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Subscribe to Edelweiss Cap for long term: Experts

Published on Wed, Nov 14, 2007 at 16:46 | Source : Moneycontrol.com

Updated at Wed, Nov 14, 2007 at 16:58

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Edelweiss Capital, a diversified financial services company, is entering the capital market 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 open on November 15, 2007, and will 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.

Moneycontrol conducted a poll on market experts to check whether to apply for the public issue or not. Experts said apply.

Experts/Company	Poll Result	Experts view
R S Iyer (KR Choksey)	Apply	Edelweiss Capital is a good issue. The price band is a bit on higher side but no problem. It has good brand name in the market and has good asset base. After looking at objective of the issue, the company will do better in future. One can apply for the issue for good listing gains as well as long term.
Manish Bhatt (Prabhudas Lilladher)	Apply	The issue looks slightly high priced but no worries. People can subscribe to the issue.
SP Tulsian (Investment Advisor)	Apply	Edelweiss is a known name in the financial market. On analysis of results of FY 07, and results of five months ending August 07, employee costs have increased by about 100%, on an annualized basis, while finance cost increased by about 350%, on annualized basis. As against this, core income of the company, being fee brokerage and commission income improved by just 50%, on an annualized basis. Even the debt component of the company rose sharply from Rs 386 crore as at 31st March 07 to Rs 976 crore as at 31st August 07. On gross basis, it has resulted in a yield of 13% for five months or about 2.5% per month. This kind of yield is given by arbitrage plays, even on a fund size of Rs.1,000 crores. So, the business model of the company is relying more on trading and arbitrage income which may not be perceived to be very healthy, on a sustainable basis, while valuing a company. On an annualised basis, for FY 08, the company may have a bottomline of Rs 250 crore, which may result in an EPS of about Rs 33, translating into a PE multiple of about 25 times, at the upper band of Rs 825 per share. The market capitalization of the company, post issue, at the upper band of Rs 825 per share, works out at Rs 6,200 crore. If we consider grey market premium of Rs 500 per share, market cap on listing would be about Rs 10,000 crore, which makes the issue definitely expensive when compared to its peer like Indiabulls Securities, India Infoline and Motilal Oswal. The revenue model of the company does not give absolute comfort and looking at the grey market activity and quote, the subscription levels would be very high, resulting in poor allotment ratio. Still if somebody wishes to ride the momentum, one can go for it.

The issue comprises a net issue to the public of 8,181,607 equity shares of Rs 5 each and a reservation of 204,540 equity shares of Rs 5 each for eligible employees of the company. The issue would constitute 11.19% of the post issue paid-up capital of the company. The net issue would constitute 10.92% of the post Issue paid-up capital of the company. The equity shares, offered through this IPO, are proposed to be listed on the NSE and BSE.

The proceeds of the issue will be used, inter alia, towards enhancement of margin maintenance with stock exchanges, establishment of additional offices and acquisition of office infrastructure, enhancement of existing technological capacity and loan prepayment.

Edelweiss Capital provides investment banking, institutional equities, private client broking, asset management, wealth management, insurance broking and wholesale financing services to corporate, institutional and high net worth individual clients. It operates from 43 other offices in 19 Indian cities.

The company's consolidated total income has grown from Rs 770.49 million in fiscal 2005 to Rs 3,712.53 million in fiscal 2007. The consolidated profit after taxation and minority interest grew from Rs 224.82 million in fiscal 2005 to Rs 1,090.08 million in fiscal 2007. For the five months ended August 31, 2007, the consolidated total income was Rs 2,848.62 million and the profit after taxation and minority interest was Rs 809.29 million.

The book running lead managers to the issue are Kotak Mahindra Capital Company Limited, Citigroup Global Markets India Private Limited and Lehman Brothers Securities Private Limited.