The Hindu Business Line : Emkay Share and Stock Brokers: Avoid

The valuations are expensive compared to some of the other listed players such as Geojit and IL&FS Investmart, which trade at 17-18 times the annualised FY-06 earnings respectively.

Investment argument

In our view, Emkay should quote at a discount to these stocks, as it is a much smaller player and has a presence in a concentrated market.

Not having a presence in online trading, the fastest growing segment in the broking business, is also a major disadvantage for the company. Moreover, disclosures in the offer document are not comprehensive with such vital numbers as revenue growth in equity and derivatives broking business, assets under management and number of clients registered for Portfolio Management Schemes (PMS), not finding mention, . there are, we feel, better stocks in the secondary market to play the boom in the securities broking business.

We also see more opportunities for quality stocks in the financial services industry. With the equity market booming, the earnings growth for Emkay may continue. However, there could be more rewarding plays in the sector. Emkay is a very small player with a turnover of Rs 22 crore and a profit of Rs 6.6 crore (for FY 05).

At the lower end of the price band, it commands a value of Rs 247 crore. In comparison, Geojit is double the size and commands a value of Rs 304 crore.

Competition pressures

Being small, Emkay could be susceptible to competitive pressures. With big players such as Kotak, Karvy and a number of banking subsidiaries having a pan-Indian presence cornering a larger share of the market, a concentrated presence may be a disadvantage. Emkay is predominantly present in Maharashtra and Tamil Nadu.

It plans to expand further in these two States, besides setting up a few offices in other States as well.

Rise of online trading

Online trading is the biggest growth driver in the securities broking business.

This segment is expected to grow exponentially in the next few years. Most big brokerage houses already offer online trading.

Emkay intends starting web trading but has no concrete plans as yet. Even if it does eventually, being a latecomer, it may find it difficult to garner market share from established peers such as Kotak and ICICI, to name two.

The pure convenience of having linked accounts or access to quality research calls could attract investors to these firms.

Issue details: Emkay plans to raise Rs 62.5-75 crore to fund its branch expansion, enter commodity trading and share financing business and for working-capital requirements. Centrum Capital is the lead manager to the issue, which closes on April 7.

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