Business of Microsec Financial Services
Microsec is a diversified financial services company which offers services in the area of investment banking, retail brokerage, wealth management, insurance broking and financing services to HNI, corporate and institutional clients.
Microsec has 176 business locations spread across 49 Indian cities and towns. The company is concentrated in the eastern region with over 90% revenues coming from this region and 79 branches located in Kolkata.
Financials of Microsec
The company generated revenues of Rs.185.92 million for the year ended 2007 and the revenues for the preceding year were Rs.125.70 million. Over the same years the profit after tax was Rs.76.42 million and Rs.42.39 million respectively.
The revenue and profit figures for the six months ended Sep 2007 were Rs.183.41 million and Rs.94.51 million respectively.
The EPS for the last year was Rs.7.64 on a consolidated basis which was up from Rs.4.24 in 2006.
Objectives of the IPO
Microsec is coming out with the IPO to meet fund requirements for a host of activities which include the following.
Rs.1100 million is expected to be used for financing activities. Microsec provides loans to its clients against the shares that the clients own and there were about 150 clients for such financing for the period ending December 31 2007. The financing done for these clients was approximately Rs.200 million.
The other big ticket item is to augment the working capital requirements. Microsec needs to place margin money with stock and commodity exchanges and part of the IPO proceeds would go towards augmenting the margin they keep with the exchanges which would enable them a higher volume of trade. This would be done for subsidiaries as well.
Microsec also plans to increase its geographic footprint by adding 50 more branches, set up regional offices and strengthening the office facilities in Mumbai.
Key Risks facing Microsec
Microsec has received notices from SEBI for not exercising due diligence as a merchant banker and from NSE for various non compliances.
Inherently the business of lending against shares is risky for which a substantial part of the funds of the IPO are earmarked. In the case of highly volatile markets this risk becomes even greater as the clients may not be able to repay part of the debt and this would impact profitability as well as revenues.