BSEIndia: All Stock Market News: FW: [sharetrading] IDR

Tuesday, May 25, 2010

FW: [sharetrading] IDR

All about Standard Chartered IDR

Standard Chartered allots 3.6 cr IDRs at Rs 104/IDR to anchor investors Standard Chartered PLC has raised Rs 374.40 crore by issuing 3,60,00,000 Indian Depository Receipts (IDRs) to 16 domestic institutions at Rs 104 per IDR.

Standard Chartered has come up with a public offer of 24 crore Indian depository receipts (IDRs). Ten IDRs represent one equity share of the company (with a face value of $0.5 per equity share). The price band of the IDR is Rs 100-115 per IDR.

ICICI Prudential Discovery Fund and ICICI Prudential Infrastructure Fund have picked up 13.35 per cent each of the 3.6 crore shares allotted to the anchor investors, Reliance Growth Fund has bought 10.68 per cent stake and HDFC Prudence Fund has picked up 7.75 per cent.

As per the applicable SEBI Regulations, if the issue price fixed as a result of book building exercise is higher than the price at which Anchor Investors have been allocated building exercise is higher than the price at which Anchor Investors would be required to bring in additional amount.

The issue closes Friday. Here are what top brokers and analysts' have to say about the IDR.

Standard Chartered IDR leaves scope for some appreciation: Sharekhan

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Sharekhan is of the view that at the lower end of the price band, the Standard Chartered Indian Depository Receipt is at discount to its current market price in Hong Kong Stock Exchange and thus has scope for some appreciation.

“Standard Chartered Bank’s IDR provides the Indian investor a chance to invest in a global entity with widespread geographical presence. As a result of its diversified presence and emerging market focus, the bank came out relatively unscathed from the sub-prime crisis and is now well poised to benefit from the ongoing recovery in the emerging economies. Hence, the bank is an excellent diversified multinational banking play with strategic position in high-growth emerging markets.

However, the issue price discounts most of the positives. Moreover, the stock has certain disadvantages such as lower institutional participation (as domestic insurers are not allowed to participate in IDR and a restricted FII interest) and higher incidence of tax (dividend and capital gains tax) on IDRs.

At the lower end of the offer price band, the stock is offered at around 10% discount to its current market price at the Hong Kong Stock Exchange (HKD 185 implies a value of Rs 111 per IDR; 10 IDRs equal to one equity share) and leaves scope for some appreciation considering the 5% discount offered to the retail investors,” the report said.

Standard Chartered Plc has come up with a public offer of 24 crore Indian depository receipts (IDRs). Ten IDRs represent one equity share of the company (with a face value of $0.5 per equity share). The price band of the IDR is Rs 100-115 per IDR. The issue closes Friday.

Subscribe to Standard Chartered IDR: Emkay

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Emkay Global Financial Services has recommended investors to 'Subscribe to the initial public offering of Standard Chartered's (StanChart) Indian Depository Receipts (IDR). The issue opens Tuesday.

"Standard Chartered PLC is coming up with an issue of 240 million Indian Depository Receipts (IDR), with every ten IDRs representing one share of StanChart. This will be StanChart's third listing - after London and Hong Kong.

The bank has network of 1700 outlets with Asia, Africa, and Middle East as major contributors to StanChart's profitability.

Over CY07-09, StanChart has shown 17.1% CAGR in revenues and 7.9% CAGR in profit after tax with RoA and RoE 0.8% and 14.1% respectively. The consensus valuations quote the bank at 1.6x CY10E and 1.4x CY11E book value, which are significantly dearer than its peers in HK/Singapore region.

However, premium is justified with (1) StanChart much larger global global presence than its peers (2) RoEs based on tangible networth are 18%+ and (3) this issue is a limited option available for Indian investor to own a truly global bank.

We recommend 'Subscribe' to the issue.

Two key risks to the bank: (1) interest rate risk due to short-term borrowing to fund long term assets and (2) currency risk due to strengthening of USD vis-a-vis local currencies in countries of its presence.

The issue closes Friday.

Investors may subscribe to StanChart's IDR

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Standard Chartered is one of the oldest banks in the world. In fact, it was the first bank to start operations in many Asian countries and has a history of over 150 years in India. The bank earned over 90% of its profit before tax from Asia, Middle East and Africa in the financial year ended December 2009. Since it has limited presence in the Western Europe and North America, it was hardly affected by the sub-prime crisis.

Its operations are divided into two main divisions - consumer bank and wholesale bank. The consumer bank is like any other retail bank offering products such as mortgages, personal loans and credit cards. In times, when financial crisis had completely eroded the assets of several multi-national banks, Standard Chartered boasts of a loan portfolio, which is 84% secured.

The bank has achieved this feat by focusing more on secured lending like mortgages. However, increasing focus on secured lending can hamper its net interest margin (NIM), which already declined to 2.3% in 2009 from 2.5% in 2008. The management said that it will not increase the share of secured lending more.

The bank has a strong liability side too, with as much as 53% of its deposits coming from low-cost current account and savings account deposits. In this respect, its performance is better than HDFC Bank, which is generally regarded as the best Indian bank. However, in terms of NIM, Standard Chartered’s performance is not as encouraging as top Indian banks, which boast of a NIM of 3% or higher.

In the wholesale banking division, it provides trade finance and products like currency options and structured finance to corporates located across geographies. The performance of this division is related to trade flows between economies. This division posted a growth of 28% and 36% in 2008 and 2009, respectively in its operating profit.

All about Standard Chartered IDR

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Comparison: The bank reported a return on assets (RoA) of 0.8% in 2009, which is at par with its peers in other parts of globe. However, Indian banks clocked an average RoA of 1% in fiscal year ended March 2009. So compared to domestic banks, Standard Chartered’s performance is sub par.

It posted a profit growth of 4% year-on-year in 2009. Compared to international banks, this looks much better since their bottomlines bore the brunt of toxic assets. However, compared to Indian banks, Standard Chartered grew at a much lower rate.

Prior to 2008, the bank’s performance is much better than even Indian banks. This shows that the bank has a much better track record. It’s capital adequacy ratio (CAR) stood at 16.5% at the end of 2009. At this level, its CAR is at par with top Indian banks and show that the bank has sufficient capital base to grow.

All about Standard Chartered IDR

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Valuation: The bank is yet to announce the price range at the time this article went to the press. Back on the envelope calculations show the price per IDR is expected to be in the range of Rs 98 to Rs 137. Retail investors will get a discount of 5% on the issue price. Ten IDRs are equivalent to one share. As per the company’s information, earning per share stood at Rs 77 in FY2009.

Given that, IDR will be trading at a price-to-earning (P/E) multiple of 12.7-17.7. Its international peers are trading at an average P/E of 14. Top public sector Indian banks are trading at an average P/E of 11, while top private banks are trading at an average P/E of 24.

The valuation of IDR seem to be reasonable given the multiples at which the stocks of its domestic and international peers are trading. Given the reasonable valuations and clean financials, investors can subscribe to this IDR.

Regards,

Rozario

From: sharetrading@yahoogroups.com [mailto:sharetrading@yahoogroups.com] On Behalf Of Ravi
Sent: Saturday, May 22, 2010 6:41 PM
To: Yahoo Group
Subject: [sharetrading] IDR

22/05/10

Dear

I received a mail from HDFC Sec. suggesting an investment in Standard Chartered Bank IDR.
I do not know about IDR. Will someone help me to solve following questions.

What is Indian Depository Receipts? How the investment in this form
multiply? How to rate any IDR issuer?

Ravindra Deshpande

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