Motilal Oswal Financial Services Limited

Transcription

1 (MOFSL) SUBSCRIBE Issue Open: Issue Close: August 23,2007 Sector : Finance - Investment / Others Price Band Rs Rs. 825 Issue Summary (Shares in million) Shareholding Pattern (In %) Total Equity Share in Issue 2.98 Pre-Issue Post-Issue Employee Reservation Portion 0.14 Promoters & PAC Net Issue To The Public 2.84 Non-Promoters: Directors 6.08 [ ] Of Which Reserved for:- Non-Promoter: Employees 5.77 [ ] QIB Non - Institutional Others Public 9.52 [ ] Retail 1.62 Total Equity Share Outstanding Total no. of shares 25,421,290 28,404,000 Prior to the issue After the issue Company Valuation Multiple MOFSL Industry Avg. Financial Snapshot (Rs. In Million) Sales (Rs. in million) 3, , Operating Profit (Rs. in million) 1, , FY 2007 FY 2006 FY 2005 FY 2004 RONW (%) Sales 3, , , OPM (%) Total Income 3, , , NPM (%) Optg Profit 1, P/E (725 & 825) & Net Profit Price to Book Value (725 & 825) 6.18 & 7.03 EPS* Share capital Objects of the issue: Res&Surplus 3, , Working capital requirement. Networth 3, , Financing facility for broking customers. Total Debt For additional office space & technology advancement. Book Value* General corporatte purpose & meet the issue expenses. *The no. of shares are of the post issue equity i.e mn shares. Company Snapshot - MOFSL has shown a CAGR of 76% in the topline, 61% in the EBITDA & 74% in the bottomline in the last 3 years. - Strengths are: Well-diversified financial services firm offering a wide range of financial products & services; Experienced management; Large distribution network; Strong research & sales team; Well-established brand; PAN India presence. - Weakness are: High dependency on equity brokerage business. - Opportunities are: Great emphasis on research is shown which forms the core value for the equity business; Good potential is seen in the sector; MOFSL is planning to expand geographically with new branch openings; Recently, MOFSL has opened two new subsidiaries, the effect of which is yet to be seen completely. - Threats are: Stiff competition; There are certain cases pending against MOFSL which may have an impact on the earnings; Quality of service. - The business strategy are: Increase market share in retail business; Increase market share in institutional brokerage; Grow the fee-based revenues. - The stock is available at a P/E of 27x & 31x at the lower & upper band of the issue price respectively. Industry Scenario - India is amongst the fastest growing major economies in the world with a real GDP growth rate of 9.2% at the end of the second quarter of FY India has been able to attract US$ bn from FY 2000 to FY As on June 30,2007, there were about 4,842 companies listed on the BSE. In recent years, the capital market has undergone substantial reforms in regulation & supervision. - The primary segiment of the capital markes in India has been witnessing a surge in activities driven by the strong fundamentals of the Indian economy. - The Indian equity market has been witnessing a strong rally since 2005 with the benchmark BSE sensex crossing 15,000 mark in July, 2007 from 6,600 in January, As the capital market continues to evolve, it's undergoing rapid consolidation driven by increased trading volumes, increased regulations, customer sophistication, availability of better technology & increased back-office requirements. - The emergence of three nationwide exchanges (MCX, NCDEX & NMCE) has increased the awareness of commodities trading. The volume in these exchanges has increased rapidly since their inception.

2 Company Background:- The company was incorporated in MOFSL along with its subsidiaries, offers a diversified range of financial products & services such as retail wealth management (including securities & commodities broking), portfolio management services, institutional broking, investment banking services & venture capital management & advisory. MOFSL is a Non Banking Financial Company (NBFC). MOFSL has four subsidiaries namely: 1. Motilal Oswal Securities Limited (MOSL ); 2. Motilal Oswal Commodities Broker Private Limited (MOCB ); 3. Motilal Oswal Investment Advisors Private Limited (MOIA 2006) & 4. Motilal Oswal Venture Capital Advisors Private Limited (MOVC ). The promoters of MOFSL are: Mr. Motilal Oswal - He had been elected the director of BSE & joined the governing board in He has served on various committees of BSE, NSE, CDSL & SEBI. He was awarded the Rashtriya Samman Patra by Central Board of Direct Taxes for a period of 5 years from 1995 to 1999 & Mr. Raamdeo Agrawal - He has been writing the annual Motilal Oswal Wealth Creation Study since its inception in He has also featured on wizards of Dalal Street on CNBC TV 18. In 1986, he wrote the book Corporate Numbers Game, along with coauthor Mr. Ram K Piparia. Mr. Raamdeo Agrawal is the man behind the strong research capability at MOSL. He was awarded the Rashtriya Samman Patra by Central Board of Direct Taxes for a period of 5 years from 1995 to Motilal Oswal is one the most reputed name in this business from past many years. Company Snapshot:- - MOFSL has shown a CAGR of 76% in the topline, 61% in the EBITDA & 74% in the bottomline in the last 3 years. On a Y-o-Y basis, MOFSL has shown a growth rate of 39% in the topline, 38% in EBITDA & 27% in the bottomline in FY 2007 from FY Strengths are: Well-diversified financial services firm offering a wide range of financial products & services; Experienced management - The management has been in this industry for over 20 years; Large distribution network consisting of 1,200 business locations in 377 cities; Strong research & sales team - MOFSL has a team of 25 research analyst in the equity market covering 221 companies & a team of nine for commodities. Their research analyst have won many accolades for their performance all over India; Well-established brand for more than one & a half decade; MOFSL's has it's business associates located at various parts of India; MOFSL has a strong clientele in terms of numbers in all the categories viz. retail, insititutional, HNI, FII's, etc; MOFSL has won certain awards & recognition like being the best local brokerage house in the year 2005 & 2006; It's debts are almost negligible in comparison to it's networth. - Weakness are: High dependency on equity brokerage business. The equity business constituted more than 88% of the income from operations for the year FY 2007; MOFSL operates mainly theough business associates as out of 1,200 business offices, their branches are only 80 & the rest are business associates. - Opportunities are: Great emphasis on research is shown which forms the core value for the equity business; With the rise of the economy & with more & more number of companies coming into the capital market, impressive growth is seen in the sector; MOFSL is planning to expand geographically with new branch openings; Since inception MOFSL has been primarily focused on retail wealth management & institutional broking. In 2006, they have diversified into investment banking & venture capital management. Recently, MOFSL has opened two new subsidiaries, the effect of which is yet to be seen completely; MOFSL is planning to migrate from brokerage to wealth which can help them earn better revenues. - Threats are: Stiff competition from other players in the market like Kotak, ICICI Securities, HDFC Securities, Indiabulls, Enam, SSKI, India Infoline, IL&FS Investsmart, Edelweiss, DSP Merill Lynch, JM Financials, JP Morgan, etc.; There are certain cases pending against MOFSL which may have an impact on the earnings. The total amount pending are approx. Rs mn; Contingent liabilities for the year ended FY 2007 Rs.2, mn; The biggest challenge for a player in this sector is to maintain the quality of service given to the customer in order to retain a client rather then losing them out to a competitor. - The business strategy are: 1. Increase market share in retail business: Continuing to grow the distribution network across India; Focusing on wealth management solutions & new product offerings; Leveraging the research & advisory capability; Increasing the usage of technology & better processes in operations. 2. Increase market share in institutional brokerage: Focusing on overseas institutional investors; Building stronger relationships with the institutional broking clients & offering other equity & capital markets services; Increasing the research support; Growing the institutional derivatives business; 3. Grow the fee-based revenues: Growing the investment banking business; Enhancing the portfolio management services & venture capital focus; Increasing the distribution of mutual fund schemes & adding insurance distribution. + If the issue gets listed at the upper end of the price band, Motilal will be the third largest brokerage house in India with a market capitalization of Rs2,343 crore. Indiabulls Financial Services Ltd has a market cap of Rs11,050 crore, followed by India Infoline Ltd at Rs2,959 crore IL&FS. Among other listed broking houses, IL&FS Investment Managers Ltd, Rs1,176 crore; Geojit Financial Services Ltd has a market cap of Rs862 crore; Emkay Shares & Stock Brokers Ltd, Rs271 crore.

3 Industry Scenario:- + India is amongst the fastest growing major economies in the world with a real GDP growth rate of 9.2% at the end of the second quarter of FY India is the third fastest growing economy in the developing country category. + Sectors such as banking, asset management & brokerage have been liberalised to allow private sector involvement, which has contributed to the development & modernisation of the financial services sector. This is particularly evident in the non-banking financial services sector, such as equities, derivatives & commodities brokerage, residential mortgage & insurance services, where new products & expanding delivery channels have helped these sectors achieve high growth rates. + India has been able to attract US$ bn from FY 2000 to FY As on June 30,2007, there were about 4,842 companies listed on the BSE. In recent years, the capital market has undergone substantial reforms in regulation & supervision. + The primary segiment of the capital markes in India has been witnessing a surge in activities driven by the strong fundamentals of the Indian economy. + The Indian equity market has been witnessing a strong rally since 2005 with the benchmark BSE sensex crossing 15,000 mark in July, 2007 from 6,600 in January, The retail segment is currently very fragmented & relatively under-serviced. Most retail investors rely on sub-broker networks for facilitating investment in equities. It is expected that the retail industry will experience a period of high growth. + As the capital market continues to evolve, it's undergoing rapid consolidation driven by increased trading volumes, increased regulations, customer sophistication, availability of better technology & increased back-office requirements. + The emergence of three nationwide exchanges (MCX, NCDEX & NMCE) has increased the awareness of commodities trading. The volume in these exchanges has increased rapidly since their inception. + The market share of top five brokerage houses has increased from 12% in FY-04 to about 15% in FY Technology has been one of the key enablers of the consolidation that has taken place in the Indian broking industry. New technologies such as screen-based trading, electronic matching & paperless securities have made the process of trading more convenient & streamlined. Better telecom connectivity & lower costs have made it possible to have large interconnected operations across multiple locations for centralised operations & effective risk management & control. + As the Indian capital markets continue to evolve, they are undergoing rapid consolidation driven by increased trading volumes, increased regulation, customer sophistication, availability of better technology & increased back-office requirements. As a result, significant changes have been introduced to strengthen risk management systems. Changes in the regulatory framework and settlement mechanics have resulted in smaller operating players losing market share, leading to consolidation in the industry. + The market share of the top five brokers on the NSE has increased from 12% in FY-04 to about 15% in FY- 07. Similarly the market share of the top ten brokers on the NSE has grown from approximately 17% in FY 04 to 24% in FY-07. These figures indicate a long-term consolidation process in a highly fragmented securities brokerage industry, with hundreds of smaller players exiting the market and the larger brokers gaining market shares. + The mutual fund industry has also experienced considerable activity over last few years with the total assets under management growing from Rs 1,396,160 mn as of March 31, 2004 to Rs 3,263,880 mn as of March 31, In recent years, the industry has witnessed consolidation in favour of private sector mutual funds with their assets under management growing from Rs. 1,049,920 mn as of March 31, 2004 to Rs.2,567,240 mn as of December Most of the funds that dominate the sector are open-ended funds. + Commodities trading in India have experienced exponential growth since the Indian government issued its notification on April 1, 2003 permitting futures trading in commodities. The total value of commodities traded in India in was Rs.21,344,765 mn, representing a growth of 3,108% over the value of commodities in (Rs.665,307 mn). Commodity trading volumes have risen at a CAGR of over 200% between & Company* Multiple (Times) EPS Share Price Dividend/ Share EV/EBITDA P/E MCAP/SALES MTBV (Rs.) (Rs.) (Rs.) L band U band Indiabulls Networth IL&FS India Info *Source : Based on annualised figure of FY07 from RHP & Capitaline.

4 Consolidatied statements of income statement, cash flow statement & balance sheet. Income Statement Rs, mn Income from operational activities Operating Expenses Employee cost Administrative Expenses Operating Expenditure Operating Income Other Income Gross Profits Finance & Interest Depreciation Profit Before Tax Exceptional Items Tax Profit After Tax Extraordinary Items (Net of tax) Net Profit FY 2007 FY 2006 FY 2005 FY Cash Flow Statement Rs, mn FY 2007 FY 2006 FY 2005* FY 2004* Cash flow from operations Cash for working capital Less: Taxes Paid & Extraordinary Taxes Net Operating Cash Flow - A Net purchase of fixed assets Net sale/(purchase) of investments (Increase)/Decrease in CWIP Interest & Dividend received Net Cash Flow From Investing - B Proceeds from equity Proceeds / Repayment from borrowings Interest paid Net Cash Flow From Financing - C Net Cash Flow (A+B+C) Opening Cash Closing Cash 1, , , , , , , ,

5 Balance Sheet Rs, mn Sources of Funds FY 2007 FY 2006 FY 2005 FY 2004 Equity Share Capital Reserves & Surplus Miscellaneous expenditure (not written off) Networth Secured Loan Unsecured Loan Loan Funds Share Application Money Deferred Tax Liability Minority Interest Total Liability , , , , , , Application of Funds Gross Block Less: Depreciation Net Block Capital work in progress Net Fixed Assets Investments Deffered Tax Assets Current Assets Stock in trade Sundry Debtors Cash & Bank Loans & Advances Other current assets Less: Current Liabilities & Porvisions Net Current Assets Total Assets , , , , , , , , , , , , *The cash flow for the FY 2005 & FY 2004 are on a standalone basis of Motilal Oswal Securities Limited.

6 Objects of The Issue:- Particulars Augmenting long term working capital. Financing activity. Purchase / lease of new office space for business expansion. General corporate purpose. Technology. Issue expenses. Total fund requirement MOFSL - 1,100 - [ ] - [ ] [ ] (INR, mn) MOSL MOCB MOIA MOVC Total , [ ] [ ] [ ] [ ] Abhishek Kothari Research Associate abhishek.kothari@spasecurities.com SPA CAPITAL SERVICES LIMITED SPA MERCHANT BANKERS LTD. SPA SECURITIES LTD. SPA COMTRADE PRIVATE LIMITED SPA INSURANCE SERVICES LTD. Investment Advisory services, AMFI Reg. No. ARN-0007 SEBI registered Category-1 Merchant Bankers SEBI Regn. No. INM Member NSE-Capital Market & Wholesale Debt Markets,SEBI Regn.no. INB ,F&O Market,SEBI Regn.no. INF Member BSE-Capital Market,SEBI Regn.no.INB Member of NCDEX & MCX. NCDEX TMID-00729, NCDEX FMC no.ncdex/tcm/corp/0714 Direct Broker for Life and General Insurance broking IRDA Lic. Code No. DB053/03 NEW DELHI 25, C-Block Community Centre, Janak Puri, New Delhi Tel: (011) , , Fax: (011) B- 1A- 132, Sector-51, Noida Ph: Fax: , Qutab Plaza, DLF City, Phase- I, Gurgaon Ph: Fax: MUMBAI 101, 10th Floor, Mittal Court - 'A' Wing, Nariman Point, Mumbai Tel: (022) / Fax: (022) / KOLKATA Diamond Chambers, Room no. 8-O, 8th Floor, 4 Chowringhee Lane, Kolkata Tel: (033) Fax: (033) BANGALORE 703 & 704, 7th Floor, Brigade Tower, 135, Brigade Road, Corporation Division no. 61, Bangalore Ph: JAIPUR UL-15, Amber Tower, Sansar Chand Road, Jaipur Tel: (0141) / Fax: CHENNAI 3H, 3rd floor, East Coast Chambers, 92/34, G.N.Chetty, T. Nagar, Chennai Tel: (044) Fax: AHMEDABAD 407, Anand Mangal Complex - I, Behind Omkar House, C.G.Road, Navrangpura, Ahmedabad Tel: (079) Disclaimer: This information is for general purpose only, without regard to any specific objectives, financial situations and needs of any particular person. The information contained herein does not constitute an offer or an invitation for an offer to invest. These materials summarise certain points relating to the Offer and are not a comprehensive summary. Please note that this information is based on the disclosures made in the Red Herring Prospectus. Investors are requested to refer to the Red Herring Prospectus for risk factors, details about the issue and issuer company before taking any investment decision. SPA and/or its representatives do not accept any liability whatsoever direct or indirect that may arise from the use of the information contained herein. Inst. Dealing Desk : 101, 10th Floor, Mittal Court-'A' Wing, Nariman Point, Mumbai T e l. No. : , Fax No / E m a i l : cms@spacapital.com