Biz to grow at 25%; RBI policy key mkt trigger: Edelweiss

Edelweiss Financial Services on Friday reported 45 percent rise in its net profit at Rs 88 crore for the fourth quarter ended March 31, 2015. Total revenue jumped 74 percent at Rs 1,215 crore during the quarter under review from Rs 699 crore in the year ago period. Going forward too Rashesh Shah, Chairman & CEO is confident of a  25 percent growth on back of good mix of diversified financial services business. According to him most good financial servives companies will be able to post this kind of growth.He is also upbeat on growth of credit book at the rate of 20-25 percent. The credit book for the company was up 60 percent in FY15 to Rs 27000 crore, says Shah in an interview to CNBC-TV18. "The idea is to make sure your cost-income ratio drives profitability as well as there is a reasonable control on risk management," says Shah.Talking about the outlook for market he says, a 10 percent correction is part and parcel of a secular uptrend after the 70 percent upside in 18-months.According to him Indian mutual fund flows will help create a good base for the market, while the international selling and portfolio reallocation will create a cap. So market could end up trading in a consolidation zone. However, the Reserve Bank of India’s monetary policy in June remains the key trigger for the market. Inflows into Indian MFs and insurance companies have remained high, he adds.The foreign institutional investors (FIIs) have been reallocating their portfolios and increasing allocation to China and Korea.

Below is the transcript of Rashesh Shah’s interview with Sonia Shenoy and Reema Tendulkar on CNBC-TV18. Sonia: Post your earnings can you just give us an estimate on how the quarters to come are looking? For most brokerages this time has been a very good quarter because fund based activity has gone up. Do you think this good growth trends of around 20-30 percent could continue in the quarters to come?A: Yes, if you see us over the last three years from FY12 to FY15, we have been able to grow at more than 35 percent Compound annual growth rate (CAGR) and a good mix of diversified financial services business, the one kind we have built should allow you a 25 percent kind of a growth because Indian financial services will grow between 15-30 percent depending on which market product segment you are in. So, ability to grow at about 25 percent should be available to a good financial services company and along with that what is going to be important is cost management and risk management. Over the last three years we have improved our cost-income ratio, we have improved our profitability. Our ex-insurance Return on equity (ROE) is now close to 16 percent, we have an interim target of 18 percent and which over the next couple of years we will aim to achieve.The idea is to make sure your cost-income ratio drives profitability as well as there is a reasonable control on risk management.Reema: Your finance cost has gone up a fair bit on a quarter-on-quarter (QoQ) basis at Rs 577 crore in this quarter and that we understand is because you had raised some retail bonds of about Rs 800 crore. Going ahead will the finance cost per quarter be in this range of Rs 550-600 crore?A: Our asset base has now reached Rs 27,000 crore out of which more than Rs 15,000 crore is our credit book. So, as credit is growing fairly well-we had a fairly good jump in credit. We grew our credit book by more than 60 percent in this year, so what you are seeing is the increased interest cost on the back of the growth of the credit book.

We expect our credit business to also grow at about 20-25 percent a year and our interest cost will grow commensurately with that. So, if it is about close to Rs 500 odd crore a quarter, it should remain that and grow at about 18-20 percent on a year-on year (YoY) basis.

Sonia: What is your view on the markets because over the last two weeks there has been some stability returning to the markets; at least we have seen a green tick by the end of the week. Do you think that the shorter-term correction that we saw a couple of weeks ago is now completely done with and the market will resume its uptrend or do you fear that we could see more volatility?A: Overall if you see, over the last 18 months the markets have gone up more than 70 percent, so a 10 percent correction after that is part and parcel for any secular uptrend. What we are also seeing is the FIIs obviously have been scaling back on their emerging market allocations, it is not just India but emerging market and even within emerging market they are gearing more and more towards China and Korea and reducing India which has done very well. So, in a way there is some kind of profit booking by FIIs going on along with asset portfolio reallocation.However, what is good news is the flows into Indian mutual funds and Indian insurance companies is very solid. We saw last year more than Rs 70,000 crore of fresh inflows into equity mutual funds in India, so what we are seeing is the Indian flows will create a floor on the markets while the international selling and portfolio reallocation will end up creating a cap. So, in a sense we should end up being in a consolidation zone. Of course from time to time there will be triggers because even within the zone markets can go up and down 5-10 percent up and down and the next key trigger will be the RBI interest rate policy which is going to come out in early June, so all investors are now keeping their eye on that.Reema: Of all your segment that you operate in, fund based activities, fee based income, life insurance as well as credit, which segment are you most optimistic about in FY16 and any segment where you would be a bit cautious?A: Fortunately, we are in that sweet spot in financial services at the moment because a) we expect credit to do well because as I said interest rates are expected to come down. The credit demand is still fairly robust for NBFCs, so though the credit for banks has been slowing down, if you see all the NBFCs the credit demand is still fairly robust. So, I would think the credit businesses will do well.b) We are reasonably small and our market share is fairly low, so we also have an opportunity for market share gain in that. c) Capital markets and financial markets we are fairly optimistic and we think there will be a lot of activity on capital raising M&A and overall the market volumes are fairly robust.And d) insurance also there has been five-six years of de-growth for the industry. Fortunately we have grown, our insurance business premium last year grew by 74 percent on a (YoY) basis, so we expect that having grown when the market was not growing and when the insurance market starts growing, we should continue to grow even stronger.So, overall all the business segments there is a fair amount of optimism around that and approach is to make sure we are diversified in a very balanced way and we can keep on allocating our resources across all these businesses.