Inventure Growth & Securities coming with a public issue of 70 lakh equity shares

Inventure Growth & Securities Limited

• Inventure Growth & Securities is coming out with a 100% book building; initial public issue in a price band Rs.100 to Rs.117 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for      the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open on July 20, 2011 and will close on July 22, 2011.The shares will be listed on BSE and NSE.
• The face value of the share is Rs 10 and is priced 10.0 times of its face value on the lower side and 11.7 times on the higher side.
• Book running lead managers to the issue is Intensive Fiscal Services Private Limited.
• Company Secretary and Compliance Officer for the issue is Bhavi Gandhi.

Profile of the company

Inventure is a professionally managed multi-faceted financial services provider, offering a host of comprehensive services that are well diversified under one roof, to cater to the varied financial needs of the customer. Its specialty is providing advisory and innovatively structured financial solutions in the area of fund raising, infrastructure development, government borrowing, corporate restructuring and money market intermediation. At the retail level, Inventure provides investment advisory service and distributes financial products like mutual funds, insurance products, etc. The company is committed to provide efficient services to its clientele base which includes institutional clients, HNI and retail investors across the country. The company operates through 224 business locations including branches, franchisees (Remisiers and Authorised Person) and sub-brokers located across India.

The entity has a very strong presence in the western region and now it’s planning to rapidly expand its footprints PAN India through its regional offices, branches and franchises. All its businesses are built on a research and analytics foundation. Company’s understanding of underlying market trends and strong analytical expertise has resulted in a demonstrated ability to identify emerging trends and themes early. It seeks to provide the highest quality research and investment opinions to its clients.
Inventure offers various services like trading in equity-cash and derivatives market, PMS, debt market, depository, commodity, mutual fund, insurance and currency futures segment among others. Loan Against Securities (LAS) one of the service of the company is about getting instant liquidity from your investment without selling them. It is a multi dimensional financial service provider with its presence in almost all the sectors related with financial market.

IPO Grading

Fitch and ICRA both has assigned IPO grade of ‘2/5’ indicating below average fundamentals to the Initial Public Offering of the company.

Proceeds is being used to
• Investment in our subsidiary, Inventure Finance Private Limited;
• Augmenting Long Term Working Capital Requirement
• General corporate purposes; and
• Public issue expenses.
• To achieve the benefits of listing on the Stock Exchanges

Industry Overview

The financial sector in India is characterized by liberal and progressive policies, vibrant equity and debt markets and prudent banking norms. India’s financial sector has been one of the fastest growing sectors in the economy. India has a financial system that is regulated by independent regulators in the sectors of banking, insurance, capital markets etc. The Indian financial sector attributes its growth to technology up gradation, consolidation of large broking houses, evolution of e-broking business, growth in retail segment, regulatory reforms, diversified asset instruments and foreign investment participation. There is huge growth potential in the Indian financial sector. This is evident from the fact that less than 1% of population trades in the market as compared to 25% in the developed economy. The opportunities in the sector are huge as financial intermediaries have not restricted themselves to equity broking business.

The financial markets in India and abroad witnessed recovery during 2009. This was reflected in the rising market capitalization of stock exchanges of emerging and developing countries. The market capitalization of the emerging markets increased to 28.3% of world total market capitalization in 2009, up from 25.9% in 2008. The market values of the emerging markets were increased by 48.8% in 2009. United States which accounted for 30.9% of the world total market capitalization in 2009 registered a rise of 28.4% in its market capitalization. However, neither the emerging countries nor the developed economies were able to surpass the levels of growth witnessed in market capitalization and turnover during the year 2007. The year 2010-11 was marked by periods of volatility and tranquility in the Indian financial markets. Global uncertainties as well as domestic developments impacted Indian financial markets. The Indian markets, however, remained largely orderly, despite the challenges posed by persistent inflation and high current account deficit. The normalization of monetary policy of the Reserve Bank in 2010-11 so far has been conditioned by the changing growth-inflation dynamics characterized by robust acceleration in growth and increasing generalization of inflation. With concerns about the recovery receding, increasing risks of generalized inflation indicate that monetary policy has to continue the calibrated normalization process.

However, the global financial crisis has exposed areas of vulnerability in the Indian financial sector and policy initiatives are underway to strengthen financial stability. With a view to addressing the issues, various international bodies, national supervisors and policymakers are engaged in instituting various reform measures at the global and at the national levels. The Reserve Bank has been actively pursuing the development of various segments of the financial market. In the recent period, financial inclusion has also been recognized as a key objective of policy. Following the implementation of reforms in the capital market in the past years, Indian stock markets have stood out in the world ranking. India has the distinction of having the largest number of listed companies followed by United States, Canada, Spain, Japan and United Kingdom.

Pros and strengths

Integrated financial services provider- The company offers a wide range of financial products and services to its investors which include equity brokerage, commodities brokerage and wholesale debt market trading with memberships in BSE, NSE MCX, NCDEX and depository participant of CDSL. The company has expanded its operations beyond broking to distribution of third party financial products like IPO’s, mutual funds, insurance, margin funding, internet trading and wealth management. It also offers an array of advisory services ranging from investing, trading, research, financial planning to institutional clients, high net worth individuals and retail investors. Most of these services are customized to meet the needs of our clients in line with their investment objective.

Strong risk management system- The company has deployed resources in terms of technology, people and processes to manage our risk management function. It has established general risk management procedures for trading activities, including instruments and strategies, position and trading limits for trading desks, business units and/or individual traders, periodic stress testing and cash flow and "Value at Risk" analysis. It periodically reviews and modifies such procedures, as necessary or appropriate. These procedures cover our internal control system, customer margin requirement and risk management of relationship members. This is evident from the fact that during the fiscal 2009 when the global economy was facing a downturn it had managed to sustain its financial performance.

Diversified client base- The company has served over 36,000 clients and is not dependent on small set of high netwoth individuals but have a small exposure to a well diversified client base ranging from retail investors to HNI to Institutional. It is also empanelled with Indian banks, mutual funds, and insurance companies. It revamped its risk management system in order to avoid any margin shortfall on broking clients or on funding clients and deployed adequate policy based monitoring and squaring off not only for mass retail but also for high networth clients.

Diverse distribution network in regional space- The company started its operation in the western region of India and over the last few years have established our presence in the equity broking. Of its total pan-India network of 233 business locations covering 29 cities and towns, 187 are located in Maharashtra and 17 are located in Gujarat as on date.

Risks and concerns

Lack of alternate arrangements for working capital requirements- The company has not made any alternate arrangements for meeting its working capital requirements of approximately Rs 2,000 lakhs. Any shortfall in raising / meeting the same could adversely affect its operations and financial performance. As on date, it has not made any alternate arrangements for meeting our working capital requirements. The company proposes to utilize R 2,000 lakhs from the issue proceeds towards augmenting its working capital requirements. Currently it meets its working capital requirements through internal accruals. Any shortfall in its internal accruals will negatively affect its financial condition and results of operations.

Dependence on selective business segment- The company is dependent on its securities brokerage business and trading business, which contributed 71.25 % and 90.80 % of its total consolidated revenues for the financial years 2011 and 2010 respectively. Although its strategy is to actively develop other lines of business, securities brokerage business and trading business will continue to constitute a significant portion of our revenues and operating profit and any decline in its securities brokerage business and trading business will have a material adverse affect on its financial condition and operating results.

Concentration in western region - The company’s operations are significantly concentrated in the western region, as such, a substantial portion of its revenues are generated from operations in the region. However, future growth in business and revenues will be achieved through a pan-India footprint and company’s failure to expand the operations either through branches, business associates or otherwise may restrict its growth potential and adversely affect the results of operations.

Intense competition- The company faces intense competition in its businesses, which may limit its growth and prospects. The company faces significant competition in the businesses that it is involved in. In particular, it competes with other brokerage houses, both in India and abroad; and public and private sector commercial banks operating in the markets in which it has presence. In recent years, large international banks have also entered these markets.

Outlook

Inventure Growth & Securities is the first generation financial intermediary and flagship company of Inventure Group. The company offers a host of services under one roof providing comprehensive advisory services that are well diversified from trading services in equity cash and derivatives market, debt market, commodities and currency futures segment to financing activity, wealth management, and distributions of financial product. IGSL has direct interests in equity, debt and currency futures broking, depository activities, PMS and other activities like commodity broking, non-banking financial services, wealth management and sale of insurance products are provided through its Subsidiaries. As a growing Indian domestic brokerage house, it has a diversified clientele base that includes institutional clients, high net worth individuals and retail investors. The company has a strong client base of more than 30,000 consisting of Individual, Corporate Bodies, NRI’s and Financial Institutions.

On the concern side the company is dependent on selective business segments, dependent on its securities brokerage business and trading business also it is not having a pan India presence while many of its competitors are already having the same. Out of the total issue proceed the company intends to use Rs 30 crore for investments in one of its unlisted subsidiary, by subscribing to the equity share capital. Apart from this the company is exposed to risks attributable to derivatives trading by clients.

Inventure Growth and Securities is coming with a public issue of 70 lakh equity shares of Rs 10 each, which constitutes 33.33% of the fully diluted post issue paid up capital of the company.  It has fixed price band at Rs 100-117 per equity share and based on the EPS of Rs 4.44 for the year ended March 31, 2011 the P/E at the lower price band comes at 22.52x while at the higher price band it comes at 26.35x. On consolidated basis, the group has reported an operating income of Rs 34.03 crore and a profit after tax of Rs 5.70 crore. Though business prospects of the company are good but it has low diversification of business revenue and is primarily dependent on retail broking & high networth individuals also the business entails intense competition and can limit its growth and prospects. Its revenue are derived mainly from arbitrage and broking activities, while its other business segments are relatively small. We will recommend an avoid in the issue as not only the price sounds hefty but the growth outlook too seems restrained.