Motilal Oswal Financial Services Ltd reported lacklustre results for the December quarter. Revenue from broking and distribution, wealth management and
institutional equities fell by 12.3% sequentially to Rs121.2 crore. The remaining segments such as investment banking and private equity did expand revenue by 12.4%. But the higher weight of the broking and related businesses (76.6%) dragged down overall revenue by 7.5%. Besides, earnings before interest, tax, depreciation and amortization (Ebitda) fell by 15.5%. Ebitda of the broking and related businesses fell by 24.4% sequentially.
Average daily turnover of the firm fell by around 9% to Rs2,900 crore last quarter. Meanwhile, overall market turnover rose marginally, leading to a loss in market share. According to chairman Motilal Oswal, the loss in share has to do with the shift in the market’s volumes in favour of options. In the September quarter, options accounted for 35% of total turnover. This increased to 40% in the December quarter. The company has preferred to focus on the cash and futures segments since the options segment involved thin margins.
Year-on-year growth numbers were impressive because of the low base of the third quarter of last fiscal. Total revenue grew by 64.9% and Ebitda rose by 75.2%. Revenues and profit are down by 31.9% and 27.3%, respectively, against the year-ago quarter, when volumes had peaked.
Broking and related businesses contributed 88.5% of total revenue in the year-ago quarter. It has come down to 76.6%, thanks to growth in other segments such as the investment banking business. Two years ago, this segment was almost non-existent. It now contributes around 11% of total revenue.
The growth of the non-broking business augurs well since it reduces the volatility in revenue and profit. It must be noted that ultimately all of the firm’s business segments are related to financial markets and a downturn would affect them all.
Motilal Oswal’s shares have corrected by almost 60% from their peak in January 2008, while the broad market has fallen by around 17%. This is not to say that the firm’s shares are relatively cheap. At current prices, Motilal trades at a price-book valuation of 2.7 times, based on Prabhudas Lilladher Pvt. Ltd’s estimates for the current fiscal.
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