Accumulate Edelweiss Capital; target of Rs 49: PLilladher

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Accumulate Edelweiss Capital; target of Rs 49: PLilladher

Prabhudas Lilladher is bullish on Edelweiss Capital and has recommended accumulate rating on the stock with a target of Rs 49 in its January 24, 2011 research report.

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Prabhudas Lilladher is bullish on Edelweiss Capital and has recommended accumulate rating on the stock with a target of Rs 49 in its January 24, 2011 research report.

"Edelweiss Capital revenues (due to interest income) cannot belie the fact that overall profitability remains under pressure for Edelweiss (EDEL). Gross revenues grew by 16.7% QoQ, while PAT declined by 5.7% QoQ. Net revenue (taking Net Interest Income) grew by a modest 3.6% QoQ. Given the weak cash market volumes (specifically in the institutional segment), overall broking revenues for the company remained flat at about Rs810m for the quarter. After a splendid Q2, IB revenues were also somewhat muted in Q3FY11. Overall Fee & Commission income declined by 5.8% QoQ."

"The steady state loan book remained nearly flat QoQ at Rs30.3bn. However due to higher yields (16.4% in Q3) and episodic financing opportunities, interest income grew by 33.2% QoQ. Due to the tight liquidity conditions in the systems, EDEL's borrowing costs increased (9.4% in Q3) which resulted in interest cost shooting up by 44.1% QoQ. With higher short-term interest rates in the system, treasury yields also improved during the quarter and the company put about Rs3-4bn additional to work for the same. Treasury/Arbitrage."

"The core Broking business remains under pressure due to weak cash volumes in the market. Financing business was impacted due to higher borrowing costs and lower spreads. IB outlook will depend to some extent on equity market outlook. However, despite short-term pressure, valuations are attractive from long-term perspective. Buy the stock with target of Rs 49," says Prabhudas Lilladher research report.

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