East India Securities BSE SME IPO review (May apply)

East India Securities Ltd. (EISL) is currently engaged in the business of Broking (Equity and Equity Derivatives, Currency and Commodity Derivatives). It is one of the largest Clearing Member for Equity Derivatives in NSE, and Currency Derivatives in NSE/MCX/USE in Eastern India. EISL also provide services as a Depository Participant (NSDL/CDSL); Distributor (Mutual Funds, Primary Issuer of Equity and Fixed Income Securities); and play an Advisory role in Corporate Financing and Risk Management. Company is  a member of the: Capital Market segment of NSE of India since 1995; Equity Derivates segment of NSE since 2000; Currency Derivates segment of NSE since 2008; Capital Market segment of BSE since 2005; Equity Derivatives segment of BSE since 2006. EISL enjoys distinction of executing the first ever Exchange Traded Index Option contract as well as Future Contract on individual stock futures and also have the distinction of executing the first Currency Future contracts and Currency Options contract on NSE at launch. Company also has the membership of NSDL since 1997, and CDSL since 2000 and has received permanent registration from SEBI as Participant of the NSDL and CDSL depositories in the year 2015. Its clients include Public/Private Banks, Insurance companies, Domestic Mutual Funds, AIFs and FPIs.

To explore visibility and brand as well as listing and liquidity, EISL is coming out with a maiden IPO of 1008000 equity shares of Rs. 10 each at a fixed price of Rs. 920 per share to mobilize Rs. 92.74 crore. Entire issue is secondary i.e. by way of offer for sale by the existing stakeholders. Issue opens for subscription on 05.03.18 and will close on 07.03.18. Minimum application is to be made for 160 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 27.49% of the post issue paid up capital of the company. Average cost of acquisition of shares by the promoters is Rs. 10 and Rs. 10.27 per share. Issue is solely lead managed by Finshore Management Services Ltd. and Cameo Corporate Services Ltd. is the registrar to the issue. Having issued initial equity at par, it raised further equity at a price of Rs. 30 per share. Post issue EISL’s paid up equity remains same at Rs. 3.68 cr. It is worthwhile to note that this is the biggest SME IPO so far in the history.

On performance front, EISL has posted revenue/net profits of Rs. 37.13 cr. / Rs. 15.88 cr. (FY14), Rs. 40.13 cr. / Rs. 14.98 cr. (FY15), Rs. 33.49 c.r / Rs. 15.86 cr. (FY16) and Rs. 44.50 cr. / Rs. 27.74 cr. (FY17). For first nine months of the current fiscal it has earned net profit of Rs. 28.27 cr. on revenue of Rs. 41.08 cr.  Jump in revenues and net profits for FY17 and 3Qs of FY18 a bit surprising. For last three fiscals it has posted an average EPS of Rs. 59.04 and an average RoNW of 8.74%. Issue is priced at a P/BV of 1.17 based on its NAV of Rs. 789.14 as on 31.12.17. If we annualize latest earnings and attribute it on post issue equity, then asking price is at a P/E of around 9 against its (as per offer documents)  listed peers trading at 41 (Geojit Financial), 11 (Abhinav Capital), 45 (Aditya Birla Money) as on 01.03.18. Thus issue appears reasonably priced.  However, other peers like Indo Thai, Bharat Bhushan are trading at a P/E of around 6 and 12.

On merchant banker’s front, this is the first mandate from its stable and has no track record.