Inventure Growth & Securities Limited (IGSL) IPO Analysis Report

Issue Highlights

Price band: ì 100- ì 117

Issue period: 20 July 2011-22 July 2011

Issue size: 70,00,000 equity shares

Face value: ì 10

Minimum order quantity: 50 shares

Issue Type: 100% book building

Maximum Retail Limit: ì 1,98,900(34 lots)

Allocation Details

     QIB: not more than 35,00,000 equity shares

     NII: not less than 10,50,000 equity shares

     Retail Bidders: not less than 24,50,000  equity shares

Objectives of the issue:

·         Investment into subsidiary, Inventure Finance Private Limited

·         Augmenting long term working capital

·         General corporate purposes and issue expenses

Company Profile

IGSL is the flagship company of Inventure group and offers various diversified services like trading services( in cash, derivative, debt market, commodities and currency futures),financing, PMS, depository services, NBFC activity and wealth management and distribution of financial products.

SWOT Analysis

Strengths

·         Diverse distribution network in western region-Maharashtra & Gujarat

·         IGSL is integrated service provider which includes equity, commodity and debt market trading with membership from NSE, BSE, NCDEX, MCX and participant of CDSL.

Weaknesses

·         Negative cash flow for past several years

·         Subsidiaries are yet to break even

Opportunities

·         With growing economy of the nation more traditional investors are supposed to enter in capital and commodity market

Threats

·         Company does not have pan-India presence and its operations are concentrated in the western region mostly in Maharashtra  

·         IGSL has some Corporate governance issues like Some of promoters sold their stake to outsiders without prior regulatory approvals

·         Increasing competition from peers and ongoing brokerage -war between brokers might affect the profitability

Financial Analysis

                                                            FY11    (ì ) #*                          FY10 (ì  )*

EPS	2.63	14.42
Book Value	34.13	96.81
Price-Earning Ratio (P/E)	44.48	8.11
Price-to-Book Ratio (P/B)	3.48	1.2
Return on Equity (ROE)	7.7%	14.89%
Return on Capital Employed (ROCE)	3.13%	5.98%
Interest Coverage Ratio	1.27	4.03
M-Cap/Sales Ratio	10.11	2.5
M-Cap/Reserve Ratio	4.25	1.52
Debt-to-Equity Ratio	.12	.17
Net Profit Margin	22.8%	30.95%

# Post issue equity considered

*at upper price band  ì  117

Comparison with peers’ #

Stock	P/E	ROE	NPM
India Infoline	20.47	11.23	15.29
Motilal Oswal	33.25	8.32	66.24
Edelweiss Capital	42.24	4.44	13.08
IGSL	44.48	7.7	22.8

# Data of peer companies is as per moneycontrol site at the time of report making

Inference

Post issue there shall be much equity dilution in IGSL and at the upper price band of ì 117, Price to Earning Multiple will be 42.24 which is much higher than the industry average of 20.91.

Even in comparison with its peers, valuations are on higher side and not at all attractive. Despite having low Debt-to-Equity Ratio, interest coverage ratio is not in the comfort level. Post issue market capitalization is around 10 times its sales. Increasing portion of other income in total revenue indicates uncertainty in profitability and there were wild variations in the net profit data of past several years. Broking industries are going through very tough period and many of them are downsizing their business, merger and acquisition news are very common to hear.

Almost every broking stock is much below its 2008 price level even when broader indices recouped the fall reasonably.

Investors should skip this issue and should not fall prey to the hope that operator’s manipulation shall fetch them lucrative listing gains as this could be risky and investor might get trapped.

Disclaimer

Analysis is for the information purpose only. Though due diligence has been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of the report.