ICICI DIRECT SAYS TRANSWARRANTY FINANCE IS FAIRLY PRICED
Transwarranty Finance LtdIssue detailBid/Issue opens: Jan 23, 2007Bid/Issue closes: Feb 02, 2007Price Band: Rs 48-55 per equity share of Rs 10 eachMinimum application: 120 shares and in multiples of 120 shares thereofMaximum Retail Bid Amount: Rs 100,000Capital StructureAuthorised Capital: 150,000,000 equity shares of Rs 10 eachIssued Capital before IPO: 80,000,000 equity shares of Rs 10 eachIssued Capital after the IPO: 140,000,000 equity shares of Rs 10 eachBackgroundTranswarranty Finance is a non-banking financial services company(NBFC) established in 1994. It is engaged in investment banking,project financing, trade finance, corporate finance and retail finance.It provides structured finance products for designing complex andinnovative financial models and execution for leading companies inIndia including companies belonging to the Godrej, Tata, Mahindragroups and a large number of mid-cap and large-cap companies from awide cross section of industries. The company's promoter, Kumar Nairhas over two decades of wide experience in the financial sector and waslast positioned as Vice President of Kotak Mahindra Finance Ltd. From2005-06, it has got four subsidiaries.Objectives of the IssueExpansion of office premises for increasing the scale of operations.Strategic investments or acquisitions of companies in related businessincluding banking.Investments in subsidiaries, technology upgradation.Geographic expansion through opening of regional offices and overseasbranches.To meet issue expenses.Key Investment RationaleDiversified financial services portfolioThe company's current business is to provide corporate advisoryservices, foreign exchange advisory, financial services BPO to CitiFinancial Consumer Finance India Ltd, investment banking and wealthmanagement services to corporates, retail and institutional clients.Though investment banking was started from 2005-06 only, it has gainedhuge business and revenue of Rs 2.57 crore that formed nearly 48% ofits FY06 revenue. For trade and corporate finances, the companydoesn't do direct funding but uses its relationships with other banksand institutions to tie-up working capital facilities for theirclients. Hence, the company's model is not funding-based butfee-based and risks of non-performing assets (NPA) are non-existent.Trade finance and corporate finance together form 41% of total revenuesfor FY06. Transwarranty has completely exited the traditionalhire-purchase and funding business.Expanding scope, capacity of financial services BPO businessThe BPO business dedicated for marketing of consumer finance productson behalf of Citi has consolidated its operations by increasing seatcapacity. Encouraged by the success, the NBFC have embarked on abusiness strategy to elevate this business into the big league as afull-fledged BPO business. Its revenue of Rs 3.31 crore formed 10.8% oftotal H1FY07 revenue, rising from Rs 4.82 crore forming 9.1% of revenuein FY06. Expansion in seat capacity and high-credit growth in thesystem is expected to help the BPO to flourish.IPOMONITOR.NET Say's Transwarranty Finance is Good IssueGODREJ, TATA CO'S & MAHINDRA GROUP ARE COMPANY'S CLIENTSTRANSWARRANTY FINANCE LIMITEDEquity Shares offered: 6,000,000 Equity Shares of Rs. 10/- eachOut of which:Employee Reservation Portion (1) 100,000 Equity Shares of Rs. 10/-each.Net Issue to the Public: 5,900,000 Equity Shares of Rs. 10/- eachLower Price Band: Rs.48Upper Price Band: Rs. 55Bid/Issue ProgrammeBID/ISSUE OPENS ON JANUARY 23, 2007BID/ISSUE CLOSES ON FEBRUARY 2, 2007Company was established as a financial services and investment bankingcompany in the year 1994 by Mr. Kumar Nair. Mr. Kumar Nair has 21 yearsof experience in the financial sector. Mr. Kumar Nair, a CharteredAccountant by profession was part of Capital Markets team in KotakMahindra Finance Limited. Company is a Reserve Bank of India registeredNon Banking Financial Services Company (NBFC) with active business intrade finance, corporate finance and investment banking activities.Company provides corporate finance, trade finance, foreign exchangeadvisory and other corporate advisory to its institutional andcorporate clients and BPO activities to Citi Financial Consumer FinanceIndia Limited. Company's current business is to provide corporateadvisory services, foreign exchange advisory and investment bankingtocorporates, retail and institutional clients. Company is also runninga 50 seat financial services BPO for the Citi Financial ConsumerFinance India Limited for sourcing of personal loans for them. Companydesigns structured finance products by using innovative financialmodels and structures and execute the same for leading companies inIndia including companies belonging to the Godrej, Tata, Mahindra groupand a large number of mid cap and large cap companies from a wide crosssection of industries. Company derives its revenues from major sourcesnamely, corporate finance, investment banking & advisory services andtrade finance.Company plans to utilize Rs.96.40 million raised through this Issue toinvest in developing its businesses through its subsidiaries, viz.Equity Broking and Merchant Banking through Transwarranty CapitalPrivate Limited.AGREEMENT WITH CITI FINANCIAL CONSUMER FINANCE INDIA LTD. FOR 3 YEARSCompany has earned an income of Rs.4.82 million, which constitutes 9%of the total income for the financial year 2006 on account of BPOactivities carried out by Company for Citi Financial Consumer FinanceIndia Limited. Company has entered into an agreement with CitiFinancial Consumer Finance India Limited for a period of 3 yearsrenewable with mutual consent.INVESTMENT BANKING IS THE CORE BUSINESSA significant portion of company's total revenues for the FY 2006 andhalf year ended September 30, 2006, are derived from the investmentbanking services offered by us. During the FY 2006 and half year endedSeptember 30, 2006, revenues from investment banking servicescontributed 48.7%. (Rs. 25.72 million) and 48.2% (Rs. 14.81 million) ofthe total revenue derived during that period.GROWTH IN REVENUES OVER 57% IN LAST 3 YEARSCompany's revenues have grown by over 57% (CAGR) over the last threeyears. This growth has placed, and the future growth it anticipates inits operations will continue to place, a significant strain on ourmanagerial, operational, financial and information systems resources.EXPERIENCED PROMOTERPromoter and Managing Director, Mr. Kumar Nair has 21 years ofexperience in the financial services and capital market sector. He is aChartered Accountant by profession and was with Kotak Mahindra FinanceLimited for 9 years. He was last positioned as Vice President of KotakMahindra Finance Limited. He is acting as the Managing Director of ourCompany from 1994.COMPREHENSIVE FINANCIAL SERVICE PROVIDERCompany along with is subsidiaries is an integrated financial servicesprovider, providing customised financial services such as retail &institutional broking of equity, merchant banking activities,commodities broking, debt broking and derivative products, forexoperations, distribution of mutual funds and IPOs, advisory services,trade finance, corporate finance, and project finance.GODREJ, TATA, MAHINDRA GROUP ETC. ARE COMPANY'S CLIENTSCompany designs complex and innovative financial models and structuresand executing the same for leading companies in India includingcompanies belonging to the Godrej, Tata, Mahindra group and a largenumber of mid cap and large cap companies from a wide cross section ofindustries.THE ISSUEEquity Shares offered: 6,000,000 Equity Shares of Rs. 10/- eachOut of which:Employee Reservation Portion (1) 100,000 Equity Shares of Rs. 10/-each.Net Issue to the Public: 5,900,000 Equity Shares of Rs. 10/- eachQualified Institutional Buyers (QIBs) Portion (2)(Allocation on a proportionate basis)Out of whicha) Reservation for Mutual Fundsb) Balance for all QIBs including Mutual FundsNon Institutional Portion (3)(Allocation on a proportionate Basis)Retail Portion (3)(Allocation on a proportionate basis)2,950,000 Equity Shares of Rs. 10/- eachconstituting at least 50% of the Net Issue147,500 Equity Shares of Rs. 10/- eachconstituting reservation up to 5% of the QIBportion2,802,500 Equity Shares of Rs. 10/- eachconstituting balance of the QIB portion885,000 Equity Shares of Rs. 10/- eachconstituting up to 15% of the Issue2,065,000 Equity Shares of Rs. 10/- eachconstituting up to 35% of the IssueEquity Shares outstanding prior to the Issue 8,000,000 Equity Shares ofRs. 10/- eachEquity Shares outstanding after the Issue 14,000,000 Equity shares ofRs. 10/- eachOBJECTS OF THE ISSUEThe Objects of the present issue of Equity Share are:1. Expansion of office premises for increasing the scale of operations;2. Making strategic investments or acquisitions of companies engaged inthe business of financial services and/ or banking;3. Geographic expansion through opening of regional offices andoverseas branches;4. Investments in subsidiaries for expansion of their respectivebusinesses; and5. To meet issue expenses.As a result of this Issue, the Company also expects to provideliquidity to its existing shareholders.The main objects clause of the Memorandum of Association of the Companyenables the Company to undertake the existing activities and theactivities for which the funds are being raised through the presentissue.COST OF PROJECT AND MEANS OF FINANCEA. Cost of Project:1. Expansion of office premises for increasing the scale of operations50.002. Strategic investments or acquisition of companies engaged in thebusiness of financial services and banking100.003. Geographic expansion through opening of regional offices andOverseas Branches32.604. Investment in Subsidiaries:(a) Transwarranty Capital Pvt. Ltd- Technology up-gradation 15.65- Working capital 56.00 71.65(b) Transwarranty Forex & Commodities Pvt. Ltd.- Acquisition and activation of NCDEX membership 4.00- Merger of the foreign exchange broking firm - Trans Warranty Forex& Derivatives Company3.00 7.00(c) Transwarranty Credit Care Pvt. Ltd.- Activation of Private Equity/Venture Fund registration with SEBI.2.00 2.00(d) Transwarranty Forex & Commodities DMCC - UAE- Acquisition and activation of membership in the Dubai Gold &Commodities Exchange15.75 15.755. IPO Expenses [·]Total [·]B. Means of Finance:1. Public Issue [·]2. Internal Accruals [·]Total [·]20DETAILED BREAK UP OF PROJECT COST1. Expansion of office premises for increasing the scale of operations2. Strategic investments or acquisitions of companies in relatedbusiness including banking3. Geographic expansion through opening of Regional Offices andOverseas Branches4. Investments in SubsidiariesMEANS OF FINANCEThe objects of the issue are proposed to be funded by equity by way ofthe proposed public issue as under:The excess proceeds, if any, from the present Issue would go towardsgeneral corporate purposes of our company.Bid/Issue ProgrammeBID/ISSUE OPENS ON JANUARY 23, 2007BID/ISSUE CLOSES ON FEBRUARY 2, 2007BASIS FOR ISSUE PRICEQuantitative Factors:1. Adjusted Earnings Per Share (EPS)EPS for the half-year ended September 30, 2006 is Rs. 2.022. Price/Earning (P/E) Ratio in relation to Issue Price of Rs. [·]per share:a. Based on year ended March 31, 2006 EPS of Rs. 3.10: [·]b. P/E for Finance and Investments Sector(Source: Capital Market Vol. XXI/17, Oct. 23 - Nov. 05, 2006; Segment:Finance and Investments Sector)3. Weighted Average Return On Net Worth (RoNW):Return on Net Worth for the half-year ended September 30, 2006 is13.47%4. Minimum RONW required on increased Net Worth to maintain pre issueEPS (%): [·]5. Net Asset Value (NAV) per Equity share:Year ended EPS (Rs.) Weight usedMarch 31, 2004 1.17 1March 31, 2005 2.95 2March 31, 2006 3.10 3Weighted Average 2.73Year ended RoNW (%) Weight UsedMarch 31, 2004 6.90 1March 31, 2005 15.53 2March 31, 2006 23.86 3'Weighted Average 18.26Net Asset Value (NAV) per Equity share Rs.As on March 31, 2006 12.99After the issue based on March 31, 2006 results [·]As on September 30, 2006 15.01After the issue based on September 30, 2006 results [·]Highest 95.8Average 18.2Lowest 1.06. Comparison with Industry Peerset1 B.V., EPS and RONW for our Company is as per the restated auditedstatements by M/s. Haridas Associates, Chartered Accountants. Fordetails, please refer to the section titled 'Financial Statements' onpage no. 70 of this Red Herring Prospectus ² Information for the peergroup has been taken from Capital Market Vol. XXI/17, Oct. 23 - Nov.05, 2006; Segment: Finance and Investments Sector.7. The Issue Price is [·] times of the Face Value of Rs. 10/- perEquity ShareThe issue price will be determined on the basis of the demand from theinvestors in accordance with the SEBI Guidelines. The BRLM believesthat the Issue price of Rs. [·] is justified in view of the abovequalitative and quantitative parameters.Name of the Company B.V. (Rs.) EPS (Rs.) P/E RONW%Transwarranty Finance Limited¹ 12.99 3.10 [·] 23.86Peer Group²Centrum Capital 26.0 3.6 69.7 8.7India Infoline 37.2 5.4 24.8 23.9Indiabulls Fin. 60.9 4.3 89.8 11.1BUSINESS STRATEGYDifferentiate Company's servicesContinue to maintain a diversified service portfolio to cater most ofthe customer needs and demands:Maximize revenues through efficient use of technology, focusedmarketing and optimization of resourcesFurther strengthen the brand nameFocus on other metro/mini metro citiesLaunch of International operations and tapping international markets:International operations shall be launched from Dubai activating themembership awarded to the company in the DGCX. This shall be followedwith offices in London & Singapore to provide a window for the emergingcompanies in India to tap international capital and to assist foreignfunds as a facilitator to invest in India.COMPANY'S GROWTH DRIVERSØ Strong Brand Equity - A well-known name among the top Companies,Banks, Institutions etcØ Diversified portfolio of financial services provided to Corporateand Retail clientele.Ø Expected sustained credit off take growth by Corporate and Retailclients over the next 5-10 years.Ø The Indian economy provides several attractive growth opportunitieswith GDP forecasted to grow above 8% per annum over the next few years.Ø Huge demand for customized financial services among companies.Ø Development of key infrastructure sectors is a focus area forgovernment, which presents additional opportunities for companies likeus that are active in areas of infrastructure investmentsØ Geographic expansions to further create opportunities in brokingservices of Equities, Derivatives & Commodities.Ø Membership of all the major equity and commodity exchanges of thecountry.Ø Deployment of latest technological infrastructure to providescalability, reliability and delivery.Ø One stop shop for a wide range of financial products and services.TO HAVE 6 REGIONAL OFFICES & BRANCHES IN LONDON, SINGAPORE & DUBAICompany operates from its head office at Nariman Point, Mumbai. As apart of groups' business strategy it is decentralizing its activitiesto 6 regional offices in India and 3 overseas branches in London,Singapore and Dubai.SUBSIDIARIES TO PUSH GROWTHTranswarranty Capital Private Limited is a SEBI registered stockbroking company with membership in the National Stock Exchange (NSE) inboth the Capital Market and Derivatives (Futures & Options) segmentsand Bombay Stock Exchange (BSE) in the Cash Segments. The company isalso a SEBI registered full service Merchant Bank. Transwarranty Forex& Commodities Private Limited a member of the Multi Commodity Exchange(MCX) provides commodities broking services. The company has appliedfor membership in NCDEX. Transwarranty Credit Care Private Limited isin the form of proposed private equity/venture fund after obtainingnecessary registration from SEBI.International operations shall be launched from Dubai activating themembership awarded to it in the Dubai Gold and Commodities Exchange(DGCX). This shall be followed with offices in London and Singapore toprovide a window for the emerging companies in India to tapinternational capital and to assist foreign funds and companies as afacilitator to invest in India
