Microsec’s IPO does not appear attractive
Moneylife Digital Team 16 September 2010

The company does not have a pan-India presence; it faces well-entrenched competitors and it operates a business fraught with risk 

Kolkata-based financial service provider Microsec Financial Services Ltd (MFSL) is entering the primary market through a 100% book-building issue. The IPO opens on 17th September and closes on 21st September.

The price band is at Rs113-Rs118 per share. The company is expecting to mop up Rs141.25 crore at the lower end and Rs147.50 crore at the upper end of the price band. A total of 1.25 crore shares will be issued.

Qualified Institutional Buyers (QIBs) will be allocated 62.50 lakh shares, out of which 5% (3.12 lakh shares) will be allocated to mutual funds. Retail investors will be allotted 43.75 lakh shares. Rating agency CRISIL has assigned an 'IPO Grade 2' to the issue, which indicates 'Below Average Fundamentals'.

MFSL's business primarily comprises granting loans against shares. That makes the company extremely vulnerable to fluctuations in the markets.

The company has a total of 239 branches across 16 states, and 178 of them are situated in West Bengal. It operates in a fiercely competitive broking and investment banking environment.

MFSL plans to use the proceeds of the IPO to expand its financing business (where it will invest Rs113 crore); expand the domestic operations of its subsidiary Microsec Capital Limited by adding 30 new branches (proposed investment Rs8 crore), and will augment the subsidiary's existing technological capacity (Rs7.5 crore).

As on 30th June, 2010, it had around 26,000 clients in its broking business.
MFSL posted a net profit of Rs24.45 crore for the year ended March 2010 on a total income of Rs58.47 crore. Revenues from equity broking and related services for the years ended 31 March 2009 and 2010 were Rs15.62 crore and Rs19.47 crore respectively.  

Its EPS (earnings per share) for the past fiscal year was Rs12.58. Based on the post-issue equity and EPS of FY10 its PE works out to 14.7 at the lower end of the price band and 15.40 at the upper end of the price band. MFSL's listed peers like Motilal Oswal Financial Services, Indiabulls Financial Services, Emkay Global Financial Services, India Infoline, and Edelweiss Capital are trading at PE of 14.2, 12.3, 10.8, 15.0 and 15.3, respectively.

SBI Capital Markets Ltd is the sole book-running manager while Link Intime India Private Ltd is the registrar to the issue.

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