The Hindu Business Line : Not much premium on IL&FS Investsmart deal

Though it is the latest in a series of buyouts in the domestic broking space, the open offer by the HSBC group for IL&FS Investsmart, a company focused on equity broking and wealth management services, may not provide any material upside to the stocks of other listed broking firms.

Significant premium

The open offer price (at which the acquisition has been made) of Rs 200 values the broking company at 1.9 times its book value and about 25 times its earnings per share for 2007-08.

This is not at any significant premium to valuations already enjoyed by the broking/financial services stocks, after the meltdown over the past six months.

Stocks of companies such as Edelweiss, Religare Enterprises and India Infoline trade at PE multiples of between 26-29 times their 2007-08 earnings.

Moderate value

Valuations apart, the acquisition of a 73.21 per cent equity stake by the HSBC group is a long-term positive for IL&FS Investsmart, from a business perspective.

The stake sale to HSBC removes any lingering uncertainty about when and how E*Trade may choose to offload its sizeable stake in the domestic brokerage outfit.

Given that it is a leading global bank, which is seeking to expand its India presence, HSBC’s proposed acquisition of a substantial 73.21 per cent equity stake, also provides substantial comfort about the business prospects for IL&FS Investsmart.

Given the open offer price of Rs 200, there may, however, be limited near-term upside for the IL&FS Investsmart stock, linked to the offer.

Shareholding pattern

And since the open offer is for a 20 per cent stake, out of the residual public shareholding of about 27 per cent, a portion of the shares tendered to the offer may not be accepted.

The present shareholding pattern suggests that only about 7 out of 10 shares tendered to the offer may be accepted.

This factor, too may cap significant upside to the stock from current levels of about Rs 190.

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