BASKET OPTION: BUSINESS VERTICAL

CASE ANALYSIS
Submitted to – Prof. Ganesh Prabhu

Submitted By: Group P

Ayush Solanki – 2111229
Aishwarya Behera – 2111232
Priyanka Jha – 2111277
Akshat Soni - 2111434
 BASKET OPTIONS: GROUP P

INTRODUCTION:

Started by Abdul G. Sait in 2005, Basket Option is an innovative financial services

start-up that primarily operates in Bangalore. The firm offers customer-oriented and
unique financial services. It has achieved a commendable position in the financial
services industry in a short span of eight years. It has achieved high growth owing to
its innovative services, which it provides a high degree of transparency, claims
settlements, and trustworthiness. The firm put forwards a unique recruitment process
that recruits a complementary blend of dynamic individuals who come up with new
ideas and experienced bankers who bring in their invaluable experience. While the
firm is growing, it does need strategies to have more profitable and sustainable
growth. At the same time, it needs solutions to some existing problems that might be
hampering the profits.

SWOT ANALYSIS
• Strengths: The firm's strengths include its diversified portfolio, which has
some products that give a high degree of uniqueness to the firm. Claims
Express, a unique business vertical of this firm, is one of its kind in India. The
inclusion of NRIs as the client base for RED LOUNGE is also a highly
differentiable service in India since no other firm includes NRIs in its client
base exclusively.
• Opportunities: Operations of the firm can be expanded by opening new
branches, especially in the public sector, where the reach is low. Similarly, the
firm can also include underserved sector
• Weaknesses: Some business verticals like wealth management are
underperforming with a profit share of only 0.2 % despite its introduction in
2005. Hence the firm needs to rethink refining or eliminate this vertical.
• Threats: Some of the competitor firms offer outstanding consumer services.
For example, ApnaPaisa Pvt Ltd provides consumers the freedom to choose
their investment option after a comparison analysis. And Secure Now
provides financial assistance to underserved segments like individuals and
small corporates. The firm needs to look at these threats objectively.

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1. Problem: Lack of focussed approach on each business vertical.

Analysis: Since the firm's start, Abdul Sait has tried to expand his business into
multiple verticals. Beginning with Student Insurance and Wealth Management in
2005 to the establishment of Stock Market Institute in 2010, Street smart and Red
Lounge in 2012. It is worthwhile to note the creative and valuable ideas of Abdul
Sait. However, the firm's expansion into multiple businesses has caused a serious
lack of focus on the implementation part. As given in Exhibit 1, businesses like
Education loans, Claims Express, and Wealth Management haven't contributed
much to the firm's profits despite having considerable workforce and time since the
beginning of the business. On the contrary, SMI, having fewer full-time employees,
has emerged as the highest profit-making business (66% of the Total Profits).

Recommendation: The idea behind the businesses of the Basket Option firm has
been quite innovative and practical. As given in Exhibit 2, the firm is growing every
year, however the growth rate is slow with respect to the expanse of the business.
Even before the stabilization of one business vertical, resources and focus are
directed to start a new vertical, which hinders the proper growth and development of
the existing business. Therefore,
• The firm should focus on sustainable and profit-making verticals like SMI,
Insurance, Street Smart, and Red Lounge.
• They must set up a comprehensive feedback system to gain insights about
their customer's changing demands and expectations from the offering.

2. Problem: Necessity of scaling up the business.

Analysis: It has been 9 years of operation for Basket Option. Started in 2004, the
initial year saw the opening of six branches despite the firm's nascent stage in its
growth process, which included a lack of client base and lack of experience in
choosing the right employees for the firm. This move proved to be a huge loss to the
firm. Consequently, the firm had to close down its six branches. Nine years from
then, the firm grew and registered a profit of 8 lakh in 2012 itself. Looking at these
numbers, the company is not diverting a significant portion to expanding the
branches again. And this expansion measure has to be in contusion with the

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popularity and differentiation index of the verticals. For example, Claims Express is
one of its kind in India, and hence its differentiation index is quite high. It would be
highly beneficial for the company to have more and more branches of its expansion
plan dedicated to this business vertical.

Recommendation:
• They should open branches at new places where a high proportion of the
population can use the services provided by the firm.
• The firm should decide whether to focus on the business portfolio
diversification or on the sustainable and profit-making verticals. This would
help the firm to better expand in terms of customer reach and service.

3. Problem: High competition and low revenue in Wealth management

business.

Analysis: Wealth Management is one of the earliest businesses started by Abdul

Sait but still doesn't have much revenue in 6 years. The proportion of this vertical in
total profit is just 0.3%, and revenue is just 0.2 - 0.3 million Rs (Exhibit 2). This is
because they are not providing anything new like they are doing in Red Lounge,
where they only provide services just for Non-resident Indians because it is very
hassled for them. Another reason is that many already well-established and
experienced firms in this business have a greater reputation and marketing budget.
Working in such a competitive market without any differentiation will only result in low
revenue and low profit. They are also not able to fully utilize the human resource

Recommendations: Stopping the service for wealth management and only going on
with Red Lounge as it has its customer base that no other firm is addressing.
• Can use human resources used in the wealth management business in
any other similar vertical with better opportunity.

4. Problem: Limited customer reach for Street Smart, which has high
potential.

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Analysis: Street smart provides a software service that consolidates the investment
database of the corporate firms' employees that form the firm's client base. While it's
a unique service, it has limited reach because it is a physical model where
employees need to go and submit their database and its limited use by the
employees of its client firms only.

Recommendations:
They can create a mobile app that provides the same above services, providing a
base where all the databases related to the person's investment credentials can be
stored. The benefit this app will provide is that it will increase the engagement time
between the firm's services and the person using it since an app can be used
anytime at the person's convenience.

• The app should be limited to the employees of the corporate firms that form
the client base of Basket Option and employees from other segments. The
app can be made universal also, and it will certainly attract more and more
clients through word of mouth. One point to note is that it is easy to refer an
app to our friends.

Recommendations for Future Developments: In addition to the measures

discussed above, the company can further work in,

1. Claiming provident funds and pensions is a time-consuming and laborious

process for government employees. Basket Option can alleviate this problem
by developing a dedicated claim handling solution that can be used in
exchange for a small service fee.
2. Due to the economic downturns, job security in MNCs is at an all-time low.
Basket Option can promote unemployment insurance by selling in abundance
to corporate employees; the insurance premium and the insurance company's
risk will be greatly decreased, resulting in the service being more popular.
3. In most firms, claims and payroll processing are independent business
procedures from the core business. As a result, these can be delegated to a
third party. Basket Option might provide this service to these businesses in
exchange for a charge, which would be a win-win situation for both parties. Its

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existing corporate client base for Street Smart can serve as a test platform for
the service's feasibility and effectiveness.

Exhibit 1
Basket Option Profit and Loss Statement

PARTICULARS (Amounts in INR) 31 Mar 31 Mar 31 Mar 31 Mar

2012 2011 2010 2009
INCOME
Incentive Received 10,598,47 6,908,416 4,845,304 3,671,561
6
Other Income 66,778 12,076 56,822 -
Total Income 10,665,25 6,920,492 4,902,126 3,671,561
4

EXPENDITURE
Administrative Expenditure 8,819,885 6,148,955 4,140,703 4,216,218
Marketing Expenses - - 25,000 142,528
Finance Expenses 195,385 13,924 12,502 11,525
Preliminary Expenses written off - - - 4,034
Total Expenditure 9,015,270 6,162,879 4,178,205 4,374,305

Profit/(Loss) before Depreciation and Tax 1,649,984 757,613 723,921 (702,744)

Depreciation 561,004 189,151 241,354 248,124

Profit/(Loss) after Depreciation before 1,088,980 568,462 482,567 (950,868)

Tax

Less Tax Expenses

Provision for Tax 292,541 - - -

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Deferred Tax Liability 7,143 - (22,152) 11,161

Profit After Tax 789,296 568,462 504,719 (962,029)

Balance Brought Forward from Previous 678,528 110,066 (428,588) 533,440

Year
Add: Provision for Last Year Transferred - - 33,935 -

Balance Carried to Balance Sheet 1,467,824 678,528 110,066 (428,589)

Exhibit 2
Basket Option: Business Verticals

Verticals Duration Gross Number of People Proportion of

in Revenue Total Profits
Operation
Insurance 6 years INR 13 -14 million 22 employees 33%

Stock Market 14 INR 5 million from 6 employees and 8 66%

Institute months the time of interns
starting
Education Started INR 1.2 -1.5 2 employees and 0.5%
loans and in 2010 million one intern
loan basket
consulting
Claims Started From start INR 7 employees 0.2%
Express in 2010 0.3 -0.4 million
Red Lounge Started Projected 2 employees and one New Initiative
on revenue is INR intern
Septembe 0.2 million
rr 1st 2012
Wealth Started in INR 0.2 to 0.3 3 employees and 6 0.3%
Management 2005 million in revenue interns

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Street Smart Started on Triples the 1 to 2 employees for New Initiative

September revenue of all coordinating
30th 2012 other departments

Industry Analysis
1. Threat of new entrants: Moderate
In the financial services industry, the barrier to entry depends majorly on trust
and initial financial support which are difficult to build up. It doesn't require any
capital investments which makes entry easier.
2. Threat of substitutes: Moderate
The threat of being substituted comes from the Banking services, Insurance,
Mutual funds, Fixed Income Securities and non-financial competitors.
3. Industry Rivalry: High
The financial services industry is highly competitive. The competition mainly
depends on the best and fast services. Due to multiple business verticals of
Basket Option, it lacks the focus to maintain stability within each vertical and
therefore faces risk of losing customers.
4. Bargaining power of Buyer: Moderate
The switching cost of the buyers is quite low as they can easily find other
sources for their financial assistance. Buyers are always looking for low
interest rates and will prefer the one which can provide best services at
minimal costs.
5. Bargaining power of Supplier: High
Suppliers of the industry are Customer deposits, Mortgage, loans, and other
financial institutions. Therefore, the power of suppliers depends on the
market.

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