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basant
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   Posted: 10/Nov/2007 at 12:49pm |
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WHat is so unique about Edelweiss to comand a mcap of US $1.6 bn. Are they very strong in the institutional space?
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kulman
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Joined: 02/Sep/2006
Location: India
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Posts: 9319
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Posted: 26/Nov/2007 at 8:52am |
Excerpted from Sharekhan's report....
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Significant jump in trading volumes: The total (cash and derivatives) turnover of these broking companies has increased by almost 70% on a month-on-month basis, which is likely to drive their earnings in a similar fashion. Hence, Q3FY2008 earnings are likely to be far ahead of expectations.
Re-rating happening for already listed players: The brokerage stocks seem to be on fire. If we look at the business mix matrix (stated below), it is apparent that Motilal Oswal, India Infoline, JM Financial and Edelweiss are engaged in the same line of businesses. However if we look at the market capitalisation of these companies, it appears that Motilal Oswal, JM Financial and India Infoline (below the Rs7,000-crore mark) and have still some catching upto do in comparison with the valuations commanded by Edelweiss Capital.
| Business mix matrix |
| Businesses |
India Bulls |
JM Fin |
Edelweiss |
Motilal |
India Infoline |
Kotak |
| Broking |
Y |
Y |
Y |
Y |
Y |
Y |
| Investment banking / fee income |
N |
Y |
Y |
Y |
Y |
Y |
| Consumer Finance |
Y |
Y |
N |
N |
Y |
Y |
| Mutual Fund |
N |
Y |
N |
N |
N |
Y |
| Life Insurance |
N |
N |
N |
N |
N |
Y |
| General Insurance |
N |
N |
N |
N |
N |
N |
| Investments |
N |
Y |
Y |
N |
N |
Y |
| Banking |
N |
N |
N |
N |
N |
Y |
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| Valuations |
| Businesses |
Indiabulls Financial Services |
JM Financial |
Edelweiss Capital |
Motilal Oswal |
India Infoline |
Kotak Mahindra Bank |
| P/E based on consensus FY2008E EPS |
24.4 |
- |
- |
40.9 |
55.8 |
48.9 |
| P/E based on consensus FY2009E EPS |
18.2 |
- |
- |
28.9 |
29.3 |
35.1 |
| P/E based on H12008 annualised EPS |
25.5 |
58.7 |
34.9 |
39.7 |
39.9 |
44.7 |
| Market Capitalisation (Rs crore) |
17737 |
6000** |
7417* |
4868 |
6415 |
36437 |
| Based on BSE prices as on 15-11-2007
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| * Market cap estimated based on upper price band of Rs825 and a 20% listing premium. |
| ** Net of cash of around Rs1,515 crore which is expected to be received by the company post its deal with Morgan Stanley adjusted for possible foreign exchange losses after the sharp appreciation in rupee. |
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Edited by kulman - 26/Nov/2007 at 8:54am
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Life can only be understood backwards—but it must be lived forwards
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xbox
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Joined: 10/Sep/2006
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Posts: 2001
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Posted: 26/Nov/2007 at 9:03am |
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Pie is expanding very fast so all are running hard in stock prices much like IT Services in 1999-2000 but real test will come when pie stabilizes/rationalized (may be post-2010) & then boys will be separated from Men. Some of them will be NIIT, silverline, aptech and few will attain to INFY, TCS & Wipro. But till then party should continue. M-cap rules will determine prices...
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Don't bet on pig after all bull & bear in circle.
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deveshkayal
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Posts: 3903
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Posted: 26/Nov/2007 at 10:14am |
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Mom and pop brokerages are facing a difficult times. It makes sense for them to sell. Edelweiss and Motilal Oswal are already doing this.
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"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett
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basant
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Posted: 26/Nov/2007 at 10:30am |
Just heard Manish Chokhani of ENAM raising a cautious voice on brokerages. He said that these companies are trading at near euphoria valuations. Yesterday Nandan Chakraborty head of research at ENAM also indicates that brokerages are levered to the economy.
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MPD05
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Joined: 31/Oct/2007
Location: United States
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Posts: 140
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Posted: 27/Nov/2007 at 12:12pm |
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Very interesting comparison of business mixes and valuation.
Indications are that Edelweiss is likely to list (provided the market holds up) at at least a 100% premium (based on grey market premium as well as my conversation with some bankers involved in the deal)...it could even be Rs.2000 per share (just look at Religare listing).
In that case, how far do you think the other stocks will get re-rated? Or, is it likely that Edelweiss will come back to the pack after the initial euphoria?
Edited by MPD05 - 27/Nov/2007 at 2:37pm
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basant
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Posted: 28/Nov/2007 at 11:31am |
Originally posted by smartcat
To me, it just looks like Sampat is a really big fan of MNC stocks - look at the stocks he compares the marketcaps of brokerages with - Wyeth (pharma), Gillette (FMCG) , Monanto (Agri) and P&G (FMCG)!
| Can anyone compare market caps of Indian broekrages with their global counterparts |
- Raymond James, $3.86b MCap, P/E 16, 2006 Revenues $2.6b.
- AmeriTrade, $11.2b MCap, P/E 18, 2006 Revenues $2.7b
- ETrade, $2.23b MCap, P/E 6, 2006 Revenues $3.8b
- Charles Schwab, $28.16b, P/E 11, 2006 Revenues $4.3b |
This is stunning. These guys have the whole world as their markets and still market caps are not really that heavy except for Charles Schwab!
Maybe they are all growing at 10% or less annually but this is the ceiling as per global standards.
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smartcat
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Posted: 28/Nov/2007 at 11:48am |
Except for Charles Schwab, all the other companies have a 10 - 15% net profit margins. I guess that's what cut-throat competition does to the margins.
Charles Schwab declared a net profit of $1b plus in 2006.
I think brokerage companies in USA have become big, but they might have been taken over a larger financial companies. Not sure about this though.
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