IndiaBulls Ventures – Winds of Change

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Once in a while, a stock takes of like there is no tomorrow. In the current bull market, some stocks are literally flying off their pants. This post is a short note on one of them and the triggers that have made this a mutibagger.

IndiaBulls Ventures started the year at Rs.20. Today, the stock has closed at 178. The stock is off its all-time high of 200, a 10x gain within 7 months. Why’s this moved?

Indiabulls Ventures Limited (Formerly Indiabulls Securities Limited) is one of India’s leading capital markets companies providing securities broking and advisory services. It also provides depository services, equity research services to its clients and offers commodities trading through a separate company.

IndiaBulls Ventures is also the holding company of IVL Finance Limited, a company that is spearheading their consumer finance business.

IndiaBulls Asset Reconstruction Company Ltd (an ARC), a wholly owned subsidiary of Indiabulls Ventures was recently granted Certificate of Registration by RBI.

The year 2017 has been a year of changes for Indiabulls Ventures. The promoters of the company in March of this year converted part of their fully convertible warrants into equity shares. These warrants were issued in August 2016. The said warrants were convertible into an equivalent number of equity shares of face value of Rs. 2 each of the Company, at an exercise price of Rs. 19.75 (including a premium of Rs. 17.75) per equity share .

Market Price at the time of Conversion: 35.00

On April 7th,2017 the company approved a preferential offer & issue of 38,865,582 equity shares at an issue price of Rs. 58.40 per equity share, for cash consideration, to Cinnamon Capital Limited, a Foreign Institutional Investor.

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Price on 7th April 2017: 70.80

At an EGM held on 22nd May 2017, the company approved preferential issuance of 47,390’000 Equity Shares of the company at an issue price of Rs. 94.70 per equity share to Tamarind capital Pte Ltd, Singapore

Price on 22nd May 2017: 137.65

Promoters too have added to their holdings in recent months by purchasing the company’s stock directly from the market. At the beginning of 2017, the Promoters held 9,84,48,802 Equity Shares and 5,43,00,000 fully convertible warrants.

Post Conversion of part of their Warrant holdings and fresh buying from markets, the Promoters today hold 15,27,48,802 Equity Shares and 3,38,00,000 Convertible Warrants.

Before we move onto the big picture and financials, here is something interesting that popped out during the research.

As on March 31, 2017, Tulepo Consultancy LLP holds 7.84% stake in the company. The company is listed under the Public Shareholder List.

On March 16, 2017, Tulepo Consulatancy LLP sent a disclosure to the company informing them that they have raised the stake in the company (Link). The said link also informs the acquirer doesn’t belong to the Promoter / Promoter Group.

So, who is Tulepo Consultancy? A search reveals that its Partners are Rajiv Rattan and Anjali Nashier. Rajiv Rattan is the name of one of the three founders of the India Bulls Group. Indiabulls Ventures’ promoter is Sameer Gehlot, one of the other founders of the Indiabulls group.

The Annual Report for 2016 – 17 is yet to be released. Their Annual Report for 2015 – 16 doesn’t list either IVL Finance or the ARC.  Since both companies have been active for long, this could mean that these companies came under IndiaBulls Ventures Umbrella only in the current financial year.

Financials:

In Feb 2007, IndiaBulls decided to demerge the Securities division from itself. The demerger happened in January 2008 with the new stock getting listed on the exchanges in March 2008.

With the financial markets imploding and brokerage income cascading down, there couldn’t have been a worse time to list. The stock closed its first day at 89 and while there was a brief pull back in May 2008, it was more or less a one way journey downwards.

The final low came in late 2011, the only financial year (2011 – 2012) wherein the company posted a Net Loss. Since then, the company has been able to come back and while profits aren’t anywhere close to what it saw for the year ended March 2007 or March 2008, it’s kind of chugging along.

(Figures in Rs. Cr.)

What’s the scene?

In general, there is no major trigger for the stock to move, but all brokerage stocks are moving up strongly. Plus, they have an ARC (for banks to sell defaulted assets) and a consumer finance company coming up. There’s a lot of institutional interest in the form of preferential allotment of shares.

The stock currently trades at a Price to Earnings of 76 times its trailing four quarter earnings. While on the face of it this seems expensive, investors (assuming that they are right) seem to be weighing its valuation in light of the changes the company has seen in recent times.

While 10 year compounded Sales and Profit growth are both negative (Starting point bias), the Return on Equity over the last 10 years has been an impressive 33%. This is also because of heavy borrowings.

A big negative would be the high leverage factor which currently stands at 6.34 and Debt of 2,100 Crores whereas the Interest Coverage is just Rs.2.05.

Is IndiaBulls Ventures biting off more than it can chew? Is this a move designed to only trap minority shareholders? Is there really something cooking that will change the fortunes? Only time can answer that question. For now, momentum is strong and the trend is bullish, as the stock approaches it’s all-time-high made in 2008.

Price Chart:

Given the wild variations we have seen over the years, the chart below is plotted in Log scale to give a better perspective.

Disclaimer: This is not a recommendation to Buy. Authors may own shares of stocks on personal account. This post is just a note that helps you understand the story.

The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails

 – William Arthur Ward

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