Forbes India – August 4, 2017

August 4, 2017 forbes india | 49

MOTILaL OSwaL

push growth. In the bull run of 1992,
we got broking right and now we
got the AMC business right. Over
the last three years, we have moved
from 1,500 crore to24,000 crore
in terms of AUM. Now the second
piece is built. These businesses are
free-cash generating and don’t require
capital. So what do you do with the
money? We decided to build an HFC.
In banking, it is the safest segment
where the loan-loss ratio is the lowest.
We allocated `500 crore to the HFC.

RA: ASPIRE, our HFC, is like an
equity investment. But we are not
doing mortgage. It is done by a
professional team. But the heart of our
company is broking and investing. The
biggest [piece of the] pie of MOFSL is
the reinvestment of our free cash-
flows into our own products. Actually
60 percent of the balance sheet is
reinvested in our own products. If
you look at how 100 of MOFSL is invested in the group, AMC requires 5, broking 10, HFC45 and ` 40
is in treasury. The treasury further
invests the capital into the AMC.

Q How did you go about
building the HFC?
RA: We had around 1,200 crore in treasury of which600 crore as
free cash was available for us. When
the markets go down, we need a
`1,000-crore balance sheet to stay
afloat. But what to do with this
money? I’m extremely bullish on
HFC. Our country needs 100 million

houses. I could see the possibility of

making money out of HFC. I could

have bought an HFC stock or, say,

purchased HDFC from the stock

market and remained invested, or I

could have gone in for a promotional

company; we thought we would

buy four to five small HFCs and one

of them will work. Buy `20 crore

worth of equity in each company

and see which one goes up. That

was the thought process. We also

tried investing into this business

through Motilal Oswal Private

Equity but that didn’t work out.

Then we decided to seed a

company. We told the team that we

will give you `100 crore. If it works

out, we will give you `400 crore

more. If it didn’t, we were ready to

bear a `100-crore loss. But they did

well and now they have `400 crore

more from MOFSL. HFC consumes

capital, but I have a lot of free cash

flow from all sides—our profit is good.

MO: As we look at our businesses,

we have four streams—treasury,

HFC and the traditional business of

broking which includes investment

banking. Then the fourth one is

asset management; this includes

mutual funds, portfolio management

services and private equity.

Q How do you get into

new businesses?

RA: At the board level, we have

decided that there will be no more

new businesses. Those that we have

invested in, we will exit from them

if they don’t work. In the last three

years, we have not got into anything

new. Moti loves to get into new

businesses, but I have told him that

I won’t come for the board meeting

if you start anything new. We have

decided ourselves that we will

grow vertically, not horizontally.

The point was to do something

meaningful. Money was not the

motive. How do you bring in

excellence and what is the aspiration?

It takes around seven years to build

a robust business. We might look

great in the HFC business after three

years, but that’s not how we look at

it. To build a good business, you need

to build strong roots and that takes

time. In AMC, we struggled for the

first five years. From 2013 onwards,

we did well. Now, in the last two

years, we have tasted success.

Q What were your learnings from

Buffett’s Berkshire Hathaway?

RA: Moti has different learnings. Mine

was how to conduct the business.

For me, what really matters is the

recruitment of people and the ethics

in the business. What is a good

business? What is the importance

of growth and of market cap? How

do you look at dividend policy?

MO: My biggest learning was how

to look at capital allocation.

RA: Till about 2014, we were doing

arbitrage in derivatives and the cash

market, but then we stopped it. We

were not comfortable with that. We

closed that division when [Narendra]

Modi became prime minister.

Q How do you hire people?

RA: I look at competence. I put

stress on academics, particularly

when the candidates are from IITs

and IIMs. You cannot get into

these institutions unless you are

competent. I also look at whether

a person has grown through the

ranks. Then I look at passion. Do

FY13 FY14 FY15 FY16 FY17

consolidated revenues 473 468 775 1094 1818

net worth 1218 1170 1295 1437 1786

AUM 3029 3921 8256 13274 23376

ROe (%) 9.2 3.3 11.7 12.4 22.3

PAT 109 40 144 169 360

Book value 84 85 92 101 124

mOF sl: HigH O n n eT WOrTH

Source: Balance Sheet. All figures in ` cr unless mentioned otherwise