Edelweiss' growth momentum to continue: Networth

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Networth Stock Broking has come out with report on Edelweiss Capital IPO. The firm has advised to subscribe the issue.

Edelweiss Capital, a diversified financial services company, is open for subscription with its initial public offering (IPO) of 8,386,147 equity shares of Rs 5 each for cash, at a price to be decided through a 100% book building process.

The issue will close close on November 20, 2007. The price band has been fixed between Rs 725 and Rs 825 per equity share of face value Rs 5.

Networth Stock Broking report on Edelweiss Capital IPO

Background

Edelweiss Capital (Edel) is a diversified financial services company in India, providing investment banking, institutional equities, private client broking, asset management and investment advisory services, wealth management, insurance broking and wholesale financing services to corporate, institutional and HNI clients.

The issue proceeds would be utilized in enhancing margins with exchanges and expanding operations and network in addition to general corporate functions.

Investment Rationale

Strong IB and institutions

Edel has a strong presence in investment banking and institutional advisory services and its ability to execute seamlessly has helped attain marquee domestic and international clients and business. During FY07, the income from investment banking grew by nearly 2.6x to Rs 698 million.

New ventures to add income

Edel's newer business segments like retail, insurance broking and asset management are smaller compared to IB and institutional broking businesses. Now with more funds post issue and focus, we expect the fee income and retail business to get a boost.

Experienced senior management

As volumes in the industry have grown, Edel has been able to capture additional business and strengthen its market share. The experienced senior management and their industry relations auger well for the future growth of business.

Strong financial performance

For the five months ended period on August 31, 2007, Edel has recorded revenues of Rs 2848.6 million & bottomline of Rs 809.29 million. The EBITDA and net profit margins stood strong at over 58% and 28% respectively.

Valuations

The IPO priced in the band of Rs 725-825 appear reasonable given the possible positives from increasing overall business and widening product offerings. We remain positive on the long term business potential of the broking industry and expect Edel's growth momentum to continue in the coming years.

At the upper band, the NBFC is priced at a PE of 35x its FY08 estimated earnings of Rs 23.2 and a price to book value of 3.9x. We recommend investors to "Subscribe" the issue at upper band.