Motilal Oswal Financial Services Ltd (MOFSL)
Sector/Industry: Share Broking/Investment Banking/PMS
Issue Size: 29, 82,710(Of Rs. 5/- Each Share)
Issue Price: Rs 725 - 825
Issue Opens: Monday, August 20, 2007
Issue Closes: Thursday, August 23, 2007
Promoter(s): Mr. Ramdev Agrawal and Mr. Motilal Oswal
Company Website: http://www.motilaloswal.com/
Book Running Lead Manager: Citigroup Global Markets India Private Limited
Registrar: Intime Spectrum Registry Ltd
Draft Red Herring Prospectus: www.sebi.gov.in/dp/motidraft.pdf
About the Company: Motilal Oswal Financial Services Limited is Mumbai based financial services provider. Motilal Oswal’s financial products and services include retail wealth management (including securities and commodities broking), portfolio management services, institutional broking, venture capital management and investment banking services.
With 1160 business locations and more than 2, 00, 000 investors in over 360 cities, Motilal Oswal is established player in wealth creation and wealth management business.
Motilal Oswal Financial Services Limited is the holding company and it operates through four subsidiaries:1.Motilal Oswal Securities Limited (MOSL):
Incorporated in 1987, MOSL is a leading research and advisory based stock broking house. MOSL services include equities, derivatives, e-broking, portfolio management, mutual funds, commodities, IPOs and depository services.
2. Motilal Oswal Commodities Brokers Pvt Ltd (MOCB):
Incorporated in 2004, MOCB provides commodity trading facilities and related products.
3. Motilal Oswal Venture Capital Advisors Private Limited (MOVC):
MOVC manages India Business Excellence Fund (IBEF); a US$ 100 mn
4. Motilal Oswal Investment Advisors Private Limited (MOIA):
MOIA provides investment banking services such as M & A advice, lead managers for IPO etc.
Objectives of the Issue:
- To augment the working capital
- To infuse funds into subsidiaries
- To upgrade technology
- To invest in realty sector ( It is amazing, everyone wants to join realty bandwagon)
- Diversified financial house: MOFSL derives 10% of it revenues through PE management fees as well as advisory business. It is not entirely dependent on brokerage business which is heavily commoditized. Going ahead, investment banking and PE management can be huge growth drivers.
- Distribution Network: MOFSL has good distribution network in place. It is present in 360 odd cities.
- Promoters: Both Ramdev Agarwal as well as Motilal Oswal are old warhorses who have lot of experience. They are well networked in investment circles. MOFSL also enjoys good brand name.
Weakness:
- It is in a business which is completely dependent on bull run. During bearish time’s brokerage income, PE activity, M & A activity reduces drastically. During difficult times, these companies barely manage to survive or at the most grow modestly.
MOFSL earned revenue of Rs 370 crores and recorded profits of Rs 70 crores in FY-07.
MOFSL derives 90% of its revenues through brokerage. The brokerage is directly proportional to the volumes clocked. The volumes on the bourses are heavily dependent on the bull market. Any signs of bearishness would choke MOFSL’s revenues.
This issue is exorbitantly priced. On post issue equity capital of 15 crores (approximately), the EPS works out to be 23. This gives a PE of around 35.86 times at higher band where as peers are quoting at IL&FS Investsmart (47x), India Infoline (60x) and Indiabulls Finance (17x). Unfortunately MOFSL has not kept anything on the table for the retail investor. A price band of 625 – 675 would have been reasonable.
Should we apply?
The answer is ‘NO’. We are now at the peak of turbulent times. Bears have attacked and bulls are running out of steam. Bad news is flowing thick and fast.. sub prime crisis, yen carry trade issues and tantrums of the left are causing panic among investors. Money has started to flow out of
I think it does not make any sense to have contrarian views because the risk- reward ratio is heavily in favour of risk. Even if the markets were to move up from this point I think the premium would be max 100 – 150.
Ignore this issue and allow it to go the Purvankara style.
DRHP
http://www.chittorgarh.com/newportal/IPO_detail.asp?a=114
