Dear Sir / Madam,
We are pleased to send you our analysis of the IPO of Religare Enterprises Ltd. with a Subscribe with a medium term view rating. The Rs140Cr ($36mn) IPO which is open for subscription during October 29 - November 1, is priced in the band of Rs160 - 185 per share.
Market cap of Rs14Bn or $356mn, based on the cap price.
Highlights
· Religare Enterprises Ltd. (REL), a Ranbaxy promoter group company, is one of the leading integrated financial services institutions in India. Operates from 392 cities and 1,217 business locations in India as well as a representative office in London.
· REL has undertaken reorganisation of its various businesses and created separate subsidiaries for effective functioning of each.
· RIHCL, an SPV, entered into a 50:50 JV with Aegon International NV to foray into mutual funds. For life insurance business in India, RIHCL has entered into a JV with Aegon (26% stake), in which the former has a 44% stake and investors 30% stake.
· REL subsidiary RWMSL formed a 50:50 JV with Macquarie for wealth management business.
· The Arts business operated under subsidiary RAIL will contribute to revenues FY09 onwards.
· Topline growth over the last 2 years has been phenomenal, driven by contribution of subsidiaries. H1 of FY08 also has seen aggressive topline and bottomline growth.
· Going forward, we expect the EBITDA margin to marginally increase, on account of addition of new businesses of investment banking, insurance, venture capital and trading in arts.
· High debt-equity ratio is a concern. While the large size of the balance sheet can be termed as a positive, interest costs will eat into profitability. Also some of new ventures like arts initiatives are risky.
· Pre-IPO placement to Indopark Holding, a Merrill Lynch subsidiary @ Rs160 per share aggregating at Rs61Cr, on October 15, 2007.
· Valuation of 22.6x in FY08E and 14.4x in FY09E is substantially lower vis-à-vis peers India Infoline (66.7x FY08E and 43.4x FY09E) and MOFSL (at 33.1x FY08E and 23.7x FY09E).
Please refer to the ratings structure and disclaimer on the last page of the report.
BigGains !!
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