Buy Vakrangee; target of Rs 185: Sunidhi Securities

Sunidhi Securities' report on Vakrangee (VL)

"VL’s expansion of rural branches is entirely through franchise route and expansion of urban branches and WLAs is through combination of owned and franchise model. Thus VL will have high scalability with efficient capex management through combination of own and franchise model. Further, the economies of Scope will kick in as new products & services are added and transaction volumes increase over a period of time. With low incremental capex & operating costs, VL will benefit from high operating leverage and sustainable EBITDA margins of around 20% which will lead to higher ROCE in coming years."

"VL has issued 2.5 crore fully convertible warrants to Vakrangee Capital Pvt Ltd at value of Rs 100 per warrant. The warrants issued are convertible into equal number of equity shares having face value of Rs 1 with premium of Rs 99 per share. An amount of Rs 101.4 crore equivalent to 40.56% of the total consideration was received before the issuance of the warrants. Balance amount towards the warrant application money shall be received before the conversion of the warrants. The warrants shall be convertible any time from the date of allotment but before the expiry of 18 months from the date of allotment."

Valuation & Recommendation: "At the current market price of Rs 133, the share is trading at a P/E of 24.2x on FY15E and 15.8x on FY16E. We recommend BUY with a target price of Rs 185 in the medium-to-long term", says Sunidhi Securities research report.

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