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Standard Chartered PLC is entering the capital market on 25^th May 2010, with an issue of 24 crore Indian Depository Receipts (IDRs) in the price band of Rs. 100 to Rs. 115 per IDR. A discount of 5% will be offered to retail individual bidders on the discovered price. Every 10 IDRs will represent one share of Stanchart of U.S. $ 0.50 nominal value.

This is the first IDR issue by any global company in the Indian capital market and hence may take some time for retail Indian investors to understand it. Insurance companies will not be able to participate in it. While IDRs will be entitled for dividend, if any, declared by the Bank, it will be taxed at the maximum marginal rate of tax in the hands of the Indian investors, as no dividend distribution tax is paid by the Bank, on amount of dividend, so distributed. Investors will also not be eligible for concessional tax treatment as available under Income Tax Act, for investment made in shares, where STT is paid on its sale. In case of sale of IDRs on the floor of stock exchanges, STT will not get charged. Maybe, if Direct Tax code is implemented from 01-04-2011, even IDRs will be entitled for it, after paying STT.

Bank has posted a PAT of Rs.16,230 crores for year ended Dec.09, resulting in an EPS of Rs.77.16, on 202.94 crore outstanding shares of $0.50 each. Book value per share stood at Rs.629 as at 31^st December 09. This translates into an EPS of Rs.7.72 and book value of Rs.63 per IDR.

So bank is issuing IDRs at a PE multiple of 13 - 15 times and at PBV of 1.6 - 1.8 times, respectively, for lower and upper band. Net worth of the bank stood at Rs.1,27,623 crores as at 31.12.09. The present issue of IDR will result in dilution of about 1.20 per cent.

One needs to compare the financials of this bank with that of ICICI Bank and SBI. The comparison with HDFC Bank and Axis Bank have not been made, as both these banks have traditionally been enjoying better valuations, especially w.r.t PBV, which is largely seen as a yardstick for valuing a bank stock. ICICI Bank for FY10 had an EPS of Rs. 42, with book value placed at Rs. 480 per share, resulting in a PE of 19 times and PBV of 1.70 times. On the other hand, SBI for FY10, had an EPS of Rs. 185, on consolidated basis, with BV placed at Rs. 1,300 per share, resulting in a PE of 12 times and PBV of 1.70 times.

Considering this and due to global turmoil seen in Europe and China, domestic investors would be keen to know the asset quality and growth profile of the Bank, going ahead, for which not much indications are available. Hence, in such a situation, it would be prudent to see correct value of the Bank at a PE of about 13 times and PBV of 1.60 times, which comes at the lower band of Rs. 100. Also, in recent past, experience of IPOs have not been very positive, inspite of some coming from good sectors and promoters. SJVN and JP Infra are case in point. Also, it will take some time for the retail investors to understand IDRs concept, as it has some disadvantages as stated earlier. Also band having range of 15% creates confusion and uncertainty over its valuations.

Considering all this, it is advisable to go for the issue at the lower band of Rs.100 per IDR.