Good Q4 on investors' return; mkt volatility to rise: MOST

Anuj: Good set of numbers you have reported. Your sales have gone up; your profit has gone up quite a bit in fact your profit has gone up 3 times to Rs 43 crore. What led to this growth and is that sustainable?

A: The sustainable part I don’t know but it has been a brilliant year. What has happened is slowly the investors who had taken back seat, they are coming in and we are seeing clearly the markets are warm. The cash volumes which is our core of our earnings almost 70-80 percent of our gross revenues comes from the cash volumes that has grown at about 65-67 percent.

We would have grown at about 75 percent in cash market of our side so that has been the main driver. That has led to the associated businesses apart from broking say asset management company which is Motilal Oswal Asset Management Company (MOAMC) has grown very rapidly. It has grown almost 300 percent in the year from Rs 1,700 crore to Rs 6,000 crore. Most of the assets have come back ended so there the revenue realisation has been pretty good.

Then we had very bad year last year in ibnaking that has grown 100 percent from Rs 9 crore to Rs 18 crore. Another thing which has happened is that we have completely restrategised the entire balance sheet allocation. So 50 percent of the balance sheet used to be in the fixed income that we have completely removed and put almost Rs 550 crore which is about 40 percent of the balance sheet into the equity funds managed by the AMC itself.

That has actually in the current business profit what is shown as Rs 143 crore kind of profit in that it is not included it is about Rs 162 crore unbooked profit. Total profit is more like Rs 300 crore, Rs 162 crore unbooked and Rs 143 crore which is shown as the profit after tax (PAT). Every business as done well some of them have done very well and some of them have done kind of quite good. So, it was all round good performance. Thanks to the markets and thanks to the brand equity of the company.

Sonia: As you pointed out the broking segment has done extremely well at this quarter you have seen about Rs 140 crore of revenues versus Rs 77 crore same quarter last year so that is an 84 percent growth. Can you just give us a sense of what the first half of FY16 will look like? Although you may not be able to tell us whether this growth is sustainable but do you see as good a performance in the first half as well?

A: What happens is this 70-80 percent year-on-year (YoY) comparison comes because, not only this quarter doing very well but the year before the quarter was very depressed so 2013-14 quarters were very depressed. So all throughout this year number, all the four quarters were looking more like 70 percent topline growth and 85 percent bottom-line growth types.

Now we are going to start from this high base of Rs 143 crore profits and Rs 775 crore kind of a topline. Most likely it is going to do well. We are expecting about 10-15 percent kind of expansion. If you take the Q4 and some build up going forward in that case we are expecting about 10-15 percent kind of topline growth and may be matching bottomline growth or some what better bottomline growth. However, to say that we might be able to grow at 35-40 percent next year also is going to be a tough call at this juncture.Anuj: The market has turned quite volatile over the last one month, do you see that as an opportunity or do you think that the market is going to go through a bit of a troubled phase and that may have its impact on the numbers as well going forward?

A: Are you saying what kind of volatility we see and whether it is good for us?

Anuj: it is a two part question, what is your own call on the market and of course what would that mean for broking as a business?

A: Clearly volatility is going to increase because the kind of thing which has happened in the last 12 months whether it is on oil price, whether it is interest rate, whether it is euro dollar kind of readjustment everything is happening very sharp and historically not in that proportion. Like for Euro to fall from 125 to 106 or oil to fall from 110 to 45 and then from 45 to 65-67 is a huge move. Look at even Chinese market, they have grown 90 percent in just six to seven months.

So, somehow we are into a very exponential kind of times where adjustments or readjustments happen very quickly. Oil to fall from 110 to 45 and 45 to 65 so we are into a very volatile region and I don’t have any reason to say it will not continue. In fact my sense is that as it rises the size of the swings will become bigger.

So when the markets are irrational in the short run we have to be very rational and as a broking company we have to keep our clients guarded in terms of how they conduct themselves in investing as well as trading part of it.

Sonia: Given that we are seeing a lot of negative headwinds and on top of that list is the weak earnings that we are getting do you think that the market needs to sort of mean revert to the earlier long term average of around 13-14 times on the Sensex and what is your own estimate of how much earnings could scale down in the quarters to come?

A: No, as far as earnings are concerned I don’t think that is going to scale down and definitely growth will pick up. Q3 was a huge adjustment because of commodity prices decline particularly oil and related raw materials and all but as we go along the earnings will pick up whether it will be high single digit or double digit that only time will tell. We are expecting about 12-13 percent earnings and there is no reason to believe that that will not come. So I don’t think earnings are in that kind of danger and that has also scope for surprise and more particularly on the positive side, what is going to happen to inflation and hence the interest rate, that is anybody’s call but a lot is going to happen in next 12 months. So, I would not be pessimistic on market per se and I would not think that markets are going to 13-14 PE multiples. Probably we have corrected to good levels, maybe some more corrections but I would remain bullish. On a one year basis of course it will be very difficult to say anything but on a three-four year basis this term of this government I will remain fully booked.