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Edelweiss : Anagram gets assimilated in Q2FY11…
Edelweiss saw a healthy 44% YoY jump in total revenues to Rs 376
crore (though not directly comparable due to incorporation of Anagram
in Q2FY11), higher than our estimate of Rs 355 crore. Just like peers,
Edelweiss also managed to arrest the fall in market share and showed a
marginal QoQ improvement to 3.9% excluding Anagram and 4.4%
inclusive of that (ADT of Rs 5390 crore). Yields stayed under pressure as
expected because of rising options segment and falling cash volumes.
The growth in topline was equally supported by 103% YoY, 42% QoQ
rise in interest income. PAT of Rs 66 crore was in line with our estimate.
Pressure on yields stays, to improve marginally
Edelweiss reported blended yields of 4.25 bps (including Anagram) and
4.21 bps excluding Anagram, which like-to-like is down 35 bps QoQ and
135 bps YoY. Since Edelweiss is a strong player on the institutional end
and more focused towards the derivative segment, the fall in yields is not
entirely surprising. We expect a marginal improvement in yields to 4.4
bps in the coming period due to the full quarter impact of Anagram.
Financing book growing rapidly
The loan book grew by a staggering 350% YoY, up 21% QoQ to Rs 3110
crore. The NIM seems to be contracting gradually and is now~4%
because of rising interest cost. Of the total, Rs 1000 crore accounted for
promoter funding and Rs 2200 crore was towards LAS/margin funding
and IPO funding. We see financing income growing at 64% CAGR over
FY10-12E to Rs 912 crore accounting for 52% of the total income because
of shoring up of the financing book to Rs 4410 crore.
Valuation
We are now valuing the company on an SOTP basis, considering that
~52% of the topline will be contributed by financing income for FY12E.
We have valued the agency business (brokerage and investment banking)
at 16x FY12E EPS and capital business (net worth based-generating
treasury and financing income) at 1.3x FY12E BV and arrived at a fair
value of Rs 71. We recommend an ADD rating on the stock.
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