The Hindu Business Line : Broking firms witness sharp drop in revenue

The stock market crash during the month of May hurt not just the retail investors but the broking community as well. Many of the listed entities in this space recorded a sharp drop in revenue (on a sequential basis) for the quarter-ended June 2006. Five of the listed companies in this space reported an average revenue drop of 11 per cent. IL&FS Investsmart and Khandwala Securities bore the brunt of the lukewarm business sentiment.

The picture remained bleak on the earnings front as well. Apollo Sindhoori and Indiabulls Financial Services reported a 20-per cent drop in earnings as operating margins dropped significantly. Geojit Financial Services, however, bucked the trend. A surge in operating margins, on the back of reduction in selling expenses, helped Geojit report 38 per cent earnings growth (the best of the lot), in spite of revenues being lower by 5 per cent on a sequential basis.

Khandwala's performance was the least impressive when compared with its peers. On the back of a 20 per cent drop in revenues, Khandwala's pre-tax earnings slipped by close to 60 per cent, even as margins declined sharply.

Dismal performance

Most of these companies' performance at the bourses during the April-June quarter was also dismal. The worst among them was the recently listed stock Emkay Share Brokers; it closed at Rs 67.2 on June 30 against its Day 1 (April 28) close of Rs 136.75, a drop of 51 per cent. The other recent debutant JRG Securities (on May 18 at Rs 41.85) also declined by 19.3 per cent.

IL&FS Investsmart (40 per cent) and India Infoline (36 per cent) were the other big losers among them. During the quarter, though the BSE Sensex was volatile, it recovered sharply. While the Sensex tumbled by 6 per cent, the NSE's S&P CNX Nifty lost 8 per cent.

However, the stock of Chennai-based Apollo Sindhoori was the star performer by gaining a whopping 62 per cent. The sharp jump has to be viewed in the backdrop of the company announcing 1:1 bonus issue and 1:1 rights issue (at Rs 100 per share).

However, most of the stocks recovered in line with market. For instance, IL&FS Investmart is now quoting at Rs 121.90 against 52-week low of Rs 103.10, which it had on July 21.

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