The IPO is priced at Rs. 80 and this seems to be a decent value for a company the size of India Infoline which promises to grow rapidly on a smaller base and in a thriving market. The business is well diversified with the major chunk of the income coming from Equity Brokerage. The company operates in a growing industry and should be able to take advantage of the growing internet penetration along with a booming equity market. The promoters of the company have a strong background with one belonging to IIM Ahmedabad and the other belonging to IIT Kharagpur.

The major risk that the company faces is strong competition in the form of more aggressive players like India Bulls and bigger players like Kotak Securities and ICICI Bank.

Business

The various areas that the company operates in are Content Related services which are Equity research and disseminating information online though its web site and also doing research in specific areas which is paid by the client.

Another arm of the company is engaged in Equity Broking, Depository services and Portfolio Management Services.

The Distribution Arm of the company acts as an agent and is involved in the sale of Mutual Funds, RBI Deposits, Fixed Deposits etc.

Another arm of the company is the corporate agent for ICICI Prudential Life and distributes insurance policies.

The company is also into Commodities Broking

It has also applied for an NBFC license from RBI to get into the business of Margin funding and Financing.

Revenue Pie

As can be seen the company derives majority of its income from Equity Brokerage and the next biggest segment being commissions. Both the sectors that is Equity and Insurance have shown robust growth in the past and are expected to do well in the future as well. This bodes well for the company. However at the same time the company faces stiff competition in the form of aggressive players like IndiaBulls in the online brokerage space who have shown tremendous aggression and growth and also more established players who also have banking arms like ICICI Direct and Kotak Securities.

One major risk in the brokerage business is bad debts. The company had bad debts which were as high as 5.29% of revenues in the year 02-03, however this has been brought down and now stands at 0.09% of revenues for the 9 month ended Dec 31 04. In an online system the risk of bad debts is minimalised because of the Risk Management Systems in place. Also when the deal is offline it goes through the same system and so the risk of bad debts are further reduced.

The competition seems to be stiff but the advantage for the company is that it is growing on a small base and because the industry as a whole is growing at a fair rate there should be enough space for India Infoline to grow.

Another thing that is beneficial for the company is that it is fairly diversified with a numberof businesses and all of them performing decently.

Promoters

The key promoters of the company are Mr. Nirmal Jain and Mr. R Venkataraman, professionals with a good academic and work experience. Mr. Jain is a Chartered Accountant and holds a MBA from IIM Ahmedabad. Mr. Venkataraman is an Electronics engineer from IIT Kharagpur and holds a MBA from IIM Bangalore.

Financials

The company has turned around and posted a profit of Rs. 78.8 million for FY 2004. For the nine months ended 31 December 2005 the company has posted a profit of Rs. 129.43 million. But still there are accumulated losses of Rs. 71.23 million on 31st December 2004.

If one assumes that the profits of the company will be evenly spread through out the year for the full year the profits will come out to about Rs. 172 million.

Post IPO there will be 43.49 million shares outstanding of the company and the EPS comes out to Rs. 3.95. The higher band of the issue is Rs. 80 and at around 20 times P/E the valuation is decent not cheap though, for a company which is still in losses.

Objects of the Issue

The proceeds of the issue are to be used for set up a centralized office, to have a better control on the operations of the company. Increasing the number of branches by 77 across fifty different cities of the country. Currently the company has 73 branches across 36 cities. The company has also applied for an NBFC license and plans to carry out financing activity.

The company intends to invest part of the proceeds in its subsidiaries which are not listed and as such information about the use of those proceeds will not be made available in the public domain. This is a considerable risk factor as investors will not know how their money is going to be spent.