The Hindu Business Line : Strong growth in troubled quarter for Motilal

The stock of Motilal Oswal Financial Services (MOFS) has been beaten down by 63 per cent from early January, on fears that dwindling trading volumes and financing/trading losses incurred in the broking business would trim the frenetic pace of earnings growth. The company’s strong numbers dispel some of these fears, for MOFS.

No big hit

The troubled March quarter has seen MOFS grow at a strong pace and close the fiscal 2007-08 with a healthy 91 per cent growth in total income to Rs 700 crore, while net profits has doubled to Rs 156.1 crore. Franchisee arrangements for revenue sharing and the variable component in staff costs, appear to have helped in cost management during this period.

Losses suffered in collaterals offered by clients have been provided for at Rs 3.77 crore and the management is on record that further losses from this source may be “insignificant”. The company also stated that it does not have a proprietary book. All this allays investor apprehensions of a big hit to the company’s financials, due to the vicious market meltdown since January.

MOFS has also reduced its dependence on volatile broking activities, with equity broking bringing in 80 per cent of profits in 2007-08, against 87 per cent last year. The closure of a maiden private equity fund ($125 million) and healthy deal wins in investment banking are pointers to the headway made in non-broking businesses.

While MOFS has weathered the turbulent March quarter well, it may be premature to conclude that other broking or financial service companies (given their differing revenue mix) will emerge equally unscathed. Despite the buoyancy in the entire broking pack on Tuesday, caution may be best course to follow until the numbers are out.

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