Axis shareholders pay for Enam shareholders’ wealth creation

As Enam promoters bow out with one of their greatest trades ever, high-risk financial takeovers by banks a la Wall Street invades India

Axis Bank, which has so far stayed away from the stock-broking business and has had an insignificant presence in the investment banking business, is paying out Rs2,100 crore in shares to buy Enam Financial. The deal will catapult Axis into the highly competitive business of broking and investment banking, but what can Axis get out of Enam, a highly entrepreneurial and secretive boutique firm?

Enam will be a 100% subsidiary of Axis and, according to Axis, the entire talent pool of Enam will move into the Axis fold. The question is, will the talent pool stay? If not, what is the value of Enam, especially minus the top Enam team? Enam has worked all these years to develop extraordinary market insights, business relationships with scores of owners and their finance heads, as well as institutional investors. This network has proved invaluable in all aspects of its business—investment banking, portfolio management, proprietary trading and broking. The fact is, none of this will be available for Rs2,100 crores! Also, while it is too early to tell, banks usually make a hash of takeovers of boutique businesses.

The fact is that the core of Enam, which has been led by some of the finest brains in the Indian stock markets, will no longer be with the business after the Axis takeover. While Vallabh Bhansali will join the Enam board and Manish Chokhani will supposedly head the investment banking business, it is really a token post-retirement presence. It will obviously not be the same as when the entire Enam team of Nemish Shah, Vallabh Bhansali, Manish Chokhani, Jagdish Master and others were all together and driving the business.

Let’s step back and see what Enam is all about and why Axis will not be able to make much of its purchase. Enam was started as a stock-broking company by Nemish Shah, late Manek Bhansali (hence the name NM, or Enam) and Manek’s brother Vallabh Bhansali, a chartered accountant. The three managed a small and extremely innovative broking business, which took full advantage of the highly imperfect Indian stock markets driven by highly speculative waves, a thriving grey market, the absence of investment institutions and very poor market infrastructure.

In these days of dematerialised trading it is hard to imagine this, but powerful market players could easily make transfer forms of shares of companies disappear before the book closure and trap the bulls or the bears as the case might be. Enam exploited this imperfect system to the hilt, but this was just one part of the firm. On the positive side, Enam was probably the first broking firm in India that started systematic investment research, applying Western principles of equity valuation.

Most importantly, its owners steered clear of major scams and market meltdowns thanks to their superb market acumen. For instance, Enam owners were close buddies of Harshad Mehta, but they were neither carried away by their investment ideas like Harshad, nor caught up in any scam. Instead, Enam promoters, even as they were close to many Indian businessmen, were among the first to identify the potential of multinational companies like Indian Shaving, Castrol, Hindustan Lever, etc. Among their close friends, who shared a similar investment approach, were Radhakishan Damani and Rakesh Junjhunwala, both them highly successful and wealthy private investors and traders.

In the early ’90s, Enam was a powerful force in broking and portfolio management services. As a natural move, they entered the investment banking business, mainly advising promoters on the timing of fund raising and the right capital structure. They brought many high-quality unlisted Indian companies to the market, most notably Infosys. The Infosys IPO nearly failed, but Enam was so impressed with the company that the promoters personally took up a lot of shares and also encouraged clients to buy with the definite advice not to sell in a hurry. Apart rom their fund-raising ability, this keen understanding of the promoters' quality and their businesses also helped Enam establish a healthy long-term relationship with the owners of many fast-growing companies in the ’80s, like Bharat Forge, Thermax, Videocon, Supreme Industries as well as eventual behemoths like Infosys, Zee, Essar and Reliance.

Enam has also been extremely close to Marwari businessmen, especially the Aditya Birla group. In what is a uniquely Indian edge, Enam managed to develop close rapport with both the owner and the head of finance of many companies, sometimes even handling their personal portfolios which meant that both business and information came in freely, which in turn could be used to develop other relationships.

Another extremely important factor in Enam's success has been its very cautious expansion. They have neither launched a mutual fund company nor have they gone crazy expanding retail branch network - both of which would have strained their resources with no clear benefits. Can avoiding mistakes be valued in money terms? Most of the time, it even goes unnoticed.

So, Enam’s secret sauce was a sharp understanding of the quality of promoters and their business, long-term relationships, market operations bordering on insider trading (especially when there was no law against it), a fine sense of market direction and finally, avoiding serious setbacks. All these are intangible skills, which will last for only a few weeks after Enam ceases to exist as an independent company. Enam’s brilliant promoters have made many great trades so far. They end their innings with what will probably be the greatest trade of their lifetime - at the expense of Axis Bank's shareholders. 

1 decade ago
Hi not sure if this is right forum to inform this, but flamboyance by Axis doesnt end here. In an AR , year ago , it said they were spending about 900CR to build HQ in Mumbai . why would one do that ? isn't that waste of money ??
Replied to Bhushan comment 1 decade ago
“In February 2010 the Times of India & Economic Times has reported that axis banks new headquarters deal in buying Bombay dyeing property at Rs. 782 croes is the costliest deal in the present market recession, where as the similar properties are readily available at Rs. 500 crores and even banks like ICICI is cutting its cost by shifting the major departments to Hyderabad and Axis Bank being the schedule commercial bank while dealing with huge investment of public money should have invited quotes for premises through all the leading newspaper for buying the property, instead they have opted illegal methods and paid the brokerage to the tune of 23.50 crores from public kitty and they have deceived the investors and taxpayers money to the tune of Rs. 282 crores , plus the large chunk of brokerage shared between top officials at Rs. 23.50 crores.

Banks top officials are involved in multi crore fraud of leased premises, wherein they have purchased the Branch & ATM premises in their relatives / proxy names and given it to Axis Bank at a rent which is twice above the prevailing market price and if this type of practices continues in private sector banks then I am sure the new junior faces will follow the legacy of our new and old generation private sector banks and the depositors will be taken for a Ferrari Ride.
Replied to BEIP FORUM comment 1 decade ago
Thanks for bringing it to our notice, Its well adopted hitler style of Corporate Governance policy of Axis Bank and I feel the investors should exit from axis bank.
1 decade ago
Sucheta... have been reading about your disparagement of ENAM for quite some time... fair enough, you might be privy to certain information not yet substantiated in the public domain, but could you kindly let me know , for curiosity sake.. who would enter your hall of fame from the Indian broking fraternity... for their impeccable track record of integrity and customer focus... would it be Kotak?JM?DSP? or would it a journalist from your fraternity???
Replied to sanjeev comment 1 decade ago
1. The article was not written by anybody called Sucheta
2. "Disparagement of ENAM for quite some time..." I have searched the site and this is the only article on ENAM. I could not find any article by Sucheta anywhere on ENAM. I have mailed her and awaiting a reply. Maybe you know better! Can you share even a single article by her on ENAM with us or her?
3. "Hall of fame" of Indian broking? What is that? I dint know brokers have "fame". I thought they are rather infamous.
4. A journalist can't enter enter the "hall of fame" of brokers. Just as as a broker cannot enter the hall of fame of of doctors. I thought they were different professions. Maybe you have a different view!
5. The article ends by saying "greatest trade...". That's disparagement? In which language?
sucheta Dalal
Replied to Irfan comment 1 decade ago
Hey Irfan... thanks for the vote of confidence.
In fact, lets send this to Vallabh Bhansali and ask him if he has seen anything written by us against ENAM.
What has this reader been smoking? In any case the article was written by my husband Debashis Basu.
And he is all admiration for Enam's team.

Finally, Vallabh Bhansali, at least to our face, says he likes Moneylife and what it writes! So may be you should exchange views with him.
Sumit Talwar
Replied to sucheta Dalal comment 1 decade ago
Very well said sucheta Mam & i m very much happy by the detailed analysis given by Deb Sir.

thanku & keep updating the poor investor of India about wat z goin on ......
Replied to sucheta Dalal comment 1 decade ago
Also, talking of hall of fame for brokers and whether journalists would be there..
Sucheta Dalal was awarded Padma Shri.
Has any brokers been given a Padma award?
1 decade ago
axis price is falling on account of microfinance concerns. The merger ( enam will like to call it so)/acquisition( which it indeed is) seems strategically right but the valuations indeed is very high.

The examples of US are misplaced,there all the firms merged were of the same size and hence had impact on commercial banks. Here Enam has hardly 60 cr PAT last year. This year they say 77 cr( looks inflated) PBT so far, prop is out of ths deal, what dent can it make on 1700 cr PAT Axis bank, the synergies have to work out and culture management has to be seen. I do hope axis deos not have Enam culture ( disastrous for a rbi regulated entity).
Debashis Basu
Replied to aditya comment 1 decade ago
Today SKS was +5.47% and Axis was -3%
sunil hemnani
Replied to Debashis Basu comment 1 decade ago
dear sir , MFIs probably dont have the perssure to repay the bank &the banks are under pressure of possiblly kissing the money bye.IN lieu of which the + &- are fair reactions to the perception we can gather as with regards to whose gotta be concerned
Debashis Basu
Replied to sunil hemnani comment 1 decade ago
quite the opposite. MFIs have 100% to lose because once borrowers know you can get away by not paying, bad debt will spread exponentially - as an example of Catastrophe Theory of mathematician Rene Thom
For banks MFIs are a small part of the portfolio
1 decade ago
Dr. P J Nayak believed in Organic Growth and delivered good results, where as Ms. Shikha Sharma is in volcanic situation and wants to show the growing numbers by hook or crook and she is taking Axis Bank investors for a ride through Marine Drive via BSE and BKC via ICICI & NSE.

Lets wait and watch how long the ship will float with ENAM.

Sanjay Prabhu
1 decade ago
At the outset i would like to say its a good DEAL for ENAM TEAM and the AXIS BANK just paid a huge premia.But the bank is paying for a great team ,amonst the best in the industry.I would seriously wonder aloud as to the clean image ,the mkts make people do funny things. Bhansali seems precauriously close to the right people, all very well that there stocks ride the boom the best .Axis is also a benefiary of the boom and the ride of the boom . Otherwise seemingly good mangements have got together & will continue to ride the boom in INDIA.
Replied to SUNIL HEMNANI comment 1 decade ago
Axis Bank cannot retain its own employees and hence their branches are in big trouble with serious operational issues, frauds due to lack of staff accountability since inception.

As the bank has started loosing the CASA & Retail Term Deposit due to loss of customers trust on the bank, and hence the Bank has started image rebuilding exercise by spending crores of rupees on TV commercial especially on Amitabh Bachchans show Kaun Banega Crorepati which is one of the costliest time slot with Associate sponsorships at Rs 8 crore plus 10-second spots at Rs 1.2-1.75 lakh and the bank is spending more than 15 cores at whose cost? Naturally investors / depositors and hence RBI should restrict / put limits on commercial advertisement expenditure made by the banks.

For more details please click on the links below.

You will be shocked to know that Axis Bank Capital Market department has not undergone internal & external audit for last several years.

Axis Bank CFOs son is working for Ernst & Young in US, who are the Statutory Auditors of Axis Bank and hence both have violating ICAI code of conduct and the Axis Bank is reappointing them again again as the Auditors of the Bank, and in turn Ernst & Young awards them as the Best Private Sector Bank in India. It’s a give and take relationship at the cost of investors / depositors.

External Auditors & Internal Auditors could not detect the serious frauds happening at various department and has been excellent audit ratings to those department / branches and the bank vigilance department was just on the paper.

As all the foreign consulting firms are know for manipulation in book of accounts and audit, I hope that it should not give another shock to the investors / depositors as it happened in case of Satyam and Global Trust Bank.

Senior Functionaries at central and zonal offices are involved in various frauds with the Govt Accounts, Defense Accounts frauds, Defense Employee unclaimed salary A/c frauds, Defense Employee unclaimed pension A/c frauds, Retail Assets frauds, Excise & Income Tax Frauds, Capital Market frauds, IPO Reimbursement Frauds, ATM Cash Shortage Frauds of more than 60 crores, Debt Relief Fund Frauds, Unclaimed DD/PO frauds, ATM / Interior Decoration and Branch premises lease rental frauds, Issuing Fake Term Deposit to customers and government authorities at Jabalpur Bhopal & Kashipur other branches, Agri Credit Frauds, 165 crores Priority Sector Lending frauds at Bhopal and other centers, One time Loan settlement fraud at Nashik and other agri credit centers, Debt relief waiver fraud at Rajkot and other centers etc., where in the bank has breached the trust with Government of India and the State Governments. Government and the investors in general has lost the faith and the trust of erstwhile UTI Bank which transformed SOLUTIONS FOR LIFETIME to THERE'S ALWAYS A SOLUTION for business & personal growth of senior management through high level frauds.

Vested Interest in ENAM Deal and Involvement of senior functionaries including the recently retired master mind top executives of Axis Bank for personal gains could not be ruled out and the SEBI should start the investigations.

Ex Employee & Shareholder of Axis Bank
Sumit talwar
Replied to SANJAY PRABHU comment 1 decade ago
Dear Mr Prabhu u r rite n i can smell that sumthing z surely cokking n this deal is to hide the smell of same coz most of the enam precious or u can say Big clients are having dere a/c's with AXIS bank & ENAM"stock broking co." is also one of there breed definately some cooked books of there clients were been at AXIS bank & its & VICE-VErsa as AXIS too wanna hide the same.

sunil hemnani
Replied to SANJAY PRABHU comment 1 decade ago
DEAR SANJAY,Thank you very much for you insightful information on AXIS BANK.It would come as no suprise that this is the way many companies are run .That is the beauty of this magazine "MONEYLIFE".You have a chance to express yourself ,do send the above to the EDITOR and her team. I have am not really suprised by the things that happen time &again .It seems our leaders have become an inspiration for the public for many things that cant happen anywhere else in the world.
Replied to sunil hemnani comment 1 decade ago
Thank you Sir Hemnani,

Its a sorry state of affairs at Axis Banks top management and at the Branches too and the junior employees are ashamed of the act and lost the faith and trust on the senior functionaries. Employees resignations are increasing day by day, and the bank is creating a problem for relieving them, as getting the trained bankers is very difficult in the present situation and on the other side our regulatory authority RBI wants to give more licenses ( like Telecom Raja ) for private players in order to create more mess in the Indian financial system.

And as you have rightly said the MONEYLIFE is the only eye opener available among the media and we thank Madam Suchita Dalal & Sir Debashish Basu for creating this wonderful investors awareness platform to fight against corruption and misuse of power. God bless them with a Long life in order to guide our nation with sincerity and honesty.

Sanjay Prabhu – Pune
1 decade ago
very informative article. Depth is very good. Congratulation
1 decade ago
Very good article. What has been written is so true. But I would like to know according to you, should Axis shareholders exit ? Will this affect Axis bottom line ?
Raghavaiah K
Replied to Prakash comment 1 decade ago
Make Hay while Sun Shines, book the profit and move to some other safe investment.
Replied to Prakash comment 1 decade ago
i think atleast for time being you can short axis bank .... i think minority shareholders would object this deal ... u buying company almost at 40 pe
Dara J Kalyaniwala
Replied to aa comment 1 decade ago
Dear Mr/ Ms have you arrived at a PE of 40 for the deal? Mr Bhansali had yesterday informed that ENAM's PBT for period till Oct 20, 2010 was Rs 77 cr. If this is PBT for six months and 20 days, we can safely asssume annualised PBT to be Rs 150 cr.Assuming that ENAM pays Tax @30% its PAT for 2010-11 can be Rs 105 cr. Thus for a Valuation of Rs 2064 cr, the PE comes to 19.66. This for a SUPERB Company; is a "steal" for Axis shareholders. Do you know that Edelweiss has a PE of 109 times and Motilal Oswal has a PE of 61? And neither Edelweiss nor Motilal is as profitable or as reputed as ENAM. Edelweiss and Motilal reported PBT of Rs 42.33 cr and Rs 57.31 cr for 2009-10 as against ENAM's PBT of Rs 92 for the same period. Do you still think ENAM was costly for Axis at Rs 2064 cr. Its very modestly priced and not at all expensive. Whether ENAM employees will stay is a different matter and no one can comment with authority on that. Broking and IB business sees a lot of churning of people. Mr Bhansali is on record to say that people dont generally leave ENAM and if as a Subsidiary of Axis, ENAM manages to retain its talent, then it could well be the greatest deal for Axis also.
Vikram Singh
1 decade ago
great insightful article, like so many mergers in knowledge driven business, the value of company is dependent on intellectual capability of their core employees. These employess typically leave the firm after get their retention bonus (typically after 1 year.
1 decade ago
Really well written article . i wont even be surprised if Mr Vallabhai son starts another broking and investment banking firm with 2100 crore and top notch clients of enam and loyal employees would move with him ...poor axis bank then would be left with only couple good for nothing enam employees .... surely so called formiddable four of dalal street made good move... all the best for their future ventures
Replied to AA comment 1 decade ago
Dear AA i agree with you Axis only rushed to have an broking arm like other"mostly" commercial Private banks were having ,now the thing is weither the existing buisness enam will be the only reward for them or they will expand themseleves & if they then another huge amount of money is reuired coz as far as a have read or heard that 400 employees of enam r shifting to axis r they enough ??? .....liablitie n more liablities GOD SAVE AXIS.....
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