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Arihant Capital


Arihant Capital is in the business of providing integrated financial services.

The company is primarily an equity broker but also provides commodity, currency, and bond brokerage as well as merchant banking, financing, distribution of financial products, financial planning, and depository services to over 100,000 customers across the country in the retail, corporate, and institutional customer segments.

The company has reported fluctuating operating performance in the last five years roughly corresponding to the movements in the financial markets.  It reported 16cr in operating profits on revenues of nearly 60cr in the last financial year, while operating with net cash and liquid assets of about 50cr as at 31st March, 2012.

The business is primarily exposed to low equity brokerage volumes and declines in cash volumes during times of indifferent financial market sentiment, which usually parallels periods following panic and may be protracted.  Further, retail customers are unlikely to generate much brokerage revenue in times other than bull markets.  Moreover, financial market sentiments are highly unpredictable making for difficulty in estimating trading volumes and future revenues.

Another acute risk facing the business is the intensity of competition on the brokerage scene – reducing brokerage rates across the board.  This reduces expected revenues and profitability.

Part of the above risk entails a constant upkeep with the latest technology – barring which the business model could be rendered obsolete in short order.  This involves substantial capital outlays, which reduces cash flows available to shareholders.  Moreover, these investments are likely to only bring the company’s competitive position to par rather than give it a sustainable edge.  Furthermore, the company is still exposed to occasional breakdowns in the system causing customer fury and potential irreparable damage to the company’s reputation.

The business also involves incurring some credit risk with customers, who may default on contracts.  The collaterals are exposed to the risk of quick and severe deterioration of market value.  It also involves regular customer grievances due to the nature of the business and consequent litigation, arbitration, etc. – which could lead to penalties and fines reducing profits.

The business is highly regulated by various regulatory bodies including SEBI and the stock exchanges – non-compliance with any regulation could subject it to fines, penalties and even suspension of its license to operate.

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