Broking houses gain ahead of Motilal Oswal listing

MUMBAI: Motilal Oswal Financial Services, a Mumbai-based brokerage, is likely open at a 9-11% premium to the issue price of Rs 825 per share on Tuesday, according to brokers. This estimate is partly based on its speculated premium in the grey market and expectations that the broader market will remain positive.

Brokers feel that risk-averse investors are likely to book profits in Motilal Oswal on the debut day, given the fact that its revenues remain highly-linked to the vagaries of the equity market. Also, with many investors judging that the price band of the initial public offer (IPO) was on the higher side of value, brokers expect profit sales in the stock at over 13-15% premium to the issue price.

Analysts, familiar with Motilal Oswal’s financials, said the stock is at 25-27 times forward earnings at the issue price of Rs 825 per share. Among other brokerages of similar size, Indiabulls is trading at roughly 23 times 2007-08 estimated earnings. Analysts believe future valuations for Motilal Oswal Financial Services would depend on the pace at which it is able to reduce its dependence on equity broking business, which account for a little over 85% of total revenues.

On Monday, brokerage scrips such as India Infoline, Emkay Shares & Stockbrokers and JRG Securities rose 8-20%, ahead of Motilal Oswal’s listing on Tuesday. “The opening day will most likely see shares (of Motilal Oswal) moving from weaker hands to stronger player.

Institutions, which did not receive enough shares in the IPO, may look at buying some at lower levels,” said a BSE broker. The 29.82-lakh-share issue, which was priced at Rs 725-825 per share of Rs 5 face value, was subscribed roughly 27 times. Subscription in the qualified institutional buyer category was 43 times, HNI category was 10 times and retail investor segment around 4 times.

Brokers said retail investors did not participate as much as the other categories because the issue had been announced at a time when there was high uncertainty about the market direction amid the crisis in the US subprime mortgage market.