The Hindu Business Line : SBI Caps to enter retail broking with Rs 50-cr investment

SBI Capital Markets is planning to enter retail broking within the next three months by setting up a separate subsidiary. The merchant banker will make an initial investment of Rs 50 crore for retail broking, according to Mr Indrajit Gupta, Managing Director and CEO. Excerpts from an interview:

What services will you offer as part of retail broking?

We will sell debt and equity instruments. We are doing it in 10 branches and want to ramp it up substantially. We plan to build 50 brick-and-mortar branches for retail services. It is actually the downstream side of capital markets, which we are already working for.

We are planning to enter retail broking in a big way, as we believe that retail investors should have an opportunity to participate in the economic growth.

The retail portions of most IPOs have been oversubscribed, which proves that retail response is very good. In three years we hope that the subsidiary will earn revenues of over Rs 100 crore.

How does the current scenario look for merchant banks?

The scene is looking very good as the economy is rising. SBI Caps made a profit after tax of Rs 88 crore in 2004-05. In 2005-06, we hope to see it rise above Rs 125 crore.

We see our income from both consultancy and projects rising. In projects, we have 96 mandates on hand. These are from diverse sectors such as power, telecom, hospitality, roads, and ports.

In public issue, we have recently completed the public issues of IL&FS Investsmart Ltd, Syndicate Bank, and IDFC. We are working on another 12 mandates for public issues, including that of Bank of Baroda.

How large is the public offering line-up this year?

This year the size of public offering is likely to be between Rs 20,000 crore and Rs 30,000 crore. There could be about 100 issues hitting the market this year.

Last year we saw a lot of medium-scale and small-scale companies trying to reach out to the IPO market. A lot of young entrepreneurs accessed the equity market. This trend is likely to be repeated this year as well. The sectors that are likely to see public issues are wind power, petroleum, banking, and Government divestment. In the next three months itself, issues around worth Rs 6,000 crore are likely to hit the market.

How strong is SBI Caps in M&As? Which sectors are likely to see mergers and acquisitions this fiscal?

We have done deals such as VSNL, Sterlite, PNB-IFC and SBI Mutual Fund, but foreign banks and firms have stolen a march over us in mergers and acquisitions.

They have an advantage over us, especially in cross-border transactions. But we have plans to increase our presence in this area.

This year, some 25-30 M&A deals are likely in sectors such as auto, steel and pharmaceuticals. Banking may not see any deal such deal this year.

Can you give a break-up of the equity-debt transactions of SBI Caps in the first quarter of 2005-06?

In the first quarter we raised Rs 3,326.5 crore through four issues and Rs 880.74 crore through two equity issues.

The debt issues were Indian Oil, Food Corporation, Power Finance, and REC, and the equity issues were Allahabad Bank and Provogue (India).

Which new area of services are you looking to enter?

We have already started building up a team for strategy advisory division. This will include advising companies about diversifying into allied business, offering advice about value-addition and optimising their revenues. This requires knowledge about industry, finance, and world markets, which we have.

What plans do you have to increase your exposure to FIIs and foreign joint ventures?

In the last three months alone we registered with almost 50 FIIs. But for risk management we need a larger base. In the next six months to one year, we hope to cross 100. That should take care of the drawback we have in this area.

Regarding foreign joint ventures, we have upgraded our representative office in UK into a separate company.

In February this year, we tied-up with Industrial Development Leasing Corporation in Bangladesh. We are already working on five to six mandates. In Sri Lanka, we have tied-up with Merchant Bank of Sri Lanka, which is a subsidiary of Bank of Ceylon.

We are also looking for joint ventures in Singapore and Hong Kong and are working with Bank of Muscat, which is likely to fructify by June 2006.

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SBI Caps to enter retail broking with Rs 50-cr investment