Motilal oswal, Dull performance in a good quarter… :: ICICI Securities,

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Dull performance in a good quarter…
Motilal Oswal reported below estimates PAT of Rs 33 crore (Rs 38 crore
after adjusting for Rs 3crore towards expenses for launch of M-50, Rs
3.3 of unrealised gain ignored as per AS-1 on cash leg of arbitrage and
Rs 1.3 crore of loss on sale of investment due to change in accounting
policy) which is still below our expectation of Rs 49 crore. The top-line
growth stalled because, a) broking revenues lagged traction despite rise
in market share to 3% owing to falling yields which now stands at
4.8bps, b) poor growth from fund based and other income while some
respite was provided by IB which grew 29% QoQ and 9% YoY to Rs 17
crore and asset management which grew 37% QoQ to Rs 10 crore.
Going forward we see a moderate 3% CAGR in PAT over FY10-12E to Rs
181 crore.
􀂃 Market share gains, yields drop
MOSL managed to arrest the fall in market share and reported a 12bps
rise QoQ to 3%. Cash segment ADT declined significantly from Rs 23000
crore in Q2FY10 to Rs 19000 crore ( forming only 16% of total market
turnover). On other side rising options segment (53% of total market
volumes) where yields are relatively low, are weighing on blended yields.
MOSL face the brunt by reporting 80 bps QoQ, 150 bps YoY dip in
blended yields to 4.8bps. We see marginal improvement in yields from
here to 5.1 bps by FY12E and expect a stable market share.
􀂃 Strong visibility for IB, EBIDTA margins under pressure
Total revenues from Investment banking grew 35%QoQ, 18% YoY to Rs
18 crore, little ahead of our estimates. We see this segment supporting
top-line performance for H2FY11E and FY12E due to robust pipeline.
EBIDTA margin fell 960bps YoY, 560bps QoQ to 35%. The pressure came
from higher operating expenses and we see margin improving gradually
from here on, since we see some traction coming back for top-line.
Valuation
We are cautiously optimistic for performance improvement in coming
quarter for MOSL. We opine that retail participation is set to improve
(MOSL forte) as markets stay at elevated levels. We had lowered our
FY11E and FY12E PAT by 13% and 9% respectively. We still value the
company at 16x FY12E EPS (in line with broader index) and arrive at fair
value of Rs 203.