The next generation of promoters is part of Motilal Oswal Group in different roles. Is there a change of guards waiting to happen? The next generation has joined the business and what is their vision, are they committed completely like Motilal ji and you are committed? What happens next?
July 28 is Motilal Oswal’s foundation day.Congratulations, how many years today?
Thanks, 36 years. So, in a way, it is built to last. It is not dependent on Moti or Raamdeo nor my son or his son. It is a machine we are trying to create which survives and which prospers as the time passes because I see for next 25 years, beyond that what to talk about? Even 25 years is long. The total saving in last 25 years is 10-12 trillion, in the next 25, it is going to be 100-150 trillion.
The opportunity for the capital market is immense, the savings, the wealth, the broking opportunity, the asset management opportunity, the private equity opportunity, seed opportunity, you name it, it is humongous, as much as you can do. Our job is to do well. It does not matter whose name is written as what you call MD, CEO and all, the stock certificates are in their name for sure, ownership is with them, so they will do whatever they can do best, both of them are in the company and so yes they are integral part of the company, they are doing well, they are being groomed up, but it is not that the leadership role is going to be completely dependent on them and first thing is we are there and Motilal ji like you have seen him is there still. We will talk about maybe five years or seven years henceforth. By that time, these kids would have also become something more senior.
Charlie is still alive and kicking, Buffett is still managing at 92.
But the really important thing is how well you delegate. So, you delegate and yet do not run away from the responsibility. So, still taking ownership of what you are doing yet do not do anything.
Mr RC Bhargava made a very nice comment about six months ago and his view was that for the auto industry, the butter from the bread is missing if you are in a small car segment. Will that hold true for the entire financial intermediaries also because the AMC business is changing – the distribution business? There is a Zerodha model and there is a Reliance waiting to disrupt.
You have to change with the time.
How will you change with the time?
We have changed. You see, this is 36 years. We started as a sub-broker. At that time, I personally used to take the share from the brokers on behalf of what we used to call, 10 Reliance, 20 Bajaj Auto. I physically received them. From those days, we have come to a stage when the total nominal value of the turnover of NSE was Rs 562 lakh crore for Thursday expiry. What are we talking about? T plus one settlement and now regulators are talking about probably same day settlement. Means like your stock is a cash certificate.
You get the money immediately.
In any case, you are getting it in 24 hours, which is not bad. I mean earlier even draft you were not getting for 24 hours. Today, they are talking about sales going through the same day. I mean it is not a zero-sum possibility if the Sebi chief is talking about it.
So, where have we reached and where are the 500 brokers? There are only 20 brokers. You have to find your niche, what you do well. There are all kinds of customers. There are customers at zero brokerage, there are customers at 20 bucks, there are customers at whatever we are charging. So, the issue is do I deserve to get what I am getting? Are we servicing the client? Is my positioning very clear? Because the smaller client, newer client, they will go online. But people like us or the people who have more than Rs 100 crore, Rs 500 crore, Rs 1,000 crore, are not going to say go and buy 200,000 Reliance online. They want the brokers to work around that. So, there is a lot of work to be done by intermediaries. I have a firm belief that in the stock market, you cannot make money without guidance. We are children of what you call the financial market. But millions and millions of guys who have wealth, they are not masters of the stock market. It is a complex thing from their point of view and they need guidance. They need hand holding as they traverse through the journey of going from Rs 100 crore to 1,000 crore or lakh crore.
So, I think there is a role to play. I would say everything is about the advisory. We have maybe 5,000 advisors across the country. We cater to 96% of pin codes. So, there is a unique positioning for us. But the whole issue is about the quality of the exhibition.
So, you do not feel that you have been left behind in the digital age?
No, we are as digital as others. Mind you, my digital process is not different from others. It is just that my business model is different. But technologically, I am as sophisticated as anybody. You can go and check. Because what happens in my office? Nothing. If I am doing 2 lakh, 3 lakh crore turnover, I cannot be doing it from my cabin. It is happening across 25,000, 30,000 terminals and then 80% is mobile.
We underestimate the kind of bond yield you followed. You followed a growth of 20% plus, which means 10 years mein 10 times, 20 years mein 100 times, HDFC Bank model (10 times in 10 years, 100 times in 20 years, the HDFC model). That has really been the growth model for Motilal Oswal Financial Services. Will I be off the mark if I say that for next 5 to 10 years, the growth is going to be at least around your historical averages?
Yes. It all depends on what the market does finally because my two-thirds are actually out of Rs 7,000 crore, almost Rs 5,000 crore. So almost 60% of my capital is in treasury, which is nothing but equity, all sorts of equity, private equity, public equity, direct equity, all.
If the market remains flat, obviously my return will be coming only from the operation side. But aaisa hua nahi kabhi (that has never happened). In the last eight years, my net worth has compounded at the rate of 22.5%. So, there is no reason for me to believe that it will be any different. It can be somewhat better. So, the band will be anywhere between 20% and 25% and then one thing which we have still not realised fully, is the power of net worth.
In financial markets, the power of net worth is everything because the price at which you can borrow, the kind of deal you see, the guts to do equity deals. You get me a company, terrific story, you say sir this is the price, I say I can bid for 10%, I can bid for 20%. I have that capability. But I have a limited amount of money. Tomorrow when I have a larger amount of money, even better deals will come to me. So, that part of the equation will shape up as the net worth keeps building up. From Rs 7,000 crore this quarter to maybe Rs 14,000 crore in the next three to four years. By 2027-28, we should be about Rs 14,000 crore in net worth. Not market cap. Market cap is…
…a function of the market.
Market cap decides what price to book they want to give 1, 2, 3 or even less than 1. I do not know.
If as an investor you see a business exactly like Motilal Oswal Financial Services, what price to book will you give it to that business?
Let us not get into that because the market will always defy whatever is my experience. But 22% ROE, in fact, ROE is more like 25% but we pay out dividends of 25-30%. So, net of dividend, my book growth is more like 22-23%. I think it is not a one book company…
And it is not like a leveraged balance sheet unlike banks which are very leveraged.
No, there is some amount of leverage because we do give some funding to the firm. It is not like that. I mean, we will never cross, except for that HFC which is going to be a separate company altogether, for core operations, for margin funding and all I do not think we are significantly going to cross one time net worth. That is what I am saying. If your net worth is Rs 20,000 crore, you can go and knock on the door of the bank or NBFC and ask them to give you Rs 20,000 crore. But if you have only 7,000 crore, you can ask for only that much. So, that also limits how much business, what size of business, what size of the clients you can cater to.