On Small Cap Spotlight, Beacon Trusteeship Founder & CMD Pratap Singh Nathani explained the role of a SEBI-licensed trustee as a compliance and monitoring intermediary in India’s debt markets. He discussed the company’s tech-led approach, expansion into loan, AIF and securitisation trusteeship, overseas foray, and its rise to the #2 position by volumes over the past decade. With a focus on compliance, operational efficiency and diversification, Beacon aims to scale revenue 5x over the next five years.
Karunya Rao: Hello and welcome to SmallCap Spotlight. I’m Karunya and today we’re joined by the management of Beacon Trusteeship. Mr. Pratapsingh Nathani is with us.
He’s the founder of the company and also the CMD. Thank you so much for joining us today.
Pratapsingh Nathani: Thanks Karunya for inviting me over.
Karunya Rao: So first things first, now trusteeship businesses, I’m sure most people out there, the common man would not be very familiar with it. So if you could start with telling us what the business model really is in simple terms and what exactly is it that you do?
Pratapsingh Nathani: Sure, so trusteeship is basically a licence granted by the regulator in India, SEBI, and it’s like a monitoring agency. If you’re raising debentures in the market, you need to appoint a trustee company.
Now what is the role of a trustee company? When I said monitoring agency, it’s on both sides. There is an issuer and there is a investor or a lender. So what the trustee is supposed to be doing is, the role of a trustee is to monitor the transaction of a debenture.
So typically this licence is granted for debenture trustee business. You can do other businesses like a loan trustee or an AIF trustee or for escrows or for securitisation. So keeping it just to the debenture trustee business, you are just a licenced entity by SEBI.
Your role is to monitor the creation of a security when a debenture is being issued. Secondly, you need to monitor one rupee one day default and report it to the rating agency. And if there is an enforcement event, event of default, you need to take action based on the feedback given to you by the investors or the lenders.
Karunya Rao: Okay, so would it be right to say that your business is also in a way a proxy play to securities market or to the investment landscape?
Pratapsingh Nathani: Absolutely.
Karunya Rao: Okay, interesting. So you are an intermediary on behalf of the regulator.
So you are acting on behalf of SEBI. Wow, that’s a highly regulated business, I’m guessing. So do you specialise in any of the categories which you just mentioned?
Pratapsingh Nathani: So most of the trustees are supposed to have a debenture trustee.
Then based on the business activity that you may want to develop further. So like us, we’ve gone into loan trusteeship, we’ve gone into AIF trusteeship, we’ve gone into escrows, and we’ve gone into securitisation. So these are the other businesses that we’ve gone into apart from the debenture trustee business.
Karunya Rao: Okay. And you were formed in 2015.
Pratapsingh Nathani: Yes.
Karunya Rao: So very rapidly, you know, scaled a fair bit. So good for you. And you’ve also listed in the markets as well.
So what exactly were the gaps that you were trying to fill when you founded the company? And how have you evolved since?
Pratapsingh Nathani: So prior to Beacon, I was working as head of Ted Capital Markets in ING Bank. I was also looking at loan syndication over there. So during my tenure of about seven years with ING, I discovered that I had to deal with a lot of the trustees in India.
And that’s when I came about, while interacting with the trustees, I realised that there are gaps. You hardly were able to reach out to the institutional trustees at that point of time. So at that point of time, I decided that if given a chance in my life, I will try and attempt this if I get an opportunity.
So that opportunity did come when the bank ING was taken over by another bank. And that’s when I decided to step up and become an entrepreneur.
Karunya Rao: Okay. And, of course, you saw a market for this and a sizable opportunity. But now where you stand in the last 10 years, how has the company shaped up? And how have you evolved with so many reforms and so many new things being introduced in the securities market and in, you know, the overall landscape when it comes to investing, lending and all of that?
Pratapsingh Nathani: Sure. So today, if you look at the Indian landscape of trustees, there are about 10 active trustees in India.
So when I started, there were about seven. So we were like the seventh one to take a licence from SEBI. And before me, nobody else had attempted it except for one had attempted to take another licence for the last three years.
So SEBI actually was surprised when I went and met them and said, I want to become a trustee, debenture trustee. So they said, what is it that you want to become a trustee for? So the reply was that I have discovered some gaps. They said, we haven’t discovered any gap.
How did you discover some gaps? Okay. So why don’t you tell us about that? So in that discussion, I briefed them that these are the gaps I visualised that people are not reachable. And I want to create something I want to put in tech.
This is a very archaic business, so to say. It’s in the physical domain. This is all I need to put in.
So they said, okay, who is behind you? Is there an institution or a corporate behind you? I said, no, I’m just, I used to be working with a bank. And from the SOPs that I got from that bank, I now have made some money, and I need to start a trustee business. So they interviewed me for two rounds.
Okay. And then I was given the licence to start one. So that’s how my journey started.
Karunya Rao: Interesting.
Pratapsingh Nathani: So over the last 10 years, it’s been, we’ve just celebrated our 10th anniversary last month. We’ve now become number two in India as a trustee by volumes, as per Prime Database.
And Prime Database is a league tables company based out of Delhi. Also, there is India league tables that ranks us at number two.
Karunya Rao: Oh, fantastic.
You know, but this business that you’re operating in, typically, you know, trusteeship is kind of invisible until something goes wrong. Absolutely. So talk to us about the role of a trusteeship, especially during stressful times or during a period of distress, defaults, and so on.
Pratapsingh Nathani: So trustees role, like you said, it does come into the fore when there’s a default or a event of stress. So yes, we are the silent players in the back backroom. But having said that, we are the ones who insist on the compliances that need to be done by each of the issuers that come into the markets.
And investors are completely reliant on a trustee to do their compliance. So we have a team of people who consist of lawyers, CS company secretaries, and there are people in operations. So currently, we are at about 150 people in Mumbai and other locations across India, and a couple of them overseas.
So our role is predominantly to silently pursue them to comply with all the SEBI guidelines, with all the compliances that are needed by the exchanges and by SEBI.
Karunya Rao: Okay, nice. You know, the segments that you operate in there is trust, debenture trusteeship, securitisation, AIF trusteeships, and others.
As of today, which is the most important vertical for you and for your business, which could propel you to the next big phase?
Pratapsingh Nathani: Yeah, so the bread and butter business that gives me 50% of my revenue is the debenture trustee business. But there are two others that are upcoming, which we’ve seen a lot of interest in the markets and for us also, which is the loan security trustee, that’s the security trustee business for loans. And there’s one more for AIF.
Okay. So there are lots of action that’s happening in the AIF industry, lots of AIF coming and registering themselves. That’s where we see playing a role.
Okay. Yeah.
Karunya Rao: What about, you know, when we started the conversation, the first thing that came to mind was that this is a very, very regulated business, and you’re actually helping the regulator regulate things more efficiently.
Yes. So how have regulatory expectations evolved in the last 10 years? And how is it positioned today? And how are you ensuring compliance across the different, you know, businesses and different segments of the market?
Pratapsingh Nathani: So if you see the trustee business has been an archaic business. SEBI had granted licences to many, many banks, predominantly, over about 25 years ago.
Okay. So some of them just gave up those licences. Some of them did carry on.
So more market for you. More market for me. And say, we started in 2015.
So it went on in the physical domain for the next three to four years. Then the big defaults happened of the big ones like ILFS. And then there’s a couple of them more.
So that’s when SEBI came out in the forefront. Then they started giving out new regulation. Yeah.
Starting to put onus on the trustees. And that’s where we started putting in a lot of tech. So tech for me has played a role.
So what we’ve done is everywhere, wherever we went, we put in a lot of tech. We have our own ERP system. And whenever you start a relationship with me as beacon, I make you interact with the company through my tech.
Okay. So we have our own associate software company, which helps us build tech internally. So we have technology platforms for securitisation, interacting with me.
Then you have a platform for compliance monitoring platforms. You have a platform, which we’ve created for fund accounting, for investor onboarding. So this has helped me a lot over the last five, six years to gain ground, as well as help the others to comply online basis.
Karunya Rao: So a lot of tech adoption has really helped you for just compliance? Or is it also helping you monitor covenants and cash flows and other compliance related?
Pratapsingh Nathani: All of them. Yeah. So wherever we thought there is a use of tech, we just went and put in tech.
Karunya Rao: And how much do you think are your tech investments right now? How much have you invested in developing these? Yeah.
Pratapsingh Nathani: Before the IPO, we had invested about three to four crores. And through the IPO, in fact, the IPO was for 32 crores, out of which 10 crores, we did an OFS, 21 crores was for the public.
Out of that, we did about 30%, which is about seven crores, I put into tech.
Karunya Rao: Okay, interesting. How are you also managing client concentration and conflict of interest? Because you work with a lot of NBFCs, there’s AIFs, there’s institutional investors.
So there could be some overlaps here and there.
Pratapsingh Nathani: Yeah, there are overlaps. So our client base is mainly consisting of NBFCs.
So if you look at the financial markets in India, most of the money is raised through NBFCs, you have the banks participating. So a lot of money is raised by the financial sector companies. You have a lot of NBFCs raising money, you have a lot of PSUs, PSU banks.
So these are the main participants in the bond markets. But we’ve divided ourselves into products. So we have a dedicated product team for each of those products.
And we see to it that conflict of interest is well taken care of as per SEBI norms.
Karunya Rao: Okay, okay. So there are like clearly stated norms by SEBI for that.
So when you look at expanding your business from the current levels, when you think of a plan, your focus is more on expanding your services, deepening your client relationship or more focus is there on operational efficiency? What is your priority?
Pratapsingh Nathani: So of course, operational efficiency has been the buzzword from day one. Otherwise, I wouldn’t have become number two in India today. But then you need to look at other markets also, you need to diversify yourselves.
And you need to do risk mitigation. So as trustee, you are a uni product company. So what we did is in the IPO, we decided to look at other products.
So what we did is we looked out for a RTA licence, which is a registrar and a transfer agency and a depository participant. So these are the two, three businesses that we thought we should get into to diversify our risks. So these two businesses are subsidiaries of Beacon Trusteeship.
Then we thought of expanding overseas, we took a full fledged trustee licence for Mauritius. And then we went to the UAE, we went to Singapore, we’ve created an office in each of those domains. And what we’re trying to do is we are trying to cross sell our software to other AIFs.
We are also now in gift city. So these are the three, four domains, which we expanded to overseas.
Karunya Rao: How big is the overseas business? Overseas businesses actually would be a huge multiple of what we see in India.
Pratapsingh Nathani: It’s actually very, very huge. Okay. And the trustee businesses emulated from the overseas.
All right. And we are seeing a lot of foreign players that have started taking interest into India, because a lot of fund flow is coming into India. So that’s what we see in the near future happening.
A lot of the foreign entries, entities will come into India.
Karunya Rao: You know, it’s great that you’ve become from number seven to number two player in a span of 10 years. But how do you now get to the number one position? So what will be now your plan to sort of gain more business or market share?
Pratapsingh Nathani: So we’ve been putting out whatever good practises that we can, like tech, I told you, expanding overseas.
So expanding overseas is giving us good margins. So for example, if you get a 1 lakh rupees for a transaction in India, a similar transaction would get you anywhere between 30 to 40,000 US dollars in overseas markets. So that’s how we are increasing our margins.
Okay. And having said that, we’re also looking at compliance very seriously. We don’t take it as a no from a client, we push for compliance on a hard level.
Karunya Rao: So who are the we, if you could tell us about your top leadership team, and who is, who’s who and who’s doing what at Beacon Trusteeship?
Pratapsingh Nathani: So there’s a CEO, who’s Anil. He’s come from a well-reputed bank promoted trustee company. Then you have a level of three senior executive directors, who have got experience of 10 to 15 years in the past trusteeship assignments.
So then there’s a senior team of about nine people who do business development in the company. There’s a battery of lawyers. So 30% of the company is mainly the law firm, lawyers, legal, legal guys.
Then you have the company secretaries, which is another 30%. And then you have the remaining workforce, which is the graduates who do the operations. Okay.
But having said that, each one of them is very important for me. And they play a role on a day to day basis.
Karunya Rao: No, now that you’re a listed companies, company, the investors will be closely monitoring your performance as well in terms of financials, fundamentals, what you’re doing, what what’s next as well.
So if I have to ask you your vision for the next five years, from an investor standpoint, what should what markers or parameters should we focus on? So for an investor, what is important? Your PAT levels and EBITDA levels are very important for them.
Pratapsingh Nathani: So over the last three, four years, we’ve consciously tried to improve those margins. So we’ve tried to improve our PAT margins, we’ve tried to improve our EBITDA margins.
Karunya Rao: How are you doing that?
Pratapsingh Nathani: So one is inducting tech wherever possible. So that helps me reduce my cost and complying with the SEBI guidelines, opening overseas branches, but at the same time, keeping cost at control, recruiting the locals over there who have a background in the trustee business. So that’s how we’ve been controlling cost.
Karunya Rao: Okay. So what is the next, you know, five year target or any, you know, vision that you have laid out for the company?
Pratapsingh Nathani: So five year target is of course, today, we have started diversifying our products. Within five years, I should do a five-year multiple of my revenue today and give good returns to my investors.
Karunya Rao: Great. And we look forward to that. All the very best.
Thank you so much, Mr. Nathani once again for joining us on Small Cap Spotlight.
Pratapsingh Nathani: Thank you so much for inviting me.