Ready For The Next Leap

With a presence in as many as 2,300 locations across India, IIFL has one of the strongest business models in the brokerage space. Investors can take exposure to the stock for the long term

INDIA Infoline (IIFL) has transformed itself from being an equity research firm to financial services conglomerate in the past 15 years. Apart from equity broking, the company now has presence in commodity broking, investment banking, wealth management, insurance and lending businesses. Of late, the company has also made significant inroads into lending and investment banking business. Investors can take exposure to IIFL for a long term. 

BUSINESS: The company has aggressively improved its presence over the past few years. Currently, the company has presence in as many as 2,300 locations through branches and sub-brokers. A wide network has helped it in rapidly improving its share of the trading volumes, which improved to 3.8% in FY10 from 1.7% four years ago at the national stock Exchange (NSE). Compared to FY09, the company's share in volumes was flat. But that's because the share of futures and options (F&O) has gone up in NSE volumes, while IIFL focuses more on cash segment. This is because the margins in cash segment are more than F&O segment. So while the company's share actually went up in cash segment, its share remained stagnant in total volumes on year-on-year basis. In brokerage industry, the fight is for the volumes. This is where IIFL stands at advantage, as it is one of the top players both in retail as well institutional side of business. In the lending business, the company is focusing on loans against property, which comprised more than 40% of loan book in FY10. Since this is secured lending, it helps the company in maintaining high asset quality. Net non-performing assets (NPA) formed less than 1% of net advances. At such NPA levels, the company's asset quality is comparable with that of best non-banking financial companies (NBFC) in India. The thrust on lending business is evident from the fact that loan portfolio grew by 70% in FY10. 
    Apart from it, the company is focusing on investment banking activities too. This is evident from the fact that it earned revenue of Rs 39 crore from such activities in FY10 compared to just Rs 2.3 crore a year ago. It managed the initial public offerings (IPO) & qualified institutional placement (QIP) of names, such as Gammon India, Cox & Kings India, Cipla, Adani Power and Everest Kanto among others. 
    Due to its presence in wide range of financial services, it has one of the most diversified business models in its industry. It must be recalled that brokerage and other financial services firm had a tough time in FY09, when the equity markets plummeted. Even then, IIFL's profit fell by only 9% in FY09. 
VALUATIONS: IIFL's stock is currently trading at a price-to-earnings (P/E) multiple of 20. Considering that companies in the capital market business tend to do better than other sectors when stock market is booming, a P/E of 20 seems to be reasonable. Its close competitors, such as Motilal Oswal Financial Services, Religare Enterprises and Edelweiss Capital, are trading at average P/E of 28. This shows that IIFL's stock is trading at much lower valuations than its competitors too. 
    karan.sehgal@timesgroup.com