• Opportunities

When Motilal Oswal and Raamdeo Agrawal set up a small sub-broking business in Mumbai in 1987, their main objective was to make money. Having come to the city from small towns in Chattisgarh and Rajasthan, the two first met at a hostel for Chartered Accountancy students in Mumbai. They soon became friends and often commuted together on Agrawal’s bike. It was during that time that the idea of starting Prudential Portfolio Services was hatched.

Back then, sub-broking had its limitations. As information wasn’t easily available, trade volumes were much lower. The duo took advantage of this gap. “Oswal’s brothers in Ahmeda-bad and Chennai were our first clients,” says Agrawal. “With a telephone we had invested in and Oswal’s desk at the Bombay Stock Exchange (BSE), we were able to get updated information and right away inform his brothers about the current stock prices.”

Right from the company’s inception, the focus was on research-based investing—something that other brokers didn’t offer at that time. Investors in those days only found out the prices of stocks when the BSE prices were out in the papers the next morning. However, equipped with insider information, the duo’s clients were informed of the current stock prices almost in real time, so they could pick up appreciating stocks and sell them the next day for a profit. Despite the low trade volumes while starting up, these entrepreneurs had the foresight to see that as the penetration of information was very low, the opportunities for growth would be immense.

As Motilal Oswal represented the duo in the stock broking world and was a member of both the BSE and the National Stock Exchange, the company took form as Motilal Oswal Financial Services Ltd. “It was helpful that we did not need much of a fixed capital to start up. We just had a small office at Kalbadevi with a table, a peon and a telephone line; and we had Oswal’s desk at the BSE,” Agrawal reminisces. The working capital was earned through buying and selling shares.

“We realized that if we help people make money, we shall be taken care of. Our biggest differentiator and asset was our research. In fact, we used to buy several shares of so many companies just to get the annual report for our research. Such information was not freely available back then, so it offered greater scope for speculation,” he says.

Agrawal believes that to be a successful player in the broking business, it is important not to waste money in speculation. “Most of the top brokering houses that were doing well when we started have gone out of business simply by dint of speculating. It’s bound to cost you in the end,” Agarwal points out.

The duo points out more thumb-rules for success: “We were never in a hurry to build the business. Moreover, we never borrowed money to build it; that could have made us vulnerable at some point. We do not have any relatives in the backbone of the company, thus allowing us to employ the best talent. We never compromised either with clients or tax officials, and we never allowed a check to bounce.”

A big impetus for them was their dream of creating a corporation that would outlast its creators. But how do they overcome the challenges a partnership must inevitably present? Agrawal quips, “A partnership is like a marriage—never keep any conflict unresolved.” Oswal adds that understanding each others’ strengths and weaknesses is important. Agrawal looks after research and Oswal handles operations. By holding monthly, quarterly and annual reviews, they assess new growth opportunities and find ways to translate new market developments to the company’s advantage.

Motilal Oswal now has a presence in 548 cities and towns through 1,289 business locations—both owned and franchised. The firm enjoys a hefty 4.2 percent market share in equity broking and manages portfolios for 3,504 customers; the assets under management are currently worth Rs. 476.7 crore. The company’s total income has soared to a robust Rs. 466.1 crore in FY 2009 from Rs. 14.7 crore in FY 2003, though this is a drop from Rs. 699.5 crore in FY 2008. The employee strength currently stands at around 1,400.

The firm maintains a policy of promoting talent internally. It is only when suitable talent is not available within the company that they look outside the firm. They have also engendered a sense of ownership among the company’s employees by offering employee stock options or ESOPs. Communication channels are also kept open at all times between all members of the company, and a non-political atmosphere is actively encouraged.

Oswal throws in a final piece of advice: Place a strong focus on growth areas and opportunities in the long term, while keeping in mind important short-term goals like strategy, infrastructure development and capital allocation.

But most of all, what powered this duo to achieve the success they now enjoy is education and an unshakable belief in the future of the brokering industry.

  ©Entrepreneur November 2009

Tags:
brokering, motiwal oswal, partnership, Prudential Portfolio Services, raamdeo agrawal