See headwinds in near-term; biz steady overall: Edelweiss

Rashesh Shah, chairman and CEO of Edelweiss Financial Services says that the business activity in capital market and brokerage segment is steady. However, their commodity and currency volumes have taken a hit due to RBI restrictions, he says. Also, the introduction of Commodities Transaction Tax (CTT) has also impacted volumes, Shah told CNBC-TV18.

He feels that the diversification in the business has been a factor in the company posting a 40 percent growth year-on-year (YoY). "Headwinds in the short-term are still there and largely because of the increasing cost of borrowing and the interest rates that have gone up", he adds.

Also read: Edelweiss Fin consolidated Jun '13 sales at Rs 620.30 crore

Below is the edited transcript of his interview to CNBC-TV18.

Q: How are things looking on the brokerage side of the business? What is your expectation how Edelweiss might perform for the full year?

A: On the capital markets activity and the brokerage side, it has been still fairly steady. Activity on the commodity and the currency side of broking has come down because of the restrictions on currency and commodity. Also, after the introduction of commodities transaction tax (CTT), some volumes have come down.

So, overall the brokerage industry has been steady and fortunately, for us only about 7-8 percent of our total revenues come for broking. More than 50-55 percent is on the credit side of the book. We also have commodities and asset management and other incomes.

Diversification of our activity and ensuring that we were not overly dependent on any one stream has helped us. So we have been able to post about 40 percent growth in Q1 on year-on-year (Y-o-Y) basis.

We hope that we will continue to steadily grow. So the headwinds in the short-term are still there and largely because of the increasing cost of borrowing and the interest rates that have gone up.

Q: Any increase in bad loans?

A: Since we mainly focus on collateralized loans, we haven’t seen any impact at all. Our collateral cover is close to 2.5 times of the value of loan and even in housing loans, our loan-to-value (LTV) is close to 56-57 percent.

We are not seeing the impact of that now. But slowly if this tight monetary condition stays, then all credit oriented firm should be very conscious and cognizant of the fact that the borrower’s ability to repay will get stretched and people should start planning for that.

_PAGEBREAK_

Q: Fees and commission has gone up by 17 percent. Is that sustainable?

A: Our idea is to grow between 10-15 percent. The Q1 was good, but in this Q2, a few headwinds have started emerging, which have slowed down currency and commodities.

We are still hoping that between 10-15 percent, we are seeing activity in the capital markets, equity markets to be at a steady level. Almost three years, it was sideways. So to grow at about 10-15 percent should still be there. I hope so.