Motilal Oswal Financial Services is entering the capital market on 20th August, 2007 with a public issue of 29.83 lakh equity shares of Rs.5 each in the band of Rs.725 to Rs.825 per share. Range of Rs.100 for the price band is too high. Maybe, the high price tag is to enable BRLM to discover price safely, in this volatile market?
Motilal Oswal is a prominent name in the stock broking community and lately this sector had caught the investor's fancy due to rich valuations being given by the overseas investors, to financial companies in India.
Post issue, equity of the company would be Rs.14.20 crores, relatively low equity base. At price of Rs.825, the market capitalization would be about Rs.2,350 crores. Since, present income of the company is mainly from broking, which is becoming competitive, the valuation seems a bit stretched. The company has recently ventured into investment banking and venture capital. Post issue, the company would be expanding its margin funding to over Rs.200 crores, which is presently at about Rs.88 crores to about 585 clients. However, it has become compulsory for the broking houses to provide margin finance to its customers to enable it to earn brokerage, PMS fee and advisory fee. With margin funding in place, the brokerage houses are able to earn more than 60% of its brokerage.
The company has estimated requirement of Rs.195 crores of which, Rs.110 crores is for margin funding. Balance is for working capital and for office premises. All this is to be entirely financed from the proposed issue.
However, considering the strong brand equity, consistent track record, low equity base and recent diversification in venture capital and investment banking, investment can be contemplated. Knowledge, commitment and accountability of the promoters, would keep prospective investors' interest in mind.