Dharmic Bull

New Portfolio Entry: Share India Securities Ltd.

Buy Price: 1522

Reasons for buying:

  1. The company is a mid-sized fintech offering different services like equity, commodity trading, NBFC, insurance and mutual fund distribution. They have been in the business for over 3 decades.
  2. 50% of their PAT is from algorithmic trading. They offer this to their HNI and institutional clients and also do it for themselves. They have recently launched this service for retail investors.
  3. Company has acknowledged that profit has been boosted by fee from option trading. They have consciously devised a strategy to enter different verticals to de-risk their business and make it less cyclical.
  4. NSE options volume market share is 5% and NCDEX options volume market share is 10%. The latter being a significant thing because commodity markets are significantly larger than equity markets.
  5. Recently they acquired Silver Leaf, which offers high frequency trading. With their combined and augmented abilities, the company plans to offer algo trading services of international exchanges.
  6. The management is confident of retail appetite for low risk sustainable algo trading. They plan to go on mega education and marketing drive from January 2024. Till then they are taking feedback from users to modify the product and make it better before a widespread launch.
  7. Company did a rights issue of 800 CR last year and plans to raise more capital this year for it’s different verticals.
  8. Despite trading being a highly uncertain activity, company has not posted a loss any time in last 10 years and has rapidly scaled their business with 5 Yr Sales Growth at 51% p.a. and 5 Yr PAT Growth at 87% p.a. These are crazy numbers.
  9. The company’s ROE is above 40% and ROCE is above 30%. It is currently available below its median 3 year and 5 year PE.

Risks:

  1. We are yet to see the success of the company’s algo trading in a deep bear market. The management claims their company’s fortunes are on a structural growth path but this can only be validated once they show profit gains in a bear market.
  2. Stock broking is cyclical and flows depend on market swings. This is probably why market has assigned them a low PE of 12 because market is not sure, of company’s client acquisition during slowdown.
  3. The company’s other verticals are yet to take off in any major way. Also, we need to track their algo for retail investors initiative as this is the company’s next phase of growth – will retail investors with limited capital and knowledge embrace algorithmic trading?

Leave a Reply

Your email address will not be published. Required fields are marked *

Press ESC to close