Your Company's strategy for the next decade is best captured in the theme of thisannual report simplify for speed'. As part of this strategy your Company proposesto reorganise all its business verticals into three core entities namely IIFL FinanceIIFL Wealth and IIFL Securities.
SIMPLIFY FOR SPEED
I am pleased to report that your Company's financial performance has scaled a new peakwith a consolidated net profit of Rs.1162 crores prior to minority adjustment. Over thelast two decades the Company has remained focussed on financial services while expandingits activities to encompass a wide gamut of services including wealth and assetmanagement loans and mortgages securities and investment banking and distribution offinancial products. Your Company has emerged as one of the leading players in thefinancial services industry. But what has brought us here may not take us there. Takingcognisance of present environment opportunities and challenges your Company's strategyfor the next decade is best captured in the theme of this annual report simplify forspeed'. As part of this strategy your Company proposes to reorganise all its businessverticals into three core entities namely IIFL Finance IIFL Wealth and IIFL Securities.They will serve three different segments of customers namely borrowers HNI investors andretail/ institutional investors.
Speed to survive
Your Company's market value was close to Rs.22500 crore as at year end; a growth ofabout 65 times in 13 years since the IPO. One could argue that at this size the typicalapproach would be to consolidate and conserve rather than sprint. However we live inextraordinary times where disruptive innovations have become a norm rather than anexception. Revolutionary changes in digital technology will make slow' organisationseasy targets for the innovative players- new or existing. The fintech revolution hasaltered traditional wisdom; it is not speed but a lack of it that can kill. At the sametime the growing economy will drive faster growth in demand for financial servicesproducts. An organisation that adapts with speed will be better placed to grow faster aswell.
Increasingly complex world
Regulatory environment is getting stricter. Compliance is becoming more complicated bythe day. Technology is changing faster than anybody's imagination. The internet agemillennial' consumer's behaviour is defying all theories. Customer loyalty isturning fragile. Real time information and knowledge is ubiquitous and almost free.Marketing communication can be tailor made for each prospect. Data science and artificialintelligence are changing every aspect of business. Investors are backing inexperiencedinnovators over experienced incumbents making the industry even more complex
Simplify to unlock speed
The more complex the world gets the more is the power of simplicity to unleashinnovation and superior products. Customers prefer simple products and employees thrive onsimple processes. Investors look for simple business models. But to make things simple hasnever been easy. We have to start with making the organisation structure simple where keypeople have their rewards directly linked to their performance with concomitantresponsibility for their acts and omissions. Simple organisations make it possible to havetailor made processes optimised for respective businesses as well.
Challenges arising from simplification
There are some complications that arise from the simplification of strategy. Let mediscuss them as well.
Control traditionally conglomerates have thrived on complex ownershipstructures allowing management control with much lower effective economic ownership. Theconvoluted structures have been abstruse for analysts shareholders and regulators toanalyse and understand. However we believe that a simpler structure facilitates greatertransparency fosters superior governance and allows true democracy to mirror ownershipand control. Institutional investors have choice of businesses to suit varying objectivesof the funds they manage. Size is an edge and also a drag. All entitiestogether have much greater size an edge to absorb shocks or risks. A larger balance sheetwields more power. However these advantages are outweighed by the fact that size whichis summation of parts driven by diverse forces is a drag to speed. For instance any newactivity may require compliance and regulatory clearance of all businesses. Any shock inone business can slow down others too. Heightened risks in one business can shadow theother businesses. Costs are lower for many support functions when shared.However these savings come at a hidden cost of trying to make one size or shape fit all.It may be worth the extra cost to let distinct businesses have flexibility to structuresupport functions operations and technologies that best serve their respective businessrequirements and customers.
Reorganisation is just the beginning
Organisations like your Company growing at a fast clip for over two decades do tendto develop complex processes systems layers and control procedures. The reorganisationpresents a unique opportunity. The reorganisation process will create three neworganisations - simpler and nimbler than their predecessor conglomerate. They will servedistinct segments of customers have separate management teams varied growth trajectoriesand distinct products and propositions requiring dissimilar culture and systems. Theindependent entities can take the simplification strategy forward to their productsprocesses work flow organisation structure reward system and communication. Our goal isto gather speed to stay ahead of the industry.
If we get all approvals in time you will own shares of three listed companies and willreceive three annual reports next year. Our loyal shareholders would find this a bit of acompromise on the simplicity of owning one Company and reading one annual report but Iwould say it's a small price to pay for a group getting ready to shift gears. We have athrilling ride ahead as each business can scale up many times. Thank you
IIFL Holdings Limited