It is one of India's leading investment Bankers and Institutional Brokers with over two decades of expertise in its research and investment strategies. The company once quoted a market capitalization in excess of Rs 900 crore and now available at just 60 crore.
Dear Investors,
During 2008-09 Financial Institutions and Investment Banking firms stock prices were battered across the world, because the leading US Investment Banking firms were at the helm of the financial turmoil.
The Indian Institutions too found themselves facing the wrath of the investors. The primary and secondary market both saw a dearth of Private placements, PE deals, fund raising and IPOs. However, the situation is a lot changed now. Consider for fact that the total value of private equity transactions and qualified institutional placement (QIP) deals amounted to $1.24 billion in January 2010, against $309 million in the year ago period, registering an over four-fold jump.
Similarly funds raised by the Indian corporate sector via ADRs/ GDRs has jumped over 33 times from around US$ 101.72 million in 2008 to about US$ 3.50 billion in 2009.
The above figures clearly suggest the scope India provides for Financial Advisory, Investment Banking, Wealth Management and Brokerage Services and the situation is only going to improve further with India registering 7.5-8% GDP growth, Corporate going for further fund raising to fuel the growth.
v PINC is into Investment Banking and Financial Advisory services and registered more than 181% growth YoY from 2004-08. FY 2008-09 was an aberration and the company is back to registering phenomenal performance during FY 2009-10 with 36% CAGR QoQ.
v The investors are most definitely oblivion to the performance of the company. A scale back to previous highs alone can make it a 17-18 bagger, and it is quite possible considering the way the company has been performing off-late.
Overview – Pioneer Investcorp Ltd
Þ Pioneer Investcorp (PINC) is one of India's leading investment Bankers and Institutional Brokers with over two decades of expertise in its research and investment strategies.
Þ Pincmoney has presence in all major locations across India. The pinc team has over 100 investment managers, a dedicated Research Desk for Equity, Debt Fund Analysis, F&O and Technical analysts.
Þ Pioneer Investcorp shortened to PINC presents a consumer forward brand name that is easy to recall and distinguishes them from others in a market devoid of similar new age names.
Þ Pioneer Investcorp Limited (PINC) is an integrated financial services company listed on the BSE. They have developed their share of corporate and institutional clientele, as well as a name in Investment banking and securities trading. The various verticals in PINC Group are as follows:
v Investment Banking
v Wealth Management
v Investment Advisory
v Asset Management
v Insurance Advisory and Intermediation
v 52 week's high/low = Rs 73.90/20.70 – The stock's been badly battered and plunged to 20 odd levels.
v Peak share price = Rs 926 (Jan '08) – At the peak of economic boom it was trading at a PE multiple of 22-24 times, while at present it is trading at a multiple of just 4.5-5. It definitely deserves a re-rating to previous levels.
v Book Value = Rs 55.
v Trading volume = Min 0.13 lakh shares (approx) per day – The stock is low on liquidity as the investors are obviously oblivion to the performance of the company.
v Shareholdings : No Of shares [% Share Holding ]
v Total Foreign 0.06 Cr [4.90%]
v Total Non Promoter Corporate Holding 0.31 crore [26.19%]
v Total Promoters 0.62 crore [51.36%]
v Total Public & others 0.6 crore [48.64 %]
v Total Outstanding Shares 1.22 crore [100 %]
o Pan- India presence
The company has its presence across the length and breadth of India with its offices in all the major cities including Ambala, Gurgaon, Karnal, Panipat, Lucknow, Kanpur, Dehradun, Kolkata, Durgapur, Chennai, Coimbatore, Puducherry, Trichy, Vellore, Madurai, Bangalore, Hubli, Mysore, Mangalore, Shimoga, Hyderabad, Vijayawada, Guntur, Vizag, Mumbai, Vashi, Baroda, Surat, Navsari, Jaipur, Jodhpur, Dhanbad, Ranchi, Jamshedpur, Bhopal, Indore, Jabalpur, Gwalior.
o Financial Services in India
In last few years, India has emerged as one of the fastest growing economies in the world with Financial Services remaining at the forefront to the overall contribution to the growth.
§ Indian economy is growing at 8-9% GDP growth rate lead by strong inflow from FII & FDI.
§ India has managed to perform far better than other nations during the ongoing global recession.
§ India received US$ 45 billion in foreign currency remittances from non-resident Indians in 2008, the highest in the world.
§ As per the Securities and Exchange Board of India (SEBI), number of registered FIIs as on January 29, 2010 was 1697 and the cumulative investments in equity since November 1992 to January 29, 2010, were US$ 72.51 billion.
§ The average assets under management of the mutual fund industry stood at US$ 173.16 billion for the month of December 2009, an increase of nearly 88 per cent from US$ 91.79 billion in December 2008, according to the data released by Association of Mutual Funds in India (AMFI).
§ Funds raised by the Indian corporate sector via ADRs/ GDRs has jumped over 33 times from around US$ 101.72 million in 2008 to about US$ 3.50 billion in 2009.
The above figures clearly suggest the scope the India provides for Financial Advisory, Investment Banking, Wealth Management and Brokerage Services.
o PE deals in India
· The total value of private equity transactions and qualified institutional placement (QIP) deals amounted to $1.24 billion in January 2010, against $309 million in the year ago period, registering an over four-fold jump.
· In January this year 29 PE and QIP transactions were posted, against 16 deals registered in same period in 2009.
o Insurance
§ India is the fifth largest life insurance market in the emerging insurance economies globally and the segment is growing at a healthy 32-34 per cent annually.
§ According to a report by research firm RNCOS—'Booming Insurance Market in India (2008-2011)'—the total life insurance premium in India is projected to grow to US$ 259.72 billion by 2010-11.
o Qualified Institutional Placements (QIPs)
§ In 2009, Indian companies had raised close to US$ 7.18 billion by way of 45 QIP issuances.
o Initial Public Offers (IPOs)
§ In 2009, there were 21 IPOs that raised US$ 4.25 billion as compared to 36 IPOs in 2008 that raised US$ 3.68 billion.
o Pioneer Investcorp Ltd – Grossly undervalued in comparison to Industry standards!!!
§ The company commands one of the highest margins in the industry.
§ As one can observe the NPM for quarter ending Sep'09 stands at 34.52%, far ahead of all its peers.
§ The company has been sustaining the same level of margins for the last many years.
§ The company commands one of the lowest PE multiples of 5, while the industry standard for such companies is 19-20.
§ PINC too has commanded PE multiples in excess of 20 in the past.
o Expanding it's reach
§ PINC a leading Investment Banker and Institutional Broking house has seen tremendous growth over the past few years where in the top line has grown 181% YOY from 2004-2008.
§ Being a well-established name amongst the Investment Banking and Institutional broking fraternity it was a strategic move from management to venture into wealth management (Retail and HNWI) and become a full-fledged financial services group.
§ In the year 2008-09, PINC group established PINC Money, the wealth management brand of PINC.
§ Over the past several months, despite the economy slowdown, PINC Money has managed to start 15 buoyant branches. Moving ahead , PINC Money plans to scale up to 500 branches across different cities.
o 900 to Sub 50-60 levels – Why did it happen?
§ PINC registered phenomenal growth from 2004 to 2008 growing at more than 181% YOY. The company increased its turnover from Rs 1.58 crore in FY 2004-05 to Rs 90 crore (Consolidated) in FY 2007-08 while its net profit zoomed from Rs 0.35 crore to Rs 45 crore for the same period. At Rs 900 during Jan'08 the company was quoting at a PE multiple of 22-25, i.e. in line with the Industry standards and also commensurate with its own performance.
§ During 2008-09 the number of Private placements, ADR/GDR placements, PE deals shrunk greatly, thus affecting company's turnover and also since the company had high fixed expenses in the form of salary, the company reported a net loss. The market reacted sharply, thus eroding all the gains and the stock price plunged to Rs 20.
§ The company has since then pruned its cost, paid off large chunk of debt. It is into rapid expansion mode, and also with market sentiment improving, its Investment Banking activity is again on a roll. The investors are oblivion to the performance being registered by the company, and the company is thus available at huge undervaluation. PINC should register both growth in numbers and also PE expansion, thus making it a multibagger. It can easily scale back to its previous highs, considering the way the company has been performing off late.
The Management
Gaurang Gandhi – Managing Director – He has over 25 years of experience across various aspects of financial services mainly investment banking, leasing, structured products and project finance. Mr. Gandhi holds a degree in commerce from the Mumbai University and is a professionally qualified accountant (Chartered Accountant) from the Institute of Chartered Accountants of India(ICAI).
Chaitan Maniar – Independent Director - Mr. Maniar holds a degree in Master of Arts, Bachelor of Commerce and Bachelor of Laws from the Mumbai University and he is a Solicitor and Advocate. He joined the well-known Law firm of Crawford Bailey & Co. in 1962 and qualified as a Solicitor in 1965.
Nalinkant Rathod – Independent Director – He is the President Director of PT Arutmin Indonesia and PT Kaltim Prima Coal, together the worlds largest thermal coal minerals exporters. He is also the commissioner of PT Bumi Resources TBK, a US $ 9.00 Billion Mineral Export Company. He is also currently the Managing Director of Capital Managers Asia Pte Ltd. (CMA), a restructuring firm operating in Asia.
Chandravadan Dalal – Independent Director – He is the Non-Executive Independent Director of the Company for more than decade. Mr. Dalal holds a degree in commerce from the Mumbai University and is a professionally qualified accountant (CA) from the Institute of Chartered Accountants of India (ICAI). After obtaining his charter for the ICAI he started his own practice in the name of M/s. C. C. Dalal & Co. He has over 50 years of professional experience in the field of Accounts and Taxation.
Anand Desai – Independent Director -. Anand has been a career Investment Banker having worked with M/s. J. M. Financial & Kotak Mahindra. He started key initiatives for the Kotak group being the first Head of the Investment Bank in India and thereafter as the first CEO and Area Director for Kotak Mahindra International, Middle East. He then moved to the Media and Entertainment sector with Sony Entertainment Television as Head of Corporate Development.
Shareholding Pattern:-
§ Promoters held 45 lakh shares (54%) out of a total of 83 lakh shares at the end of Sep'06. At the end of Jun;08 the promoters held 58 lakh (50.5%) shares out of a total of 1.16 crore shares. At the end of Dec'08 62 lakh shares (52%) out of 1.2 crore shares. At the end of Dec'09, they hold 51.3% stake. So, the promoters have been regularly converting warrants and have maintained their hold above 50%.
§ Promoters holding fell below 50% during Dec'07 on account of allotment of shares to other strategic investors. However, since then Mr. Gaurang Gandhi has increased his holding from 45 lakh shares to 61 lakh shares by regularly converting warrants into equity shares.
§ During the quarter ended December 31, 2008 the Company allotted 85,000 Equity Shares to Mr. Gaurang Gandhi, on conversion of equivalent number of warrants issued on Preferential basis at a Exercise Price of Rs 115/- per Equity share, signifying the confidence of the management undervalued.
Investment Rationale:-
· At the peak of economic boom it was trading at a PE multiple of 22-24 times [Peak share price = Rs 926 (Jan'08)], while at present it is trading at a multiple of just 4.5-5. It definitely deserves a re-rating to previous levels.
· The management held 45 lacs shares (54%) out of a total of 83 lacs shares at the end of Sep'06. At the end of Jun;08 the promoters held 58 lacs (50.5%) shares out of a total of 1.16 crore shares. At the end of Dec'08 62 lacs shares (52%) out of 1.2 crore shares. 51.3% stake at the end of Dec'09. So, the promoters have been regularly converting warrants and have maintained their hold above 50%.
· The Promoters of the company have at all times maintained their holding above 50%, which really proves their interest and confidence in the company. The Promoters have even converted warrants at prices as high as Rs 115.
· The Enterprise Value of the company is negative at Rs 60 crore market capitalization, more than 30 crore in cash, and around 50 crore in current assets (very liquid in this case).
· Price to Book value ratio is less than 1, while it is mostly in the range of 3-4 for leading Financial Consultancy firms. The company commands one of the lowest PE multiples of 5, while the industry standard for such companies is 19-20.
· The Company paid off a large chunk of its debt bringing it down to Rs 16 crore from Rs 54 crore, thus de-leveraging its balance sheet.
2 Phase Buying Strategies Suggested [Always buy in SIP ways]
ü 1st Phase : Buy at the current price range Rs 60-63 [60% of your planned investment]
ü 2nd Phase : Add if the price falls down to Rs 45- 46 [40% of your planned investment]
>>Expect at least 12-15 times return in next 3-4 years from now!!!
Risks & Concerns…
Risks:-
o There's an ever-increasing competition in the Financial Consultancy and Investment Banking space, considering the massive opportunities it provides.
o If there happens a double dip recession, then the Financial Services firm will be the first one to suffer at the hands of the recession.
Concerns:-
o The strong performance in the past is not a bullish sign and doesn't indicate the same or better performance in the future. Each year is different from the previous one!
o Do not let my bias win over your common sense! Always do your Homework and do not forget to do a research before you invest your money!
o As and when there is a change in the Government, there might be a change in its policies too. Any adverse changes in its policies may affect the business operations of the company.
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