Asia Capital ups 1H net profit by 418% to Rs. 389 m

Asia Capital Plc has posted a net profit of Rs. 389 million in the first half of 2010/11 financial year reflecting a massive 418% increase from a year earlier.

Consolidated group profit from operations of Rs. 474 million rose by 379% in comparison to Rs. 99 million posted in the first half of 2009/10 financial year.

“All of the divisions of the group including Investments, Stock Broking and Investment Banking and Deposit Mobilisation and Credit made a significant profit for the period,” Asia Capital Chairman and Managing Director Mano Nanayakkara said.

"Of the Rs. 474 million operating profit more than 50% came from stock broking and investment banking.  The increase in profits in Stock broking and Investment Banking is largely due to the stellar bull run of the Stock Exchange and the shift to focus on retail broking business in July last year, in anticipation of reduction in brokerage margins.

“With the granting of seven new licences to brokers by the SEC in September 2010, we anticipated the Institutional Broking to become more competitive and have an adverse impact on margins,” he said.

Going forward, building on the success on the turnaround of Asia Asset Finance Limited, deposit mobilisation and Credit contributed more than 20% of the Group’s operating profit.  Deposit mobilisations of AAFL continue to make a significant contribution becoming a dominant lender to micro enterprises, and this portfolio includes over 10,000 Bajaj Three Wheelers.

Nanayakkara said this segment is expected to provide significant lending opportunities, both in consumer products and fleet expansion enterprise.  “Our current NPLs (Non Performing Loans) are exceptional in this segment, being 0%,” he added.

The contribution from Insurance to operating profits at Rs. 59 million was not as significant.  Asian Alliance Insurance which is a 72% subsidiary of Asia Capital Plc performed very well particularly in the months of August and September, where the general fund portfolio performed significantly better in the market.  

The insurance sector is well positioned with the management being directed in exploiting its growth potential fully.  

“We have identified several areas in the Life business and we are looking at alternative and new products, and new processes using technology to have a better impact. Further we are really tightening up on the investment strategy, and this process is being managed by Asia Wealth Management Company Ltd., Nanayakkara said.

He said that Asia Capital being an investment company has commenced measuring its performance in terms of return on investment of net assets deployed in each line of business.  The company’s cost of funds is approximately 15%.  “We are targeting for a growth of 25% annually to justify a price earning of around 12 times.  The management is focusing on pursuing a growth in each of the sectors without increasing the risk levels,” Nanayakkara added.

During the period ACAP disposed one of its subsidiaries – Capital Reach Holdings Ltd., which was purchased in June 2009 for a capital gain of over Rs. 138 million.  The total cost of the investment was Rs. 161m.

According to Nanayakkara the Asia Capital Group benefited hugely from the Bull Run in the stock market on or about March 2010.  “We do not anticipate the bull run to continue at this pace.  We expect the market to dip on or about January 2011.  This should impact the subsequent period’s reporting adversely.  However, we anticipate the current set of economic policies of the Government to contribute towards growth in each of the sectors,” he said.