India Infoline has a huge business opportunity at hand, but competition is worrisome. | |
If you believe that the equity markets are going great guns, you will swear by any company which benefits from surging stocks prices. Here is your chance: India Infoline, an online equity broking and information services firm is tapping the markets with its maiden public issue of 1.19 crore (27.31 per cent of post-issue paid-up capital) equity shares at a price band of Rs 70 - 80. At Rs 80, the company will be valued at Rs 347 crore, commanding an earnings multiple of 24.59 based on annualised six-month earnings per share of Rs 3.25.
| ISSUE SNAPSHOT | | Issue opens: | April 21, 2005 | | Issue closes: | April 27, 2005 | | Issue size: | 1.19 crore shares | | Price band: | Rs 70-Rs 80 | | Merchant | Enam Financial | | bankers: | Consultants | | Listing: | NSE, BSE |
|
| |
| Not too expensive considering its close peer Indiabulls which is trading at a bizarre P/E of 92 (this puts the company's value at Rs 1,327 crore). Indiabulls hit the market in October 2004 at an initial offer price of Rs 19. |
| |
| India Infoline provides media content and research while its subsidiaries are engaged in e-broking (5paisa.com), distribution of insurance and mutual fund products, research and information services. It derives nearly 60 per cent of its revenues from the equity broking business. It has 73 branches across India, 18,000 subscribers and commands a 21 per cent share in the online broking business. |
| |
| The company plans to use the money (Rs 83 crore at the lower end of the price band) to be collected through the issue to expand its branch network, upgrade its technology and make acquisitions. |
| |
| The funds required for the this is estimated at Rs 63 crore. It plans to add 77 more branches. According to chairman and managing director Nirmal Jain, the company will tap both the offline and online broking business. |
| |
| "Branch offices serve as back office to our online business and provide offline broking services to high net worth individuals and institutions," explains Jain. The rest of the money, about Rs 20-odd crore, will be used for acquisitions, though Jain is hesitant to disclose the details. |
| |
| Given the slew of investors who have been flooding the equity markets, India Infoline has a great business opportunity. However, competition remains a worry. With bigwigs like ICICIdirect, HDFC Securities and Kotak Securities expanding fast, India Infoline may not find the going easy. |
| |
| Also, online broking necessitates a payment gateway linked to bank accounts. India Infoline has payment gateways with six banks, including ICICI Bank, HDFC Bank, UTI Bank and Citibank. |
| |
| One risk is that some of these banks may not provide payment gateways if they find them to hamper the growth of their own broking arms. "Our in-house research, technologically superior platform and diverse payment gateway will distinguish us from the rest," says Jain. |
| |
| That India Infoline is vulnerable to the vagaries of the stock markets is irrefutable. However, it seems to have got the trick to minimise its dependence on the markets - apart from e-broking services, the company distributes mutual funds and life insurance products which are a more stable source of revenue. |
| |
| Over the last three years, broking as a percentage of total revenues has been well below 60 per cent as revenues from commissions have risen. After making losses till 2003, it has been making a profits. |
| |
On a consolidated basis, the company posted a net profit of Rs 72.87 crore and an income of Rs 262.46 crore for the six months ended December 31, 2004.
| Financials | | (Rs crore) | Mar 02 | Mar 03 | Mar 04 | Dec 05** | | Total income | 142.03 | 106.54 | 359.94 | 262.46 | | Expenditure | 200.90 | 153.61 | 285.43 | 169.23 | | Operating profit/(loss) | -58.87 | -47.07 | 74.51 | 93.23 | | Net profit/(loss) | -58.87 | -47.07 | 74.8* | 72.87 | | * After adding deferred tax release ** Six months ended |
|
| |
| One sour point relating to issue pricing is that promoters Jain and R Venkataraman allotted themselves 4.3 lakh preferential shares at par value two months ago. Considering this, the current public issue price looks jarring. |
| |
| Defending the preferential issue, Jain says, "the allotment was made as we gave up the 10 per cent profit-sharing agreement we had. Also, this allowed us to raise the total promoters' stake to 51 per cent before the public issue as mandated by Sebi." |
| |
| India Infoline looks a bit expensive. But honey, it's far less expensive than its listed rival Indiabulls. |
| |
