This report talks about my role at Motilal Oswal Commodities Brokers Pvt. Ltd. (MOCBPL) during the first two months of the management internship program. It first explains the objectives, methodology and limitations of the project undertaken, "Analyzing the Franchisee Business Model and its Benefits". Then a basic understanding of the company and the working of the commodity market is provided. Finally it explains all the tasks that were assigned during the course of the project and how they were successfully executed.
INTRODUCTION
Motilal Oswal Financial Services Ltd. (MOFSL) is a company which provides a wide range of services in the financial sector. The main aim of the company is to create wealth for all its clients. The holding company of Motilal Oswal Commodities Brokers Pvt. Ltd. (MOCBPL) is MOFSL. The Franchisee Business Model is a key strength of MOFSL. The company has successfully established franchisee business over the years. The profitability and growth of all the franchisees is the company's responsibility. The efficient business development provided by the company had enabled very strong relationship with the franchisees.
My current project at MOCBPL is "Analyzing the Franchisee Business Model and its Benefits" under the guidance of Mr. Mandeep Singh. My role at the company revolves around the business development of the various franchisees.
OBJECTIVE AND SCOPE OF THE PROJECT
The project consists of the following tasks:
Analyzing the current business of Franchisee and finding deviations in the current business.
Giving actionable to Franchisee to overcome deviations in the current business
Conducting Joint meetings with Franchisee to help them to close in on HNI clients
Analyzing raw data and providing inputs in order to grow their business to the next level
Preparing Business Plans for Franchisee and giving projections for the next business
Providing knowledge support to Franchisee regarding new products and competitor offerings in order to cope up with the current competition.
PROPOSED METHODOLOGY
The first step was to understand the business of the company and how the commodity market works since it was a completely new area of work for me. For this the various product and service offerings of the company were studied. Also the basic working of the franchisee business model was understood. The main source for all the information during this stage was the company documents provided and the website of the company. The internet was the basic source of information for the working and understanding of the commodity market.
The second step was to build and study the contract specifications as well as the fundamentals of the various tradable commodities. This study was essential for in-depth knowledge of the market and for interacting with the franchisees. MCX and NCDEX websites were the main source to gather and build the information at this stage.
The third step was analyzing the business of the various franchisees and the finding deviations in the current business. The analysis was carried out based on various parameters.
The next step was to gather the feedback, resolve the problems and help in the business development of the franchisees. Interaction with the franchisees at this stage was mainly over the telephone. In order to overcome the deviations, inputs were given by me and attempts were made to take their business to the next higher level.
Presently I am analyzing the Indian brokerage industry and carrying out a comparative assessment of some of the top brokerage houses based on various parameters. This study would help me to find out the strengths and weaknesses of MOFSL and help analyze its position in this competitive market.
LIMITATIONS OF THE STUDY
The study till date has been restricted to the commodity market.
PROJECT SCHEDULE
COMPANY OVERVIEW
Motilal Oswal Financial Services Ltd. (MOFSL) is a company which provides a wide range of services in the financial sector. The main aim of the company is to create wealth for all its clients. The company has a variety of customers ranging from retail to institutional as well as corporate clients. The businesses that MOFSL is into are:
Asset Management
Wealth Management
Investment Banking
Institutional Equities
Private Equity
Broking and Distribution
The holding company of Motilal Oswal Commodities Brokers Pvt. Ltd. (MOCBPL) is MOFSL.
MOCBPL provides trading facilities for investing in the commodity market. The company is known for its distinct research activities. Clients are provided with regular reports on commodities. These include technical as well as fundamental reports which help clients make better decisions for investing in different commodities. There is a centralized advisory desk which provides customized trading advice to all the clients.
The company focuses on ethical business practices. Entrepreneurial spirit is recognized and rewarded. Also emphasis is laid on attainment of excellent results within the time frame provided.
Distinct Features of MOCBPL:
Dual Membership: The company is a member of both MCX and NCDEX. The customers thus have access to facilities provided by both the exchanges
Solid Research: The technical and fundamental reports provided everyday help make the clients make correct decisions for investing in the commodity market.
One Stop Shop: Along with research facilities the investors also get customized and exclusive end-to-end advice regularly.
Personalized Service: The company has a team of dedicated relationship managers (RMs). Some of the main tasks of RMs include regular follow ups with clients and perfect execution of all the transactions needed.
The Franchisee Business Model is a key strength of MOFSL. The company has successfully established franchisee business over the years. The profitability and growth of all the franchisees is the company's responsibility. The efficient business development provided by the company had enabled very strong relationship with the franchisees. The Franchisee World Magazine awarded MOFSL 'The Best Franchisor in Financial Services' in 2008.
UNDERSTANDING THE COMMODITIES MARKET
WHAT IS A MARKET
It is a medium which facilitates an exchange of goods or services between buyers and sellers. In today's world it is not necessary that the buyers and sellers have to come face to face for an exchange. Telephone lines and online markets also exist. A market also enables trading of securities.
WHAT ARE COMMODITIES
Commodity is a good. It is an item which does not take qualitative difference into account. For example, wheat is wheat. Examples of commodities are copper, steel, gold, pepper, crude oil etc. The forces of demand and supply determine the prices of various commodities. In the way that stocks are traded on stock markets, commodities are traded on exchanges.
WHAT IS A COMMODITY MARKET
Trading of different commodities is carried out in a commodity market. There are two segments in this market: Spot and Derivatives.
Spot: Immediate delivery of the bought commodity takes place in a spot market. These are over the counter (OTC) markets.
Derivatives: Financial instruments related to commodities are traded in the derivatives market. This trading takes place through exchanges.
VARIOUS TRADABLE COMMODITIES
The following is the list of the tradable commodities
STRUCTURE OF THE COMMODITY MARKET IN INDIA
Commodity Exchanges
Trading in commodities takes place on commodity exchanges. The rules and regulations for trade are set by these exchanges. India currently has 24 commodity exchanges.
The 3 national level commodity exchanges are:
Multi Commodity Exchange of India Ltd (MCX), located at Mumbai
National Commodity and Derivative Exchange (NCDEX), located at Mumbai
National Multi Commodity Exchange of India Ltd (NMCE), located at Ahmedabad
Regulator For Commodity Exchanges
Forwards Market Commission (FMC) regulates the various commodity exchanges. At the apex is the Ministry of Food, Agriculture and Public Distribution.
HOW THE COMMODITY MARKET WORKS
Spot Trade/Cash Trade and Futures trade are the two types of trade carried out in the commodity market.
Spot trade: In this kind of trade the buyer pays and takes away the good. The buying and selling of a commodity is for immediate delivery.
Futures contract: In this kind of trade the parties agree to purchase or sell an asset at some future time at an agreed upon price. The trade takes place through the commodity exchange and the asset is of a particular quality and quantity.
Basically in futures contract one tries to speculate and bet on the future price direction. A person buys or sells depending on his expectations of the future prices.
Let us take an example to understand this better: If a person is speculating in Pepper and he thinks that the price of pepper would go up in the future, then he would buy a pepper futures contract now. However if he thinks that the price will fall down then he would sell a futures contract. There always exists a buyer and a seller for every trade. However neither person needs to won any pepper to participate in the trade.
Let us take a farmer as one party in the trade and a cereal manufacturer as the other party. The farmer presently owns a wheat field which will not be ready for harvest for another two months or so. The farmer thinks that the prices will go down during that period of time. Therefore, he sells a futures contract which is equivalent to the size of his crop and delivers the same to fulfill he obligation as per the contract. Now regardless of how the price fluctuates in those two months until the wheat is ready for delivery, he will be paid the current price. The manufacturer on the other hand is thinks that the prices of wheat will go up in the next two months. Therefore he buys a futures contract at the current price, in order to pay a higher price after two months. In two months the manufacturer fulfills his obligation by taking the delivery of wheat. This ensures that regardless of the price movements the manufacturer will not have to pay more than the current price for the crop.
ESSENTIALS FOR FUTURES TRADING
Both the buyer and seller need to have brokers. These brokers are members of exchanges on which that particular commodity is traded. The transaction takes place between the brokers who will carry out the orders for buying and selling.
The commodity contract is very specific and consists of all the details related to the trade. For example, the quality and quantity of the commodity, the method of delivery and the expiry date etc.
Both the buyers and sellers need to fulfill their obligations of the futures contracts. The seller is obligated to deliver the commodity and the buyer to take the delivery by paying the cash decided in the exchange by the brokers. The seller should be able to deposit the commodity at a warehouse and collect the warehouse receipt against the deposited commodity. The buyer should be able to take the delivery on presenting the receipt at a location of his own choice. However most of the people offset their trade before the contract comes due. Physical delivery now a days occurs only on a minority of contracts. Most of the contracts are cancelled out by purchasing a contract to cancel out an earlier sale or selling a contract to liquidate an earlier purchase. Parties can even settle the contract by paying/ receiving the loss or gain in cash. It is the responsibility of the broker to maintain accounts of all parties and to record the daily profit or loss due to changes in the futures.
The commodity trading system is now fully computerized and automated. With the facilities provided by online commodity trading one can sit in the confines of his home and call the shots.
FACTORS INFLUENCING COMMODITY PRICES
The factors that affect the prices of the commodities generally depend on the type of the commodity being traded. However some of the common factors influencing commodity prices are:
The global demand and supply of the commodity
The policies of the government related to imports and exports
The global commodity prices
The world macro economic indicators, eg. Interest rates, US dollar etc.
Seasonal Variations
WHY INVEST IN COMMODITIES
Used as hedging instruments against price fluctuations: Futures help to purchase or sell commodities at a price which is fixed much in advance as compared to when the transaction actually takes place. Hence the fluctuations in prices are ironed out. This provides better diversification.
Leverage: The margins in the commodity futures are much lesser than the equity market. This provides for a higher leverage as compared to the equity market.
Lock in price for the produce: By investing in futures farmers and other producers can lock in the prices at which they wish to sell their produce.
Ensure continuous supply: Commodity futures ensure a supply of a predetermined quantity of materials at previously decided prices. Therefore the risk of shortfall in supply of raw materials can be avoided.
There is a potential for large profits in a short period of time
TASK 1: PREPARATION OF CONTRACT SPECIFICATIONS OF VARIOUS COMMODITIES
Contract specification for every commodity traded is issued by the commodity exchanges. It is a document which has the terms &conditions and parameters which are set in advance for any relevant commodity.
After understanding what the commodity market is and how it works I prepared an excel sheet of the contract specifications of various commodities. The specification contains the following parameters: Sector, Commodity, Exchange, Symbol, Contract Value, Current Price, Multiplier, Lot Size, Price Quoted, Tick Size, Delivery Unit, Margin Money, Quality Specification, Delivery option and Delivery centre.
Explanation of the various parameters included in the excel sheet:
Sector: The segment that the commodity belongs to. The following are the various sectors:
Bullions, Metals, Energy, Pulses, Cereals, Spices, Fibers, Oil&oilseeds and Others.
Commodity: It is the name of the commodity being traded. For example: Gold, Silver, Platinum, Wheat, Tin, Zinc, Pepper, Chilli etc.
Exchange: The name of the exchange on which the commodity is traded.
Contract Value: The total monetary value of a contract over its full duration
Lot Size: One can only trade in multiples of a fixed number which is called the Lot size. Eg. The lot size of silver is 30 kg. This means that any silver futures contract is going to be for 30 kg. of silver. One cannot trade in fractions.
Price Quoted: It is the Quantity (in weights or lots) for which the prices are quoted. e. g. If the quotation for Silver contract is given as 1 kg and the price available for trading on TWS is 28000, that price is for 1 kg of the silver.
Tick Size: The prices of commodities may fluctuate up or down. Tick size is the minimum amount of that price fluctuation. It indicates the minimum price difference (or its multiples) required between quotes.
Delivery unit: It is the minimum quantity for a contract that can be purchased or sold. e.g. If a person is buying 1 lot of gold, he has to buy minimum 1kg of gold given delivery unit of 1kg.
Margin money: It is the amount that needs to be deposited by a customer to buy or sell each contract. Exchanges set these levels and they generally range from 2 % to 15% of the contract value.
Quality Specification: They are the parameters referring to the quality or grades which indicate the minimum acceptable criteria for contract completion. Examples are the moisture content, the composition of the commodity, foreign matter etc.
Delivery Option: It is choices available to the buyers and sellers for the delivery of the commodity. The different options available are
Both option: The delivery will be executed only if both the buyer and seller agree for it.
Compulsory Delivery: Both the buyer and seller have to meet the obligations related to delivery upon expiration of the contract.
Seller's option: The choice for delivery rests with the seller.
Delivery centre: It is the location which is approved and designated as warehouse by the exchange. The parties have to make the deliveries at these centres.
TASK 2: STUDY OF THE FUNDAMENTALS OF THE VARIOUS COMMODITIES
A document which includes the fundamentals of various commodities was prepared by me. The document covers facts about commodities belonging to the following sectors: Agro (Pulses, Cereals, Spices, Fibers, Oil&oilseeds), Bullions and Base metals.
Each commodity is addressed with respect to:
The major characteristics
The world demand supply
The Indian scenario
The cultivation pattern and
The market factors affecting the commodity
TASK 3: ANALYSING THE FRANCHISEE BUSINESS and FINDING DEVIATIONS IN THE CURRENT BUSINESS
India is a land of entrepreneurs. The sub- broking model is built for those entrepreneurs who have the ability to set up their own office space. MOFSL authorizes those having an interest in running brokerages. Besides having an own office space the entrepreneur needs to invest in basic infrastructure like technology. Every franchisee needs to be registered with SEBI and stock exchange.
The brand name of 'Motilal Oswal' is shared by the franchisee. The franchisee also gets research and advisory support from MOFSL. The company on the other hand receives a share of the brokerage that is generated by the franchisee. It is the franchisee's responsibility to acquire new clients and retain them. Business development of the franchisees is the company's responsibility. Training is provided to the franchisees for customer acquisition and retention. The main aim is to increase the presence of MOFSL by adopting the franchisee model. In this way the costs associated with running a branch is passed on to the owner of the franchisee thereby leading to greater profits for the company. The franchisee model also brings with it other advantages like better operating efficiencies and a much wider distribution network.
The Franchisee Business Model is the key strength of MOFSL. The company has successfully established franchisee business over the years. The efficient business development provided by the company had enabled very strong relationship with the franchisees. The Franchisee World Magazine awarded MOFSL 'The Best Franchisor in Financial Services' in 2008. At the end of 2009, the company has 1,293 outlets across 581 cities . Out of these 1,267 are franchisees.
I had to analyse the franchisees in the various regions with respect to the following parameters:
The total clients that the franchisee has
The status of the franchisee: Active/Inactive
The total accounts activated in FY10-11
Number of clients of the franchisee with a margin
The number of active clients
The revenue generated in each month
The total revenue for the FY 9-10
The total revenue for the FY 10-11
The YOY( Year-on-Year )growth
The Month on month revenue growth
When was the franchisee last contacted by the company
Time elapsed since he was last contacted
TASK 4: FEEDBACK, RESOLUTION OF VARIOUS PROBLEMS AND BUSINESS DEVELOPMENT OF THE FRANCHISEES
The profitability and growth of all the franchisees is the responsibility of MOFSL. The company takes continuous feedback from the franchisees to make necessary improvements. The company provides them continuous training related to new products and runs a lot of internal recognition programs for them. The daily research and customized advice provided to the franchisees helps them invest properly in the market and this in turn benefits their clients.
After analyzing the current business aspects of each franchisee the next step was to take their business to the next higher level by solving their problems and giving actionable to overcome deviations in the current business. I had to contact the franchisees and talk to them about the problems they were facing regarding commodity trading. If they were inactive or their revenue was falling compared to the previous months, I had to find out the reasons for the same. I also had to pursue them to acquire new clients and address any kind of needs for training and development.
CURRENT STATUS OF THE PROJECT: COMPETITOR ANALYSIS
Presently I am analyzing the Indian brokerage industry taking into account the intensity of competition among the brokerage companies. I am carrying out a comparative assessment of some of the top brokerage houses based on various parameters. Some of the competitors of Motilal Oswal are: Angel Broking, Religare, Sharekhan, India Infoline, Kotak securities, SMC Global etc.
The following are some of the parameters on which the comparative study is based:
The products and services offered by the company
The security deposit charged
The revenue sharing offered
The software provided and the charges for the same
The account opening and maintenance charges
The Research support provided
The advisory support provided
Business development activities
Back office support provided
Banking support provided
Strengths and weaknesses of the company
