IL&FS Investsmart: Reaping retail boom

ANALYSTS' CORNER

Citigroup Global Markets recommends a "buy" on IL&FS Investsmart. The report states that the brokerage firm is one of India's fastest growing retail brokers, building scale, footprint and momentum.

It expects a 26 per cent EPS CAGR over FY06-08E. The firm is consolidating a broader platform through domestic investment banking, institutional distribution and broking, along with a nascent wealth management business.

Moreover, institutional ownership and 18 per cent E*TRADE stake would support premium valuations.

The report adds that the key risk is that business franchise and profitability are intrinsically linked to the equity markets. It views the firm as a credible play on India's growing capital markets opportunity.

Nirma: Countryside king

Angel Broking recommends a "buy" on Nirma. The report states that the company is strategically placed to capitalise on rural demand. The surge in demand, particularly in the rural areas, is resulting in the FMCG market growing robustly at over 10 per cent.

Nirma is well placed to capitalise on this demand and grow rapidly. It ranks 2nd and 3rd respectively, in the overall detergents and soaps market. In volume terms, it is a clear leader in the rural market and has an excellent regional presence with strong brand equity in the economy segment.

The company has witnessed the highest and sustainable profitability among FMCG players. It enjoys OPM and NPM of 25 per cent and 13 per cent, respectively, which are the highest among its peers.

HDFC: Liquidity blues

Citigroup Global Markets recommends a "sell" on HDFC. The report states that the environment is challenging for the company. The funding environment is adverse due to tight liquidity and higher interest rates.

Incremental funding costs likely to be higher for the company, than its competitors. The risk rises if rates further increase and yield curve normalises.

For now, it appears covered on spreads and hikes should not impact loan demand. Its increased dependence on the banking system and regulatory restrictions on off-shore funding could constrain the ability to fund high loan demand, at a reasonable price.

Transition, back to retail funding will take time. The report expects management to pursue this option, but it would be challenging and meaningful only in the medium to long-term.

However, the quality, health and management of the business remain solid and subsidiary business continue to create substantial value.