Microsec Financial Services Limited (Microsec) is tapping the capital markets with an IPO which has opened on Friday the 17th of September and closes on Tuesday the 21st of September. The issue is for 1.25 cr shares in a price band of Rs 113-118. The issue has been subscribed 1.57 on day one.
| Price Band | Rs 113 – Rs 118 |
| Offer size in shares | 1,25,00,000 Equity Shares |
| Issue size in Rs | Rs 141.25 crs at Rs 113 to Rs 147.5 crs at Rs 118 |
| QIB’s | 62,50,000 Equity Shares |
| Non Institutional Investors | 18.75,000 Equity Shares |
| Retail Investors | 43,75,000 Equity Shares |
| Marketcap post issue | Rs 359.46 crs to 375.36 crs |
| Book Running Lead Manager | SBI Capital Markets Limited |
| Syndicate Members | SBICAP Securities Limited Enam Securities Private Limited JM Financial Services Private Limited Reliance Securities Limited |
| Isssue Opening Date | Friday 17th September |
| Isssue closing date | Tuesday 21st September |
| IPO Grade | 2/5 by CRISIL indicating below average fundamentals |
| Bidding Lot | 52 shares |
Business
The Microsec group is promoted by Mr B.L.Mittal and Mr Ravi Kant Sharma. Microsec is a non-banking financial company (NBFC) registered with the Reserve Bank of India. The group offers all financial services and is a broker on the various stock exchanges and commodity exchanges. The group offers various products which include portfolio management services etc. Microsec is a Kolkatta based financial group and derives its income from its Kolkatta business. It has its presence in West Bengal and the North East and plans to become a pan-India financial house going forward.
Microsec is engaged in the financing and investment business which primarily comprises giving loans against shares and making investments. In its financing and investment business, Microsec offers loans against shares to its clients, secured by liquid and marketable securities at appropriate margin levels. Loan against shares allows clients to leverage their position in the stock market and offers a steady income stream to Microsec. The business of financing shares is basically a function of close monitoring of risk and ensuring that adequate safety is ensured.
Objects of the issue
The objects of the issue are as follows: –
- Expansion of financing business of the company : Rs 113.00 crs
- Expansion of Mcap’s domestic operations by increasing branches : Rs 8.00 crs
- Enhance Mcap’s existing technological capacity : Rs 7.50 crs
- General corporate purposes : XX
Financials
Microsec has reported consolidated sales of Rs 38.93 crs for the year ended March 2009 and Rs 58.47 crs for the year ended March 2010. The consolidated net profit for the year ended March 2009 was Rs 8.7 crs while it has improved substantially for the year ended March 2010 to Rs 24.45 crs. The earnings per share based on the pre-IPO capital of 1,93,10,500 is Rs 4.51 for March 2009 and a significant jump for 2010 of Rs 12.66.
Comparison
A large number of broking houses have gone public and are quoted on the stock exchanges. Microsec compares itself with Motilal Oswal, Edelweiss, India Infoline, IndiaBulls and Religare. In terms of turnover all these brokerage houses have substantially larger turnover than what Mirosec has. In terms of sales the lowest in the compared lot is Motilal Oswal with sales of Rs 625 crs for March 2010 and the highest is Religare with a turnover of Rs 1533 crs. Microsec ended March 2010 with Rs 58.47 crs and is clearly not in the same league.
The correct comparison would be with players like Emkay Global which had sales of Rs 115 crs, or Geojit which had a turnover of Rs 278 crs. The global economy has recovered and India has been in the forefront of the recovery. India has been doing very well on the economic front and stock markets have recovered and are less than 8% from the all time high which was made in January 2008. A buoyant economy helps in the stock markets and that brings about better revenues.
On the negative side, competition seems to be increasing and the margins are under severe pressure. The way going forward would be consolidation and a lot of it is likely to happen in the near future.
Valuations
Microsec is offering shares at a price band of Rs 113-118. Based on the numbers for March 2010, the latest set of numbers which are available, on a fully diluted basis, the EPS would be Rs 7.69. The shares are being offered at a price earnings multiple of 14.69 at the lower end of the price band and 15.34 times at the upper end of the price band. The valuations are not very cheap considering the fact that the profit has almost trebled in the last year and this kind of growth may not be sustainable.
Secondly by and large broking company shares have not returned money to investors in the past. There is speculative interest in the share and there is likely to be plenty of action in the grey markets and also on listing. It may be prudent to apply only for listing and not for the medium term.
Conclusion
The financial services sector is extremely competitive and there is likely to be substantial consolidation yet to happen. Margins are under pressure and costs seem to be on the rise. The share being offered at around 15 times is certainly not cheap. Apply only for listing gains.
SEBI disclaimer: – I intend to apply for listing gains.
