asset management (AMC) business
in 2008 and later set up a housing
finance company (HFC) in 2013.
Both these businesses have grown
at a brisk pace over the last three
years and make up a substantial part
of the net profit of the company.
Not surprisingly, over the last two
years, MOFSL has seen its market
capitalisation go up by 245 percent
to 16,000 crore. For FY17, the company had a consolidated revenue of1,818 crore over a net profit of
`360 crore; its return on equity
(ROE), at 22 percent, is a significant
climb from 9 percent in FY13.
In an interview with Forbes India,
Oswal and Agrawal speak about
how they built the company, what
worked for them and, importantly,
what didn’t. Edited excerpts:
Q How was the start with
Motilal Oswal? What were
the initial challenges?
Raamdeo Agrawal (RA): Every
company has a genesis. This had
equity at its heart. Our earlier visiting
card said we have to help people make
money in the stock markets. This
was in 1987 and that was our mission
statement. [But] money-making is not
that easy. Now, if we make money
for someone, the client will see to it
that we [MOFSL] also benefit. We
kept on improving the returns for our
clients. We did this through a process
of accumulating knowledge. We
studied money-making in the stock
market from [following iconic investor
Warren] Buffett and also our wealth
creation study which is a report on
India’s fastest and the biggest value
creating companies. We wanted to
answer how to make money faster
and better in the stock market and use
that skill to make money for others.
We started as a broking company.
[For that] there is no entry barrier
and no capital requirement. And
it is a seller’s market. During that
time, there was a shortage of quality
brokerage houses. It was all traditional
business. There were no professionals
48 | forbes india August 4, 2017
india’sSuper 50 companies
and grilling analysts on quarterly
results and company strategies.
RA: Those stories are absolutely
true. I do that even now. We were
known to keep our analysts on their
toes all the time during our broking
days. Today we do that in the AMC
business. I sit with my AMC team on
the same floor. That way I remain on
my toes and they remain on theirs.Q While you built the broking
business, it also had to face
some tough challenges...
RA: After the collapse of y2k [because
of the bug which derailed the new
formatting and storage of calendar
data entering the new millennium],
between 2003 and 2007, we actually
had our golden period. We went
from `10 crore to `1,000 crore in the
broking business during this time. We
also listed the company on the stock
exchange in 2007. We did not realise
that demat and computerisation were
actually going to finish the broking
business as brokerage rates fell from
1.5 percent to 5 basis points (0.05
percent). Whenever the underlying
business gets destroyed because of
technological change, but volume
expansion happens and entry barriers
remain, you cannot build a very big
business. Motilal Oswal earned its
name in research and made money,
but in 30 years that was not the kind
of reward we deserved. Then, post
2008, we started asking what can we
do with the `1,200 crore that we have?
Either we can stay as a brokerage
house, making some `100 crore and
keep building investment portfolios
or invest in new businesses or, to
put it better, become entrepreneurs.
And so, in 2008, we built our AMC.Q But even the AMC faced
difficult times...
MO: The first five years were tough.
In 2014, we launched our active
products in the mutual fund business
and then the markets went up. This
benefited us. For every business to
take off, we need one tailwind toWHaT makes
iT su Per
MOFSL is a long-term player and has a
lot of patience in building new businesses
It’s an investment company that
concentrates on equities. This focus
makes it one of the best investment firms
Its ownership and partnership culture
helps retain top talent
Shareholder return: 699%*
SaleS Growth: 55%**
return on equity: 15%***
* 3-year ** 3-year CAGR *** 3-year averagethen. Two chartered accountants
starting a broking house was unheard
of. It was revolutionary in 1987.Motilal Oswal (MO): In the first four
years, we made little money. Then
there was the Harshad Mehta bull
run. At that time, we made `30 crore
in 20 months by investing `15 lakh.
This was because we were at the right
place at the right time. [Without the
Harshad Mehta bull run] we would
have parted ways and taken up jobs.
There was not enough on the table.
Later, we started research where
the team was three times bigger
than our corporate office team. Our
budget for research was 30 percent
of the gross revenue. Then we began
talking to institutions and FIIs before
going global. Later, the norms on
distribution and broking services
were relaxed. Earlier, the system was
such that Bombay Stock Exchange
[BSE] members could not open
offices anywhere outside Mumbai.
[Because] there were many regional
stock exchanges, you could not open
a branch in Jaipur or Kanpur because
they had their own stock exchanges.
Then NSE came in 1994. Till 2002,
we were in Mumbai. Also, in 1998, the
dematerialisation of shares happened
and Sebi came into the picture.Q You were a strict taskmaster.
We have heard stories of you
walking on the research floor