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Microsec financial services ltd ipo note Document Transcript

  • 1. Retail ResearchSector: Financial Services16 September 2010 Microsec Financial Services Ltd.IPO Note Price Band (Rs.): 113 - 118MFSL is a non-banking financial company registered with the RBI ISSUE DETAILS:and it is engaged in the business of financing, which primarily Date of Opening 17th September 2010comprises giving loans against shares, and making investments. In Date of Closing 21st September 2010its financing and investment business, MFSL offers loans against Issue Size Rs. 147 cr.shares to its clients, secured by liquid and marketable securities at No. of Share Offered 12,500,000 (1.25 Cr.)appropriate margin levels. Its LAS business helps their clients Face Value Rs. 10leverage their equity market positions to take increased exposure. BRLM SBI Capital Markets Ltd.The company was originally incorporated as Satyam Fiscal Services Registrar Link Intime (I) Pvt. Ltd.Private Limited and the name was changed to Microsec Financial Bid Lot 52Services Limited on October 21, 2005. It is also the ultimate holding Post Issue Share Capital Rs. 31.81 Cr.company of the Microsec Group. The promoters acquired the entireshareholding of the company from the previous shareholders. Priorto its acquisition by the current promoters on August 1, 2005, thecompany was a financial services company and was engaged inthe business of financing and investment management.MFSL offers loans to clients, including brokerage clients of MCap OBJECTS OF ISSUEand MCL, against specified securities which fall within the Expansion of financing business of the company 113.00approved list of the Microsec Group. Only a certain percentage of Expansion of MCaps domestic operations by increasingthe market value of the securities is advanced as loan, and this helps network of branches 8.00to provide for market fluctuations in the value of the security. The Enhance MCaps existing technological capacity 7.50client is required to deposit and maintain a appropriate margin General corporate purposes [•]and is responsible for infusing additional funds in case the margin Total [•]falls below the prescribed limit, failing which MFSL has the powerto sell the securities to the extent that would be required in order tomaintain the required margin. Margin levels of exposure can bemonitored on a real-time basis as the selling price of the securitiessecuring the loan are usually transparent and easily accessible on a SHAREHOLDING PATTERNstock exchange. PRE ISSUE No. of Shares %As at March 31, 2010, 27 clients of MFSL maintained a margin of Promoter & Promoter Group 17,427,633 90.2550% or more and the loan amounts outstanding in respect of such Non Institutions 1,882,867 9.75clients aggregated to approximately Rs. 140.94 million; 44 clients Public - -maintained a margin between 25% to 50% and the loan amountsoutstanding in respect of such clients aggregated to approximately Total 19,310,500 100.00Rs. 155.83 million; one client maintained a margin below 25% andthe loan amounts outstanding in respect of such client aggregated POST ISSUE No. of Shares %to approximately Rs. 8.35 million. Promoter & Promoter Group 17,427,633 54.79MFSL had no non-performing assets as on March 31, 2010. Until Non Institutions 1,882,867 5.92fiscal 2009, no material amount was written off on account of bad Public 12,500,000 39.30debts. However, MFSL paid Rs. 39.50 million as liability for early Total 31,810,500 100.00recall of loans during the Fiscal 2009. MFSL assigned receivables ofcertain loan accounts and incurred a loss of Rs. 11.27 million in Source: RHP, SSL Researchsuch assignment during fiscal, 2010. For complete information and a complete list of the risk factors, please refer the Red Herring Prospectus. SBICAP Securities Limited, Corporate Office: 191, Maker Towers F, Cuffe Parade, Mumbai 400 005 Tel.: (Board) +91 22 30273300/01 • Fax: (022) 30273420. For a list of our branches refer to our website: www.sbicapsec.com
  • 2. Microsec Financial Services Ltd. Financial ServicesKey StrengthsIntegrated business model:The Microsec Group operates as an integrated group, providing various ~ Integrated business modelfinancial products and services to its target client base. The group operatesthrough the company and its subsidiaries, MCap, MRPL, MTL, MIBL, MCLand PRP. The integrated service platform allows them to leverage relationshipsacross lines of business and their industry and product knowledge by providingmulti-channel delivery systems to their client base, thereby increasing theirability to cross-sell their products services.Research and knowledge based organisation:They have adequate base of research with delivery capabilities. Their research ~ Research and knowledge based organisationreports are covered by print and electronic media at pan India level. Theybenchmark their research calls against relative index which providesaccountability to research. They have started a research based retail distributionchannel namely "Club Kautilya" through MCap.Brand recognition and strong relationships:They believe that success in the financial services industry is derived frombrand recognition and client relationships. They believe that Microsec is awell-recognized brand, especially in eastern India. They also believe that theirclients associate the Microsec brand with differentiated and quality services,solutions to strategic and financial challenges and execution of their clientstransactions. They focus on nurturing long-term relationships with theircorporate, institutional and high net-worth individual clients. They believe thatthese relationships provide them with an advantage in attracting deal flowand securing transactions and enable them to offer their clients diversifiedproducts and services and increase their revenues per client.Strong regional base with emerging pan India presence:Microsec Group enjoys a strong presence in eastern India. As at June 30, 2010, ~ Strong regional base with emerging pan Indiathey had a network of 239 branches, out of which 178 branches were located in presenceWest Bengal. They have 26 branches in states other than eastern states andintend to strengthen their pan-India presence, they believe their presence ineastern India provides them with a competitive advantage and presents theman attractive opportunity to grow their client base and revenues. For complete information and a complete list of the risk factors, please refer the Red Herring Prospectus. • Source: RHPSBICAP Securities Limited 16 September, 2010 • 2
  • 3. Microsec Financial Services Ltd. Financial ServicesBusiness StrategiesGeographic expansion:They plan to expand their operations into smaller cities and towns that they ~ Geographic expansionbelieve are under-serviced by financial services companies or where theybelieve they can develop their business. They may also consider, from time totime, growth opportunities through the inorganic route. Whilst they proposeto offer their range of products and services across their businesses throughtheir expanded network, they also plan to set up 200 exclusive outlets of ClubKautilya within a period of two years. They also plan to set up a network ofMicrosec Enterprises (a network of entrepreneurs as channel partners fordistribution of financial products) and Microsec Network Services (a networkof professionals, such as CAs, as channel partners for distribution of multiplefinancial products) through a combination of the issuer and its subsidiaries,throughout India.Strengthening institutional business:They have already set up desk through MCap for servicing the institutional ~ Strengthening institutional businessbusiness. They have filed applications for empanelment to several institutions.They have already been granted empanelment by nine institutions out of whichfive have started business. They plan to establish and scale the broking businesswith institutions. The institutional desk will also provide additional supportto their investment banking business.Strengthen research capabilities and continue to develop clientrelationships:They believe that they have adequate research capabilities in MCap that ~ Strengthen research capabilities and continue tocomplement the business of Microsec Group, particularly their brokerage develop client relationshipsbusiness. They intend to develop their research division as a separate profitcentre to provide research services to their clients, including their brokerageclients. They propose to enlarge their team of research analysts and advisorsand dealers to strengthen relationships with their clients. They propose toexpand their business by increasing the number of their client relationshipsin the Issuer and its Subsidiaries. They believe that increased clientrelationships will add stability to their business.Expand internet based platform for financial services and products:They are currently in the process of setting up an internet-based platformthrough MCap for providing their products and services to their clients,particularly the brokerage clients. They believe that internet based servicesare cost effective, less risky and transparent. They also propose to offer wealthmanagement, insurance broking, financial planning and related servicesthrough internet-based platform. They have acquired PRP TechnologiesLimited, company which launched an internet-based personal resourceplanning application to provide information management services toindividuals. They believe that an internet based, easily scalable productdelivery model will enable them to respond effectively to the competitivechallenges of discount equity brokerages. For complete information and a complete list of the risk factors, please refer the Red Herring Prospectus. • Source: RHPSBICAP Securities Limited 16 September, 2010 • 3
  • 4. Microsec Financial Services Ltd. Financial ServicesRisk FactorsOutstanding litigation against the company, its subsidiaries and thegroup companyThe company, subsidiaries and group companies are involved in disputes ~ Outstanding litigation against the company, itswith various parties arising from their operations from time to time. Their subsidiaries and the group companylegal proceedings are pending at different levels of adjudication before variouscourts and tribunals. Should any new developments arise, such as a changein law or rulings against the company or its subsidiaries by appellate courtsor tribunals, the company or its subsidiaries may need to make provisions inits financial statements, which could adversely impact its business results.Furthermore, if significant claims are determined against the company and itis required to pay all or a portion of the disputed amounts, there could be amaterial adverse effect on the companys business and profitability.Funding requirements and the deployment of the net proceeds are basedon management estimates and may be revised from time to time, whichmay adversely affect the results of operationsTheir funding requirements and the deployment of the net proceeds have ~ Funding requirements and the deployment of thenot been appraised by any bank, financial institution or any other independent net proceeds are based on management estimatesinstitution. Substantial part of the funds raised through this issue is proposedto be used for the financing activities of the company. In fiscal 2010, thefinancing activity contributed approximately 26% of their standalonerevenues, but since this activity has been commenced recently since May2005, their results may differ substantially going forward. Further, in view ofthe highly competitive nature of the industry in which they operate, theymay revise their management estimates from time to time and consequentlytheir funding requirements may also change. This may result in therescheduling of their funds deployment and a change in their proposedexpenditure for a particular object which may adversely affect their resultsof operations.Extended loans against shares, or margin loans, to the clients, and anydefault by a client coupled with a downturn in the stock markets couldresult in substantial lossThe company and MRPL, at times, also extend significant credit to clients at ~ Extended loans against sharesspecified interest rates for the purchase of shares. In the case of highly volatilestock market or adverse movements in stock price, clients may not be able torepay their loans, and the collateral securing the loans may have decreasedsignificantly in value, resulting in losses they may not be able to support. Forinstance, in fiscal 2010 an amount aggregating to Rs. 11.27 million was writtenoff as loss on assignment of receivables, in the books of the company, in respectof three clients.Operations are significantly concentrated in the eastern and north easternregions, and failure to expand the operations may restrict growth andadversely affect businessHistorically, their operations have been focused on the eastern and northeastern regions of the country. Accordingly, a very substantial part of theirrevenues are generated from operations in eastern and northeastern India.Failure to expand their operations either through branches or businessassociates or otherwise may restrict their growth potential and adversely affecttheir business plan. This will adversely affect business operations and growthof business. For complete information and a complete list of the risk factors, please refer the Red Herring Prospectus. • Source: RHPSBICAP Securities Limited 16 September, 2010 • 4
  • 5. Microsec Financial Services Ltd. Financial ServicesFinancials & Valuations Snap Shot: Microsec Financial Services Ltd. (Rs. cr.) Pre Issue Post Issue FY10 FY10 Lower Price Band (Rs.) Upper Price Band (Rs.) Particulars 113.00 118.00 Net Sales 57.09 57.09 57.09 Total Income 58.47 58.47 58.47 EBIDTA 33.61 33.61 33.61 PAT 24.45 24.45 24.45 Equity Share Capital 19.31 31.81 31.81 No of Equity Shares 1.93 3.18 3.18 Face Value 10.00 10.00 10.00 EPS 12.66 7.69 7.69 CMP 118.00 113.00 118.00 Cash and Bank 19.31 19.31 19.31 Debt 4.01 4.01 4.01 Market Cap 227.87 359.46 375.36 PE(x) 9.32 14.70 15.35 Enterprise Value 212.57 344.16 360.06 Mcap/Sales (x) 3.99 6.30 6.57 EV/Sales (x) 3.72 6.03 6.31 EV/EBIDTA (x) 6.33 10.24 10.71 EBIDTA/Sales (%) 58.87 58.87 58.87 Source: RHP, SSL ResearchRelative Valuations Particulars. Edelweiss Cap. India Infoline Motil.Oswal.Fin. Microsec Financial Services Ltd. CMP (Rs) 52.50 99.15 163.75 113.00 118.00 TTM Sales (Rs Cr) 1,025.70 1,247.78 606.87 57.09 57.09 M.cap (Rs Cr) 3,942.75 2,884.27 2,361.28 359.46 375.36 P / E (x) 16.97 13.55 13.68 14.70 15.35 EV / Sales (x) 4.83 2.88 3.36 6.03 6.31 EV / EBIDTA (x) 8.41 7.99 8.02 10.24 10.71 M.cap / Sales (x) 3.84 2.31 3.89 6.30 6.57 OPM (%) 57.47 36.08 41.86 58.87 58.87 NPM (%) 22.65 17.06 28.44 42.83 42.83 Source: RHP, Capitaline, SSL Research For complete information and a complete list of the risk factors, please refer the Red Herring Prospectus.SBICAP Securities Limited 16 September, 2010 • 5
  • 6. Microsec Financial Services Ltd. Financial Services Corporate Office: SBICAP Securities Limited,191, Maker Towers F, Cuffe Parade, Mumbai 400 005 Tel.: 91-22-30273300 (Board) • Fax: (022) 30273420 For any information contact us: Toll free: 1-800-223345 • Tel.: (022) 2436 4059 / (022) 2436 8629 Or E-mail: helpdesk@sbicapsec.comDISCLAIMER:SBI Capital Markets Limited (SBICAP) is a full-service, integrated Investment Banking company and its wholly owned subsidiary SBICAP Securities Ltd is a Stock Broking Company having memberships on BSE andNSE. SBICAP is also an underwriter of securities. ("SBICAP and SBICAP Securities Ltd. are collectively referred to as SBICAP Group") SBICAP has Investment Banking, Advisory and other business relationships witha significant percentage of the companies covered by our Research Group. Our research professionals provide important inputs into our Investment Banking and other business selection processes. Recipients of thisreport should assume that SBICAP Group is seeking or may seek or will seek Investment Banking, advisory, project finance or other businesses and may receive commission, brokerage, fees or other compensation fromthe company or companies that are the subject of this material/ report. SBICAP group and its officers, directors and employees, including the analysts and others involved in the preparation or issuance of this materialand their dependants, may on the date of this report or from, time to time have "long" or "short" positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. Oursales people, dealers, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinion that are contrary to the opinions expressed herein, and ourproprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. SBICAP Group may have earlier issued or may issue in future reports onthe companies covered herein with recommendations/ information inconsistent or different from those made in this report. In reviewing this document, you should be aware that any or all of the foregoing, among otherthings, might give rise to potential conflicts of interest. SBICAP Group may rely on information barriers, such as "Chinese Walls" to control the flow of information contained in one or more areas within SBICAP Groupinto other areas, units, groups or affiliates of SBICAP Group.This report is for information purposes only and this document/material should not be construed as an offer to sell or the solicitation of an offer to buy, purchase or subscribe to any securities, and neither this documentnor anything contained herein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. This document does not solicit any action based on the material contained herein. Itis for the general information of the clients of SBICAP Group. Though disseminated to clients simultaneously, not all clients may receive this report at the same time. SBICAP Group will not treat recipients as clients byvirtue of their receiving this report. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Similarly, this documentdoes not have regard to the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who ma y receive this document. The securities discussed in this report maynot be suitable for all the investors. The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies mentioned in this report areorganized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries. The appropriateness of a particular investment or strategy will depend on an investors individualcircumstances and objectives. Persons who may receive this document should consider and independently evaluate whether it is suitable for his/ her/their particular circumstances and, if necessary, seek professional/financial advice. Any such person shall be responsible for conducting his/her/their own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risksinvolved in the securities forming the subject matter of this document. The price and value of the investments referred to in this document/material and the income from them may go down as well as up, and investorsmay realize losses on any investments. Past performance is not a guide for future performance. Future returns are not guaranteed and a loss of original capital may occur. Actual results may differ materially from thoseset forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. SBICAP Group does not provide tax advises to its clients, and all investors are strongly advised toconsult regarding any potential investment. SBICAP Group and its affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Foreign currency denominated securities aresubject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. In addition, investors in securities such as ADRs, the value of which areinfluenced by foreign currencies effectively assume currency risk. Certain transactions including those involving futures, options, and other derivatives as well as non-investment grade securities give rise to substantialrisk and are not suitable for all investors. Please ensure that you have read and understood the current risk disclosure documents before entering into any derivative transactions.This report/document has been prepared by the SBICAP Group based upon information available to the public and sources, believed to be reliable. Though utmost care has been taken to ensure its accuracy, norepresentation or warranty, express or implied is made that it is accurate or complete. SBICAP Group has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable,although its accuracy and completeness cannot be guaranteed. SBICAP Group endeavors to update on a reasonable basis the information discussed in this document/material, but regulatory, compliance or other reasonsmay prevent us from doing so. The opinions expressed in this document/material are subject to change without notice and have no obligation to tell the clients when opinions or information in this report change.This report or recommendations or information contained herein do/does not constitute or purport to constitute investment advice in publicly accessible media and should not be reproduced, transmitted or publishedby the recipient. The report is for the use and consumption of the recipient only. This publication may not be distributed to the public used by the public media without the express written consent of SBICAP Group. Thisreport or any portion hereof may not be printed, sold or distributed without the written consent of SBICAP Group. Neither this document nor any copy of it may be taken or transmitted into the United State (toU.S.Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. Law may restrict the distribution of this documentin other jurisdictions, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. Neither SBICAP Group nor its directors, employees, agents orrepresentatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.SBICAP Securities Limited 16 September, 2010 • 6