Subscribe to Motilal Oswal issue: Networth

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Motilal Oswal Financial Services (MOFSL), a financial services company focused on wealth creation for all its customers, is open for subscription with an initial public offering (IPO) of 29,82,710 equity shares of Rs 5 each for cash at a price band between Rs 725 and Rs 825 per share with 100% book building process.

The issue will close for subscription on August 23, 2007.The company is going to raise Rs 216.25 crore in lower end of the price band and Rs 246 crore at higher band.

Networth Stock Broking report on Motilal Oswal IPO

Background

Motilal Oswal Financial Services (MOFSL) is the holding company providing financing facilities to its customers. Most of the business is being operated through its subsidiaries. Motilal Oswal Securities (MOSL) is the key 99.95% subsidiary contributing 88.5% of revenues in FY07 through retail wealth management and institutional brokerage services. As on 31st Mar '07 MOFSL had presence in 377 cities and towns with 1200 client touch points, 68% of which are business associates.

During FY07, the brokerage income and advisory fees contributed 81.2% and 7% respectively to the total revenues of the company. The promoters Mr Motilal Oswal and Mr Ramdeo Agarwal carry over 2 decades of experience in the financial services industry, they along with the team of professionals would be very instrumental in the company's growth in the coming years. The company offers to raise about Rs 2460 million (at upper band) and the issue proceeds will be utilised to enhance financing facilities offered to broking clients, support growth plans to counter competition and invest in additional office space and latest technology.

Investment Rationale

Strong brand and presence

MOFSL enjoys strong brand recognition in the industry. A pan India presence across 377 cities has helped the company get a formidable retail reach. Its registered retail equity broking clients have grown 50% yoy from 159,091 as on 31st March 06 to 238,421 clients on March 31, 2007. We expect the company's established presence to benefit from the rising per capita income and ease in trade at across geographies.

Dedicated research focus

The company has a dedicated research and institutional sales team focused on cash equities, derivatives and commodities. The research team comprises of about 25 analysts covering 221 companies in 26 sectors and 9 analysts covering 26 commodities. Leveraging on research capabilities has helped the company empanel itself with over 250 institutions, including over 165 FII's. Going ahead, we expect strong traction in institutional business with more focus on overseas investors.

Diversifying portfolio of products

Brokerage income which formed over 87% in FY06 has been brought down to over 81% of its revenues during FY07 and is further slated to go down as the new business ventures fructify. The company has expanded its business offerings to include investment banking, venture capital management and distribution of third party products.

Valuations

The IPO priced in the band of Rs.725-825 does offer scope for appreciation given the long term business traction. At the upper band, the NBFC is priced at a PE of 33.7x its FY07 consolidated diluted EPS of Rs 24.5 and a price to book value of 3.2x. We recommend investors to "Subscribe" the issue.