growth. The implementation of the Goods and Services Tax (GST) has created a common national market and reduced the overall tax burden on goods. It is expected to reduce costs in the long run on account of the availability of GST input credit, which will result in a reduction in the prices of services. India's software service industry is expected to reach US$ 1 trillion by 2030.

Due to ongoing changes in the areas of lowering trade barriers, easing FDI regulations, and deregulation, India's services sector is poised to grow at a healthy rate in the coming years.

Indian Financial Services Industry
India has a diversified financial sector undergoing rapid expansion both in terms of strong growth of existing financial services firms and new entities entering the market. The sector comprises commercial banks, insurance companies, nonbanking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The banking regulator has allowed new entities such as payment banks to be created recently, thereby adding to the type of entities operating in the sector. However, the financial sector in India is predominantly a banking sector with commercial banks accounting for more than 64% of the total assets held by the financial system.

The Government of India has introduced several reforms to liberalise, regulate and enhance this industry. The Government and Reserve Bank of India (RBI) have taken various measures to facilitate easy access to finance for Micro, Small and Medium Enterprises (MSMEs). These measures include launching Credit Guarantee Fund Scheme for MSMEs, issuing guidelines to banks regarding collateral requirements and setting up a Micro Units Development and Refinance Agency (MUDRA). With a combined push by Government and private sector, India is undoubtedly one of the world's most vibrant capital markets.

As of March 2024, AUM managed by the mutual funds industry stood at Rs. 53.40 lakh crore (US$ 641.75 billion) Inflow in India's mutual fund schemes via systematic investment plans (SIP) from April 2023 to March 2024 stood at Rs. 2 lakh crore (US$ 24.04 billion).

Equity mutual funds registered a net inflow of Rs. 22.16 trillion (US$ 294.15 billion) by end of December 2021. The net inflows were Rs. 7,303.39 crore (US$ 888 million) in December as compared to a 21-month low of Rs. 2,258.35 crore (US$ 274.8 million) in November 2022.

Another crucial component of India’s financial industry is the insurance industry. The insurance industry has been expanding at a fast pace. The total first-year premium of life insurance companies reached US$ 32.04 billion in FY23. In FY23 (until December 2022) non-life insurance sector premiums reached Rs. 1.87 lakh crore (US$ 22.5 billion).

Furthermore, India’s leading bourse, the Bombay Stock Exchange (BSE), will set up a joint venture with Ebix Inc to build a robust insurance distribution network in the country through a new distribution exchange platform. In FY23, US$ 7.17 billion was raised across 40 initial public offerings (IPOs). The number of companies listed on the BSE increased from 135 in 1995 to 5,357 as of March 2024.

According to the statistics by the Futures Industry Association (FIA), a derivatives trade association, the National Stock Exchange of India Ltd. (NSE) emerged as the world’s largest derivatives exchange in 2020 in terms number of contracts traded. NSE was ranked 4th worldwide in cash equities by number of trades as per the statistics maintained by the World Federation of Exchanges (WFE) for CY20.

India’s financial services industry has experienced huge growth in the past few years. This momentum is expected to continue. India’s private wealth management Industry shows huge potential. India is expected to have 16.57 lakh HNWIs in 2027. This will indeed lead India to be the fourth-largest private wealth market globally by 2028. India’s insurance market is also expected to reach US$ 250 billion by 2025. This will further offer India an opportunity of US$ 78 billion in additional life insurance premiums from 2020-30.

India is today one of the most vibrant global economies on the back of robust banking and insurance sectors. The relaxation of foreign investment rules has received a positive response from the insurance sector, with many companies announcing plans to increase their stakes in joint ventures with Indian companies. Over the coming quarters, there could be a series of joint venture deals between global insurance giants and local players.

The Association of Mutual Funds in India (AMFI) is targeting a nearly five-fold growth in AUM to Rs. 95 lakh crore (US$ 1.15 trillion) and more than three times growth in investor accounts to 130 million by 2025. India's mobile wallet industry is estimated to grow at a CAGR of 23.9% between 2023 and 2027 to reach US$ 5.7 trillion. According to Goldman Sachs, investors have been pouring money into India’s stock market, which is likely to reach >US$ 5 trillion, surpassing the UK, and become the fifth-largest stock market worldwide by 2024.

BUSINESS STRENGTHS

a) Long-Term Client Relationships
Building and maintaining long-term relationships with clients forms the foundation of the business. A dedicated focus on client coverage, timely solutions, and swift resolution of complaints has attracted high-net-worth clients, leading to sustainable and scalable operations. This approach drives repeat business, enhances goodwill, and enables better brokerage fees and commissions through competitive pricing and timely trade execution.

b) Integrated Financial Services Platform
Offering a comprehensive range of services, including equity, derivatives, commodities, and currency broking, along with memberships in NSE, BSE, and MCX, ensures robust client engagement. As a Depository Participant of CDSL and a Market Maker for SME companies, the diversified portfolio mitigates risks from product and client concentration, while continued exploration of new business opportunities expands the service range and strengthens client relationships.

c) Robust Risk Management System
Comprehensive risk management procedures are in place, including trading limits, periodic stress testing, and cash flow analysis. Resources in people, technology, and processes enhance risk management capabilities. Regular reviews of internal controls, customer margin requirements, and relationship management policies ensure minimized risk and operational efficiency.

d) Experienced Leadership and Execution Capabilities
Led by experienced promoters Hitesh Himatlal Lakhani and Rajendra N Shah, supported by professional directors and skilled personnel, the management team excels in understanding market trends and managing growth. This collective expertise fosters strong customer relationships, anticipates market changes, and ensures profitable business operations, creating a competitive edge in the industry

BUSINESS STRATEGIES

a) Expanding Fund-Based Capacities for Market Making
A dual approach combines fee-based revenue generation with strategic investments in companies receiving market-making services. This strategy enhances scalability, increases fee-based revenue, and strengthens market presence through agreements with IPO-managed companies, creating a competitive edge.

b) Attracting and Retaining Talent
Fostering a healthy work environment with programs for well-being and career growth attracts high-quality talent. Adequate training investments improve service quality, build mutual trust, and enhance employee retention, which supports business expansion.

c) Leveraging Technological Advancements
Investments in advanced software, hardware, and a dedicated data center ensure operational efficiency and robust risk management. Enhanced technology capabilities cater to existing clients, accommodate growth, and streamline processes for the market-making and stockbroking business.

d) Strengthening Risk Management
Comprehensive systems for monitoring and controlling financial, credit, operational, and compliance risks are prioritized. Plans include strengthening market and credit risk evaluation, along with technology investments to boost productivity and service quality.

e) Expanding into New Geographies
Operations currently concentrated in Mumbai, Maharashtra, and Gujarat will expand to major cities in the western and central regions. This growth strategy aims to increase scale, network, client base, and revenue.

f) Growing Fee-Based Revenues
Diversification of revenue streams focuses on reducing reliance on transaction-based income. Plans include distributing third-party mutual funds, introducing fixed-income market-making for SME companies, and offering diverse investment portfolios to cater to various client needs.

g) Optimizing Operational Efficiencies
Pursuing an economical operational model ensures efficiency in manpower and installations. Investments in technology and automation improve productivity, enable higher transaction volumes, and enhance service quality

BUSINESS RISK FACTORS

1. Risk of Penal Actions by Regulatory Authorities
The company has faced penalties from stock exchanges and regulatory authorities in the past for non-compliance. There is no assurance that similar penalties will not occur in the future, potentially impacting financial conditions, operations, and profitability.

2. Exposure to Fraudulent Transactions
As a SEBI-registered intermediary in the primary and secondary capital markets, the business is exposed to fraudulent transactions by clients. Such incidents can lead to regulatory scrutiny and litigation, which, if unfavorable, could significantly affect operations and reputation.

3. Order Punching Errors
Errors in executing client orders placed over the phone can result in financial losses that the company is required to bear. Such incidents could adversely affect operations, profitability, and client trust.

4. Revenue Concentration in Key Segments
A substantial portion of revenue depends on a few segments, including trading income (69.48%), F&O and currency trading income (25.18%), and brokerage fees (4.17%). Any decline in these segments could materially impact overall operations and profitability.

5. Dependence on Indian Stock Exchanges
The business heavily relies on platforms like NSE and BSE for executing and settling transactions. Disruptions in exchange operations or connectivity issues could significantly affect business continuity and financial performance.

NOTE : Rikhav Securities faces several business risks, including potential regulatory penalties, exposure to fraudulent transactions, operational errors in order execution, and revenue dependency on a few key segments. Additionally, the business heavily relies on Indian stock exchanges for transaction execution and settlement. These factors could adversely affect financial stability, operational efficiency, and overall profitability.