Tuesday, 21 August, 2007

IPO Analysis Note - Motilal Oswal


MAX. ISSUE SIZE (Rs) : 246 crores
PRICE BAND (Rs) : 725 - 825
ISSUE OPENS/CLOSES : 20th to 23rd August, 2007

Motilal Oswal Financial Services is a NBFC with subsidiaries engaged in providing stock broking and commodity broking, venture capital and investment banking services. The primary objectives of the IPO include offering margin financing facilities to retail clients, augmenting working capital needs and purchasing office space.

It is noteworthy that well over 80 per cent per cent of the company’s revenues of Rs.379 crore in 2006-07 were generated from its equity broking business. Clearly, a booming equity market has had a big hand in the upswing in this company’s revenues. Its other lines of business are relatively nascent and still struggling to achieve critical mass.

Any downturn in the market could thus impact its topline. As regards its bottomline, the decision to use the franchisee route to grow its business may trim its margins, but can take it into new geographies.

The bigger risk to its bottomline is the emergence of new players with deeper pockets and the proliferation of online trading, a segment in which its presence has hitherto been negligible. The company’s relative inability to build an active margin-financing book, another high margin, high growth area too could impact its bottomline growth.

Amidst these concerns, there can be no mistaking the brand-equity that Motilal Oswal enjoys in the Indian equity market space. Also, on a relative pricing parameter, a forward P/E demand of 25 plus renders it more attractively priced than its closest listed peer, India Infoline.

The moot question however remains whether this alone can sustain its fortunes were the markets to downturn violently like it did last week. Hence, those betting on this IPO would need to have above average risk-appetite and hope that the ongoing market volatility does not precipitate into a crisis.