Edelweiss Financial Q2 cons net profit falls 60%

The net profit of Edelweiss Financial Services declined by 60.18% to Rs26.32 crore in the consolidated quarter ended September 2011 as against Rs66.10 crore for the previous quarter ended September 2010.

Sales rose by 1.61% to Rs381.04 crore in the consolidated quarter ended September 2011 as against Rs374.99 crore for the previous quarter ended September 2010.

Edelweiss Capital

Edelweiss Capital

Apollo Tyres, Edelweiss Capital, IVRCL Infrastructure, Torrent Pharma

Apollo Tyres, Edelweiss Capital, IVRCL Infrastructure, Torrent Pharma

GEI Industrial Systems, Grasim, India Cements, IOB, JK Bank, Voltamp Transformers, Jagran Prakashan, Hero Honda, Edelweiss Capital , Bajaj Auto

GEI Industrial Systems, Grasim, India Cements, IOB, JK Bank, Voltamp Transformers, Jagran Prakashan, Hero Honda, Edelweiss Capital , Bajaj Auto, TVS Motors, Maruti Suzuki, Tata Motors

ACE, Alok Industries, ABB, Balakrishna Industries, BGR Energy Systems, Bilcare, DB Corp, Edelweiss Capital, EMCO

ACE, Alok Industries, ABB, Balakrishna Industries, BGR Energy Systems, Bilcare, DB Corp, Edelweiss Capital, EMCO

Edelweiss Capital

Edelweiss Capital

Edelweiss Capital

Edelweiss Capital

Marico, Edelweiss Capital

Marico, Edelweiss Capital

Edelweiss Capital

Edelweiss Capital

KEI Industries, Rajesh Exports, Edelweiss Capital, TV Today

KEI Industries, Rajesh Exports, Edelweiss Capital, TV Today

Edelweiss

Edelweiss

Edelweiss

Edelweiss

eClerx, BGR Energy, Transformers, Brigade Enterprises, Jyothy Lab

eClerx Services 270 to 315 95 to 100


BGR Energy 425 to 480 380 to 400


Transformers & Rectifiers 425 to 465 180 to 200


Brigade Enterprises 351 to 390 110 to 120


Jyothy Lab. 690 230 to 240


Burnpur Cement Ltd. 12 2 to 3


Edelweiss 825 780 to 800


Renaissance Jewellery 150 20 to 25


Kolte Patil 145 75 to 80


Kaushalya Infra 60 13 to 14


SVPCL 42 - 3 to -4

Grey Market - Burnpur, BGR Energy, eClerx, Edelweiss, Jyothy Labs

Jyothy Lab. 620 to 690 220 to 225


Burnpur Cement Ltd. 12 8 to 9


eClerx Services 270 to 315 80 to 90


BGR Energy 425 to 480 240 to 250


Edelweiss 725 to 825 750 to 775

Renaissance Jewellery 125 to 150 20 to 25


Kolte Patil 125 to 145 75 to 80


Kaushalya Infra 50 to 60 12 to 15


SVPCL 42 - 3 to -5

Yes Bank, Empee Distilleries, Mundra Port, Edelweiss Capital, Axis Bank, Hero Honda, Renaissance Jewellery, Kolte Patil, Kaushalya, Jyothy, Ranbaxy

Yes Bank, Empee Distilleries, Mundra Port, Edelweiss Capital, Axis Bank, Hero Honda, Renaissance Jewellery, Kolte Patil, Kaushalya, Jyothy, Ranbaxy

Edelweiss IPO Allotment Status

Edelweiss IPO Allotment Status can be checked here (by Dec 4 2007)

Edelweiss IPO Subscription

Qualified Institutional Buyers (QIBs) - 153.1465 times

Non Institutional Investors - 164.3048 times

Retail Individual Investors (RIIs) - 17.2171 times

Employee Reservation - 10.1774 times

OVERALL - 110.96 times

Market Savvy employees :). Retail applicants who applied for 1 Lakh will stand a good chance to get 1 lot of allotment

Edelweiss Capital IPO ends with 109.80 times subscription

Receives bids for 92.08 crore shares

Edelweiss Capital IPO ended with 109.80 times subscription. The IPO received bids for 92.08 crore shares, as against the issue size of 83.86 lakh shares.

The price-band of the issue has been fixed at Rs 725-825 per share.

At the lower end of the price band, Edelweiss will raise over Rs 607 crore and it will raise Rs 691 crore at the upper end of the price band.

Rating agency CRISIL has assigned an IPO grade of 4/5 to the company, indicating that the fundamentals of the issue are above average.

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.

Edelweiss plans to utilise the proceeds for enhancement of margin maintenance with stock exchanges, establishment of additional offices and acquisition of office infrastructure, enhancement existing technology capacity and prepayment of loans.

The company’s total consolidated income in 2006-07 (April-March) was Rs 371.2 crore and net profit for the year stood at Rs 109 crore. For the five months ended August 2007, its consolidated total income stood at Rs 284.8 crore and net profit Rs 80.9 crore.

Kotak Mahindra Capital, Citigroup and Lehman Brothers were the book running lead managers to the issue.

Edelweiss IPO

Networth Stock Broking has recommended subscribing to the initial public offering of Edelweiss Capital.

“We remain positive on the long term business potential of the broking industry and expect Edelweiss' growth momentum to continue in the coming years. At the upper band, the NBFC is priced at a PE of 35x its FY08 estimated earnings of Rs 23.2 and a price to book value of 3.9x,” says the brokerage report .

Edelweiss Capital is a diversified financial services company in India, providing investment banking, institutional equities, private client broking, asset management and investment advisory services, wealth management, insurance broking and wholesale financing services to corporate, institutional and high net-worth clients.

Issue proceeds will be used for enhancing margins with exchanges and expanding operations and network in addition to general corporate functions.

The price band of the issue is fixed at Rs 725-825 and it closes November 20.

Edelweiss IPO Analysis

Edelweiss Capital's IPO may appear slightly expensive but it has high margins to boot.

It’s raining IPOs from Indian broking firms. After IPOs of Motilal Oswal and Religare Enterprises in August and October respectively, there is yet another player Edelweiss Capital tapping the primary market.

And it’s a bonanza time for investors as they can rake in profits not only by following the broking firms’ investment advice but also investing in their companies, whose stock prices are soaring on the bourses.

For example, stock price of Motilal Oswal has appreciated by more than 50 per cent in less than three months and Religare too is expected to be a big gainer on listing.

Edelweiss Capital, a holding company of nine subsidiaries, plans to raise about Rs 609-693 crore from the primary market by issuing 8.4 million equity shares (including employee reservation of 0.2 million) in the price band of Rs 725-825.

The company plans to spend about Rs 435 crore over the next two years, most of which will be spent by March 2008.

The IPO proceeds will mainly be invested in its 100 per cent subsidiary, Edelweiss Securities (ESL)—which is into institutional equities, private client broking and wealth management for maintaining higher margin balances with the stock exchanges, prepaying loans, expanding office network and infrastructure, and enhancing existing technological capacity.

Same products… Like its peers, Edelweiss also wants to offer more than just equity broking and expand its product basket to position itself as a diversified financial services player.

The company, which started as an investment bank in 1996, has grown its businesses rapidly in last four to five years to include various high growth businesses like institutional equities, private client broking (for high net worth individuals), asset management, wealth management, insurance broking, treasury and wholesale financing.

The company has classified the last two businesses (treasury and wholesale financing) as capital businesses, and they form about 38 per cent of total revenues. It groups the remaining segments as agency businesses, which contribute about 58 per cent.

The company has indicated that it will achieve a balance between these two businesses.

...but a different strategy There are certain factors, which merit attention before investing in Edelweiss’ IPO. First, the company is a dominant player in the institutional and high net worth individuals (HNI) segments with almost negligible presence in retail.

This is in contrast with other major players which are expanding their footprint in retail.

This could however be a blessing in disguise in the sense that it has helped the company enjoy higher margins – operating profit margin and net profit margin of about 48 per cent and 29 per cent respectively - than its comparable peers.

Says Arun Kejriwal, director, Kejriwal Research and Investment Services, “The company’s forte in institutional and HNI segment has helped as retail business means low brokerages and small volumes.” However, the company has not closed doors for retail customers and will evaluate the opportunity.

Second, financial services, being a high growth industry, companies have to grapple with retaining good talent and rein in attrition.

Edelweiss Capital has tackled this problem by issuing shares and ESOPs to employees, which will account for just under 20 per cent of the company’s post-issue capital. Moreover, most of the senior management has been with the company for over five years.

Third, global financial players like Greater Pacific, Galleon Group, Sequoia Capital, Shuaa Capital and Lehman Brothers will be holding 37 per cent in the post-IPO capital, which instills confidence about the company’s reputation and skills.

Some of these investors are also represented on the board, half of which is made of independent directors.

The only thing, retail investors need to keep in mind is the fact that the industry, in which the company operates, is highly working capital intensive as margin requirements increase if business increases.

So, constant capital infusion (equity or debt) is required from time to time which could lead to dilution (in case of equity).

High margins… The issue has been assigned IPO Grade 4/5 by Crisil indicating that the fundamentals of the company are above industry average. This follows strong growth reported in the past few years without much contribution of low margin high volumes retail business unlike its peers.

The company’s consolidated net sales zoomed at 119 per cent a year between FY05 and FY07, thanks to the introduction of new high growth businesses mentioned above.

Despite substantial jump in employee and other operating expenses, the company managed to clock a higher operating profit growth of 123 per cent CAGR in the same period due to high margin institutional and HNI business. Net profit growth was capped at 120 per cent (still robust) due to jump in interest costs.

Going forward, the growth is expected to be higher as many of its subsidiaries covering various businesses like wealth management, asset management and advisory services have been formed in FY06, which are yet to achieve scale.

Further, increasing foreign money, rising market turnover and growing HNI population provides immense potential to the company.

Despite short term hiccups, the long term trend of the Indian market is upwards thus providing long term visibility. Moreover margins are likely to be maintained.

“Our focus is on profitable growth with risk managed return on equity,” says Rashesh Shah, chairman and managing director of the company.

…bring premium valuation At Rs 725-825, the issue is priced at about 27 times and 30 times for FY08 estimated earnings respectively. This is much higher than its closest peers Motilal Oswal and Religare which trade at 21 times and 15 times for estimated FY08 earnings respectively.

The company commands high valuations because it enjoys superior margins than others and has reported strong financial performance without too much presence into the retail business.

Also, the growth in FY09 is going to be robust. For estimated FY09 earnings, the company’s is valued at 13 - 15 times (assuming 100 per cent growth in earnings ) and 17-20 times (assuming 50 per cent).

Short term investors would get decent returns depending on market conditions post listing. Long term investors can select from a wide range of listed broking firms depending on factors like the extent of diversification, broader network and choice between HNI or retail growth. Issue opens: November 15 Issue closes: November 20