A basket of products

IPO REVIEW

Investors are likely to make money in the Religare public issue.

Among all the players in the Indian financial sector, broking companies are having a gala time. Stock market volumes and turnover are on a rise, thanks to heightened trading activities, bullish markets and increasing participation.

Besides, there are untapped opportunities in other spheres of financial services. As a result, large broking firms are going for capital infusion to finance growth and expand their services basket.

In August, Motilal Oswal raised Rs 200-odd crore from the primary market and received tremendous response. Its stock price has appreciated by a whopping 39 per cent over its issue price of Rs 825.

Religare Enterprises is another broking firm to tap the primary market. The Ranbaxy group company, plans to raise around Rs 120-138 crore with a public issue of about 7.5 million equity shares in the price band of Rs 160-185, which would constitute 10 per cent of the post-issue capital.

It has already placed 5 per cent for Rs 60 crore with Indopark Holdings, a Merrill Lynch subsidiary, at Rs 160 per share. Religare plans to further enhance its domestic network and also to fund its retail lending and financing businesses with the IPO proceeds.

A financial powerhouse
Religare is the holding company of 11 businesses covering a whole range of financial products and services. Its offerings cater to every group of investors like retail (equity broking, commodity broking, insurance broking, personal finance services like loan against shares, personal loans, IPO financing), high net worth individuals (portfolio management services, wealth management and private client equity service) and institutional clients (institutional broking, investment banking, corporate finance).

Nevertheless, equity broking constitutes a major part of revenues and profits at present though it has been scaling up its other new businesses.

Says Sunil Godhwani, chief executive officer and managing director, Religare Enterprises, "We are a fully integrated financial house catering to almost all the needs of an investor except home loans, non-insurance and foreign exchange services."

Adds Sachindra Nath, group chief operating officer, Religare, "We have created the infrastructure and capability in the past three years and now our businesses are ready to take off." The diversified revenue stream de-risks the company's business, which is the biggest factor in favour of the company.

Experienced management and strong promoter background make the company an attractive investment destination. Malvinder Mohan Singh and Shivinder Mohan Singh will own slightly over 25 per cent each of the post-issue capital. 
 

RELIGARE VS PEERS
FY07 (Rs crore)	Religare	Motilal	IL&FS Investsmart	India Infoline	Indiabulls
Net sales	320.10	379.10	235.09	416.09	1241.00
% chg (y-o-y)	929.26	39.12	6.52	94.97	103.44
Operating profit	367.73	127.50	79.23	141.23	748.00
% chg (y-o-y)	131.90	28.92	-25.88	62.24	81.55
Net profit	25.10	68.45	40.01	75.61	443.40
% chg (y-o-y)	136.79	14.08	-41.67	53.71	75.01
P/E (FY07)	34.0-39.4	31.90	31.90	62.10	26.30
P/E (FY08E)	13.2-15.3	9.70	28.40	73.50	15.80
Market capitalisation (Rs cr)	1211-1400@	3172.00	1290.00	5038.00	13358.00
@ post-issue market capitalisation

Wide reach
The company has presence in 392 cities and towns in 1,217 locations with substantial presence in the west (34 per cent), north (29 per cent) and south (24 per cent). It plans to add 100 more branches this year and next, out of which 30 will be dedicated for its insurance broking business, and the rest for equity broking.

Besides having a representative office in London, the company further plans to spread its wings especially in the Middle East and Europe.

Growing industry
The boom in the Indian financial services sector is yet to unfold given the low penetration of products like insurance and equity. On the other hand, growth in GDP and HNI population""second highest in the world after China and Singapore respectively""means more opportunities for broking firms.

Besides, a rise in the market capitalisation of the market since the last few years has not only boosted equity broking business but has also seen mutual funds' assets under management rising and investment banking business growing rapidly. Religare is already strong in the equity broking business with growing market share. Further, building up of other verticals will boost financial performance.

Strong financials
The company's revenues and net profit in H1 FY08 have crossed the corresponding figures in full-year ended FY07. Its net worth has also grown manifold from Rs 63.4 crore in FY06 to Rs 346.6 crore in H1 FY08. Going ahead, the growth is expected to be higher as its new and emerging businesses unfold.

Says Sejal Doshi, chief executive officer, Finquest Securities, "Margins should improve with more and more fee-based income arising from its advisory services." ICRA has graded Religare at "IPO Grade 3" (on a five-point scale), indicating average fundamentals.

Many triggers
The company has taken various initiatives to grow its new businesses in the recent past. For example, it has formed a joint venture with Netherlands-based, Aegon, for its insurance (40:60) and asset management company (50:50).

For promoting its wealth management business, it has formed a joint venture (50:50) with Macquarie and for providing its clients to trade in the US markets, it has a tie-up with Wall street broker Electronica.

Says S P Tulsian, investment advisor, "The most favourable factor about the company is that it has got the whole organisation in place and all it needs is only to scale up now."

Huge upside potential
At the price band of Rs 160-185, the company is placed at the fourth position in terms of market capitalisation of Rs 1200-1400 crore among brokerage firms. At the lower and upper end, the company is valued at 13.2-15.3 times its estimated earnings for FY08.

This is a tad higher than its closest competitor and recently listed Motilal Oswal, which trades at 10 times. The largest player, Indiabulls Financial Services, trades at 15.8 times for the same period, which is also cheap.

Nevertheless, the pricing of the issue is appropriate and is in line with its size and scale of operations. Both Doshi of Finquest and Tulsian opine that there is money to be made by investing in the issue.

Issue opens: October 29, 2007
Issue closes: November 1, 2007