Edelweiss Capital has posted a net profit of Rs 92.43 crore for quarter ended December 2007 as against Rs 30.92 crore in same quarter last year. Net sales went up by 228% at Rs 323.21 crore versus Rs 98.5 crore.
In an exclusive interview with CNBC-TV18, Rashesh Shah, CMD & CEO, Edelweiss Capital said that a third of their revenues came from arbitrage, 18% from interest and 40% from fee and commission. He added that their I-banking business has grown by about 80% YoY while institutional equities have grown over 120% YoY. Shah said that they have closed about 24 transactions in the last nine months.
Excerpts of CNBC-TV18’s exclusive interview with Rashesh Shah:
Q: Could you tell us what the numbers for Edelweiss look like in this quarter and how much of your topline is come from pure arbitrage income?
A: For this quarter, we have total revenues of Rs 324 crore out of which about Rs 125 is from fee and commission brokerage and other income. About Rs 95 crore is from arbitrage, which is about 1/3rd.
About 30% of our revenues historically has been arbitrage and treasury business. Another 35-40% has been fee and commission income and the balance 20% has been from things like asset management and interest income.
Our interest income has been scaling up a lot. We have a subsidiary ECL Finance- our NBFC, and we have been scaling up operations in that fairly significantly. So that has contributed to almost 18% of the revenues in this quarter. So 18% has come from interest income, 31% from arbitrage and treasury business and about 40% odd from fee and commission income. So it is a fairly well spread out kind of an activities, from which income has come.
Q: What are the contribution to profitability of the three lines of business and how much profitability pass through has happened from the arbitrage side?
A: Our arbitrage business on the whole, because arbitrage is fairly transaction and cost intensive also, we are more than 150-160 people operating in what we call the treasury group and all. Our fee and commission businesses have operated at about 55% gross margin, arbitrages at about 50% and our interest business - the financing business - operates at about 40-45% margin business. So on an average, we end up at a 46-47% pre-tax margin business, which is spread across this three businesses. But our fee and commission is the one that, obviously because it’s commission agency business, has the highest margins.
Q: What exactly has the performance of the institutional and I-banking segment been this time and what kind of margins have you had for that pocket?
A: Both the businesses have grown overall by about 100% over the same quarter last year. Our fee and commission income last year Q3 was about Rs 48 crore which is now Rs 125 crore. So fee and commission combined has grown by more than 130%.
Our institutional equities business has grown by 120% a year. Our investment banking is up about 80% on the same quarter of the previous year. For the 9-month, three quarters of the last year, we have closed about 24 transactions spread across ECM, IPOs as well as advisory businesses, M&A altogether. So we have done 24 for the year, which is not bad from an investment banking point of view.
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