Edelweiss Capital it has announced its Q4 numbers. It has posted Q4 net profit of Rs 82.6 crore versus Rs 37.4 crore on YoY basis and versus Rs 96.4 crore on QoQ basis. During the same quarter its net sales were at Rs 405.8 versus Rs 135.9 crore on YoY basis and versus Rs 323.2 crore on QoQ basis.

Its FY08 net profit stood was at Rs 273.2 crore versus Rs 109.9 crore. Its FY08 sales were at Rs 1,088.9 crore versus Rs 371.8 crore. The company's FY08 diluted EPS was at Rs 39.99 versus Rs 20.76.

Rashesh Shah, CMD & CEO said that the revenue was split equally between interest income arbitrage and brokerage and there was a 20% growth in arbitrage division, and 18-20% in advisory business. He added that the interest on income grew fastest among all the revenue streams and the net profits lowered sequentially due to low market volumes. He also said that the key areas of growth will be Asset Management, NBFC (Non Banking Financial Company) business and HNI, or High Networth Individuals' business. The current year would be softer for equity and IPO business, he said. The market will be seen in a consolidation phase for phase for the next three to four months, he mentioned.

Excerpts from CNBC-TV18’s exclusive interview with Rashesh Shah:

Q: Can you break up the sales and profit contribution between broking income and arbitrage income?

A: In this quarter, it is split equally between interest income, arbitrage treasury business, brokerage investment banking and other fee-based activities that we have. We have always intended to be one-third across the three key business groups that we have.

Q: With respect to arbitrage, what has the sequential performance been QoQ and what is the change?

A: Quarter-on-Quarter (QoQ), there was a slight growth in the last quarter after the IPO or the capital base had gone up. So, we had a higher capital base in this quarter. On a QoQ basis, there was a slight increase from about 20% on the arbitrage business.

We had another 18-20% increase in our agency business, the commission and the advisory business. Also, interest income has grown a lot because we raised some more capital in our NBFC in this quarter and we had scaled it up. So, interest income is the one that has grown the fastest of the three in this quarter.

Q: Net profit is down this time around. What has caused the slippage?

A: Overall market volumes have been down. We have been investing in a lot of new businesses like asset management and private banking. We have also been investing in building the brand. So, we have continued to invest in businesses.

Given the way the quarter shaped from January-March, the margins have gone down a bit across all businesses; but it is still a good time to invest. So, Q3 was obviously a great one and Q4 was fairly volatile. But the broad diversified businesses that we have allowed us to manage and keep on growing the businesses.

Q: Given that you are seeing volumes dry up a bit for FY09, what is the forecast that you are laying? What is the expectation you have on volumes, the kind of growth seen in your private client asset management and financing divisions and whether margins can stay stable at these levels?

A: We have a broad range of businesses. The current year might be slightly softer for the equity capital markets focused business: mainly brokerage and the ECM (Equity Capital Market) IPO business. But the other businesses like the NBFC as well as asset management and private banking wealth management businesses or a lot of these have a fairly good amount of growth ahead of us.

So, when we have 7-8 businesses, we expect a couple of them to slowdown as the market environment changes, but the others will go into a hyper growth mode. As long as QoQ-YoY, we keep on growing all the businesses, they will come and go. So, in this year, asset management (NBFC as well as HNI), the private client business will be the key growth area for us.

Q: Is there a concern on higher employee cost, given that there are high bonuses involved?

A: We have kept the same ratios. For Q4 also, we have kept the employee compensation the way it has been over the earlier quarters. Employees are happy because over the years we also compensate employees via stock options. So, we have a fairly stock and cash kind of compensation system. As a result of that, a lot of employees think like owners and are willing to take a 3-5 year view on how they get rewarded in the company and overall.

Q: You have a big presence in the derivative side and that is the space that has got crunched down by way of volumes. There have been some taxation changes which people are worrying about. How are you feeling about the volumes and the F&O activity?

A: Overall, the volumes in F&O have not been as impacted by STT and other taxes. It has been a lot more impacted by the liquidity flows in the market.

STT was introduced in 2004 and market volumes have grown after that. So, the key driver whether it is for the brokerage business or for F&O and the derivative business is mainly outlook on the market and the optimism that is there.

We expect the current year to be more about consolidation where people will invest in businesses. This might not be a great year for everybody in the broking and the capital market focus businesses. But there are other areas of the financial services like NBFC, asset management and wealth management where there are growth opportunities still available. Companies will have to go and execute the strategies to capitalize on those growth opportunities.

Q: With respect to the market, this series has been difficult to call. When we stepped into the week the expectation was that we might go down to test our previous lows. Where is it going?

A: Everybody is trying to understand the market. The markets go up for a few days and a bit of optimism comes back. Then, the markets go down for three days and everybody feels that they are going to go back to the lows hit in March.

We have always maintained that we are in a consolidation range. We should consolidate in the next 3-4 months around 5,000 plus or minus with 300 points here or there. That is unless something changes in the global scenario, oil prices come down or Indian inflation undergoes a change. Given all the things that are happening in oil prices, the global financial services scenario and with the subprime stuff that happened, we expect the next 3-4 months to show consolidation or it will be a week up or a week down.

But on the whole, it is a good time for investors to take 3-5 year view on the Indian opportunities and the India story is still very strong. Corporate earnings have been fairly robust and companies are continuing to invest. They are continuing to improve growth plans. On a 3-5 year basis, there are still a huge amount of opportunities in India.

Q: How much of a short cushion does the market have?

A: There has not been a large, short or long build-up overall. The futures in the Nifty have also been at a premium on some days and at a discount on some days. So, I do not think there is any one way that a build-up has happened.

Most smart investors are waiting, watching and investing on a long-term basis in a very smart manner. So, people are accumulating slowly and are waiting. I do not think anybody is in a hurry to go out and start building positions on either side very aggressively.