Broking share in revenue pie won't be more than 10%: Rashesh Shah

Q&A with Chairman and CEO, Edelweiss Financial Services Limited

Edelweiss Financial Services Limited runs one of India's leading institutional brokerages, but the broking business only contributes around 6.9 per cent to total revenues despite the recent pick-up in equities. Fund-based activities, which includes its lending business, contributes over 80 per cent.

Consolidated net profit available to shareholders for the September quarter came in at Rs. 79.24 crore. The figure is up 1.26 per cent over the previous quarter and 71.96 per cent over the same quarter last year. In a qna with Sachin P. Mampatta, Rashesh Shah, Chairman and Chief Executive Officer said that the broking segment is expected to do well, but is not expected to account for more than 10 per cent of the overall revenues in the days ahead. He added that while futures and options account for most of the volumes, it is the cash segment which contributes most to broking revenues.

Edited Excerpts:

What is the outlook for growth in the lending business?
The credit side of the business has been growing at around 30 per cent for the past few years. It can continue to do so for some time. Other businesses are also increasing their footprint. Commodities has been expanded to now include both agri-commodities as well as precious metals. The asset management, broking and related businesses are also doing well.

The market regulator has increased the networth requirements for mutual funds. How is your asset management business capitalized?
We are well capitalized in the asset management business. We have a networth of between Rs.70-100 crore.

How is the insurance business doing?
We started with a fairly high networth of Rs.600 crore in the insurance business. We have around 58-59 offices. We are trying to grow with a focus on the agency channel and alternate channel.

Your employee benefits are up 70 per cent over the previous year, is talent getting more expensive to retain in the new bull market?
The numbers are also up because we have added a lot of people especially in light of the growth in the agri-commodities and precious metals space. We have hired another 150 people and continue to increase numbers.

Do you expect to see a greater contribution from the broking segment in light of the pick-up in equities?
In our business the broking segment could contribute around 10 per cent of the revenue. Other related business like investment banking could contribute another 10 per cent. So overall, we could see a 20 per cent contribution from the capital market division.

How would you say domestic institutional investors are placed?
The participation from domestic institutions such as mutual funds has increased after the recent run-up in the market and inflows that have started to come into the market. I think our average daily volumes in the first half would have shown a growth of 30-40 per cent.

Any change in broking yield?
Our broking yield has stabilized over the last 2-3 quarters. Interestingly, 70-75 per cent of our commissions are coming from the cash segment in equities, compared to around 30 per cent from derivatives although derivatives contribute to most of the equity volumes.