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Dharni Capital Services

• Dharni Capital Services is coming out with an initial public offering (IPO) of 53,70,000 equity shares of face value of Rs 1 each for cash at a fixed price of Rs 20 per equity share.

• The issue will open on January 18, 2023 and will close on January 20, 2023.

• The shares will be listed on SME Platform of BSE.

• The share is priced 20.00 times higher to its face value of Rs 1.

• Book running lead manager to the issue is Srujan Alpha Capital Advisors.

• Compliance Officer for the issue is Mayank Mundhra.

Profile of the company

The company offers diversified financial services such as Mutual Fund Distribution Services, Fixed Deposit Distribution Services, Real Estate Brokerage Services, Technical Consultancy and Outsourcing. The modus operandi is to counsel individual clients, understand their profile, needs and concerns, build customized financial investment portfolios, offers a comprehensive selection of investment alternatives that will suit their financial goals. It offers a technology enabled, comprehensive investment and financial services platform with end-to-end solutions critical for financial products distribution and presence across both online and offline channels. It is a growing Mutual Fund distributor in terms of commission and average asset under managements (AAUM) with a CAGR of 109% and 86% respectively for the three-year period ending Fiscal 2022. The increase in rate of commission is lesser as there was in increase in assets in Debt Mutual fund category, which have a lower commission percentage. The company has become an important interface between asset management companies (AMCs) and Clients.

The company is an empaneled distributor with SBI Mutual Fund, HDFC Mutual Fund, ICICI Prudential Mutual Fund, Aditya Birla Sunlife Mutual Fund, Nippon Mutual Fund, Kotak Mutual Fund, UTI Mutual Fund, Axis Mutual Fund and many more. The company is also registered with Karnataka RERA Authority as an Agent. The company is registered as a Real Estate Broker with large players like Prestige Estate Projects and Embassy Group. The company has recently taken the RERA registration. In this dynamic and extremely competitive business environment, it has developed a strong relationship with various customers. Its team has a combined experience of over 25 years in the Real estate business, with its team members having worked with organizations like Salarpuria Sattva Group, Prestige Estates and Sobha Limited in the past.

Proceed is being used for:

• Investment in wholly owned subsidiary company

• General corporate purposes

Industry Overview

Financial services system plays a crucial role in the economic development of a country. It allows efficient flow of savings and investments, managing credit requirement of businesses. Financial services have the ability to give support for growth of a new business access to capital and returns on savings. 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, non-banking financial companies, cooperatives, pension funds, mutual funds and other smaller financial entities. India is significantly under penetrated across various financial services products which provides huge opportunity for players to grow across various sub segments such as lending, insurance, wealth management etc.

The Indian mutual fund industry has a history of over 50 years, starting with the passing of an Act for the formation of the Unit Trust of India (UTI), a joint initiative of the Government of India and the RBI in 1963. SBI Mutual Fund was set up in June 1987 as second mutual fund, followed by the launch of Canbank Mutual Fund in December 1987 and so on. Mutual fund AUM as a percentage of GDP has grown from 4.3% in the financial year 2002 to approximately 16% in the 2020, still penetration levels are well below those in other developed and fast-growing countries. Overall mutual fund AUM in India, for individual investors is expected to reach $500 billion by FY 2026 which was at $224 billion in FY 2021. Digital channels as a mode of investment have picked up pace rapidly contributing 55%-65% of all incremental mutual fund purchases in FY 2021 and is expected to drive 70%-75% of all incremental purchases by FY 2026.

Meanwhile, Real Estate Investment Trust (REIT) platform will allow all kind of investors to invest in the Indian real estate market. It would create an opportunity worth Rs 1.25 trillion ($19.65 billion) in the Indian market in the coming years. Responding to an increasingly well-informed consumer base and bearing in mind the aspect of globalization, Indian real estate developers have shifted gears and accepted fresh challenges. In the first-half of 2021, India registered investments worth $2.4 billion into real estate assets, a growth of 52% YoY.

Pros and strengths

Diversified yet integrated mix of business: The company is engaged in the business of Mutual Distribution Services, Fixed Deposits Distribution Services, Real Estate Brokerage Services and Technical Consultancy and Outsourcing which includes Wealth Planning, Retirement Planning, Tax Planning amongst other services. With its wide range of services the company is able to cater to the various demands of all its customers under one roof.

Long term relationship with the clients: The company is maintaining long term relationships with its clients in terms of increased sales. The company’s dedicated focus on client coverage and its ability to provide timely solutions and faster resolution of customer complaints, if any, has helped the company to establish long-term relationships with high networth clients. This key strength has helped the company to receive repeat business from its clients. The company enjoys goodwill amongst its customers on the back of its timely trade execution, competitive pricing and customer service.

Strong risk management system: The company has deployed resources in terms of technology, people and processes to manage its risk management function. It has established general risk management procedures for application software, distribution activities and consultancy services. It periodically reviews and modifies such procedures, as necessary or appropriate. These procedures cover its internal control system, customer requirement and risk management of Associates and relationship managers.

Risks and concerns

Excessively dependent upon referrals for distribution business: The success of the company’s business is entirely dependent on the referrals received from third party and the company has received the referrals only from related parties to whom the commissions are been paid for such referrals. The company’s ability to expand the business shall depend upon reducing the dependence upon the related parties for such referrals and attract such other referral agents through which it can explore new market participants which will help the company in growing its business.

Major revenues from distribution of mutual funds comes from certain AMCs: The company is empaneled with several AMCs for whom it acts as a distributor for their mutual fund schemes, for which it earns commission. The company’s commissions on distribution of mutual funds are dependent on the value of AUM. The mutual fund distribution business constitutes a significant part of its revenue. For the period ended September 30, 2022, Fiscals 2022, 2021 and 2020 the company’s total commission and fee income from distribution of mutual fund products contributed 6.02%, 2.9%,19.9% and 75.4% of its total revenue from operations, respectively of which the top five AMCs accounted for 5.89%, 2.80%, 13.90% and 74.70% of its total revenue, respectively with the single largest AMC contributing 1.70%, 0.90%, 3.80% and 21.20%, respectively. Any adverse change in its AUM may result in a decline in its revenue and profitability.

Stiff competition in real estate broking industry: The company faces significant competition from a number of real estate brokers that operate in the same geographic region in which it operates. Certain of its competitors may be larger than the company, better renowned, have more financial resources, expertise or benefit from a more experienced management team. There can be no assurance that it will be able to continue to compete effectively with its competitors in the future, which may have an adverse effect on its business, results of operations, financial condition and cash flows. Further, there are few online platforms which offers real estate broking without charging any fees / commission and any traction of its customers towards those online portals might impact its revenues considerably.

Outlook

Dharni Capital Services Limited is engaged in providing a variety of financial services. The company has clients from 11+ states, 300+ clients, and 200 crore AUM as on March 2022. The company closely works with individual clients to understand their profile, their requirements, and concerns, and thereupon build customized financial investment portfolios. These portfolios offer a comprehensive selection of investment alternatives. On the concern side, the company’s revenues from distribution of mutual funds are dependent on certain AMCs and its sustained ability to increase its AUM as well as on the performance of the funds that it distributes. Any changes in the total expense ratio due to regulatory changes may reduce its distribution commission income which may have an adverse effect on its business, financial condition or results of operation.

The company is coming out with an IPO of 53,70,000 equity shares of face value of Rs 1 each for cash at a fixed price of Rs 20 per equity share to mobilize Rs 10.74 crore. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. On performance front, the company’s total revenue increased by 475.31% to Rs 1469.40 lakh for the financial year ended March 31, 2022 from Rs 255.41 lakh for the financial year 2021, which is on account of higher revenue from operations on the back of increase in its customer base. Moreover, the company’s profit after tax increased by 532.48%, from Rs15.27 lakh in fiscal 2021 to Rs 96.58 lakh in fiscal 2022.

Going forward, the company offers competitive prices to its customers to remain aggressive and capitalize a good market share. This helps the company to sustain the competition and claim a position of strength in the marketplace. Moreover, the company will continue to invest in technology and related platforms to increase its operational efficiencies. The investment in technology / automation tools can improve staff productivity, enabling its people to handle more transactions / challenges and improve quality of services.