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Q3-FY09 Results Update - Motilal Oswal Financial Services

Keynote Capitals presents update on the Q3-FY09 results of Motilal Oswal Financial Services Ltd., a diversified financial services company.

Motilal Oswal Financial Services Ltd. (MOFSL) announced results for Q3-FY09. MOFSL listed on Indian stock exchanges following its IPO in August 2007 with an issue price of Rs 825 per share. The stock price of MOFSL is down 92% vis-a-vis the IPO price.

Analysis of Q3-FY09 results

Non-broking segment failed to perform during the challenging times in capital markets

The management expected to continue traction from the non-broking business, which would help diversify the revenue base and capitalize on the emerging opportunities in those spaces. However, the non-broking revenue was also affected during the quarter.

- Investment banking was down by 93% and its contribution to the overall revenues has fallen sharply to 1%, the reason being the delay in closure of some mandated projects.

- Fund based income, second largest contributor to the total revenues and for which MOFSL raised Rs246Cr also could not grow. Fund based income had helped reduce the impact of market downturn in Q2, but not during Q3.

Cost optimization through all possible ways...

- Consolidation in the outlets

The outlet count stand at 1,428 compared to 1,553 the last quarter. The closure of the outlets is attributable to merging of the outlets to have cost efficiencies. It looks to enter into new cities but is merging outlets within city.

- Employee cost declined by 57% y-o-y and 32% q-o-q

Head count was reduced by 300 during the quarter and today stands at 1400. In the last quarter too, they had laid off 300 employees. Management states the staff removed was mainly temporary. Evaluations are carried out for the new hires that are likely to join soon.

Key concern

Retail market share declining continually over last 4 quarters

Q4 likely to remain difficult

Investment banking is under pressure during the difficult times. Many of the IB deals which could have been booked in Q3 and were in advanced stages are likely to be now delayed to Q4. There are chances of a few deals not even materializing. MOFSL has 12 mandates in the pipeline.

Way ahead

- ?? tap new businesses like mutual fund business

This segment is in initial stages and MOFSL will look to develop it further with more concrete strategy which will be visible in next 2-3 quarters. It has already got AMC license and the basic infrastructure set-up has been done. This business is still in formative stage.

- Going forward, management will consider more means of cost optimization.