IPO Sales Memo - Motilal Oswal Financial Services Limited.… by liwenting


									PF/IPOSM/18082007/277                                          18 August 2007

               Motilal Oswal Financial Services Limited
                  IPO Snapshot                                               About The Company

  Type of issue            100% Book Building Issue              Motilal Oswal Financial Services Limited is a Non
                                                                 Banking Financial Company (NBFC) registered under
       Price           Rs.725 – Rs.825 per equity share          the Reserve Bank of India Act, 1934. The company was
  No. of shares             29,82,710 equity shares              incorporated to its existing status and name in May
                          Rs.216.25 crore to Rs.246.97           2005.
    Issue Size
                                     crore                       Since inception, the company has had its business focus
 Issue Opening                  20 August 2007                   primarily on retail wealth management and institutional
                                                                 broking. In 2006, it diversified into investment banking
  Issue Closing                  23 August 2007                  and venture capital management.
   Face Value                         Rs.5                       The company, along with its subsidiary companies, is a
                       8 equity shares and in multiples of       well-diversified financial services firm offering a range
Application Size
                              8 equity shares each               of financial products and services such as retail wealth
                                                                 management (including securities and commodities
 Book Running            Citigroup Global Markets India          broking), portfolio management services, institutional
 Lead Manager                    Private Limited                 broking, venture capital management and investment
                                                                 banking services. As a leading Indian domestic
Registrar To The                                                 brokerage house, the company has a diversified client
                       Intime Spectrum Registry Limited
     Issue                                                       base that includes retail customers (including high-net
                                                                 worth individuals), mutual funds, foreign institutional
                    Allotment Basis
                                                                 investors, financial institutions and corporate clients.
    Employee                                                     The company with its head office based at Mumbai, has
   Reservation               1,42,310 equity shares              a network of more than 1200 business offices spread
     Portion                                                     across 377 cities and towns. These offices are operated
                       At least 8,52,120 or Net Issue less       by the company and its business associates.
                       allocation to Qualified Institutional
Retail Investors                                                 COMPETITIVE STRENGTHS
                           Buyers and Non-Institutional
                                     Investors                   Key competitive strengths of the company are:
                        Upto 2,84,040 or Net Issue less          1. Large and diverse distribution network spread across
                       allocation to Qualified Institutional     1,200 business locations.
                           Buyers and Retail Investors           2. Strong research and sales teams focused on cash
    Qualified           Upto 17,04,240 or Net Issue less         equities, equity derivatives and commodities.
  Institutional         allocation to Retail Investors and       3. Experienced top management comprising qualified
     Buyers                 Non-Institutional Investors          and experienced professionals with a successful track
Net Issue will constitute 10% of the post paid up capital        record.
                     of the company                              4. Well-established brand among retail and institutional
                                                                 investors in India.
                                                                 5. Wide range of financial products and services
                                                                 enabling the company to build and maintain stronger
Registered Office of the company is:                             relationships with its clients.
Motilal Oswal Financial Services Limited                         PROMOTERS
Palm Spring Centre, 2 nd Floor, Palm Court
                                                                 Mr. Motilal Oswal, Mr. Raamdev Agrawal and Passionate
Complex, New Link Road, Malad (West),
                                                                 Investment Management Private Limited are the
Mumbai 400 064
                                                                 promoters of the company. The promoters and
Maharashtra, India.
                                                                 promoter group will together continue to hold 70.38%
Tel: +91 22 3080 1000;                                           of the equity share capital of the company, post this
Fax: + 91 22 2844 9044.                                          issue.
Website: www.motilaloswal.com

Registration Number: 11 – 153397

Company Secretary And Compliance Officer:
Mr. Tarun Khurana

  Report prepared by   Atul Stanley Hermit   -   atul.hermit@karvy.com   Phone No. - 23312454 Extension - 304

PF/IPOSM/18082007/277            Motilal Oswal Financial Services Limited

                      Overview of the Indian Financial Services Sector

The Indian financial services industry has experienced significant growth in the last few years. There has been a
considerable broadening and deepening of the Indian financial markets due to various financial market reforms
undertaken by the regulators, the introduction of innovative financial instruments in the recent years and the entry
of sophisticated domestic and international players. Sectors such as banking, asset management and brokerage
have been liberalised to allow private sector involvement, which has contributed to the development and
modernisation of the financial services sector. This is particularly evident in the non-banking financial services
sector, such as equities, derivatives and commodities brokerage, residential mortgage and insurance services,
where new products and expanding delivery channels have helped these sectors achieve high growth rates.
The various services rendered in the financial services sector can be categorized into equity brokerage services,
mutual funds, commodities brokerage services, private equity services, etc.
In recent years, India has become a global preferred destination for foreign direct investment (FDI), owing to its
large consumer market and efforts by the government to position it as one of the front-runners of the rapidly
growing economies in the Asia Pacific region. In overall terms, India attracted FDI of around US$ 52.82 billion
between Fiscal 2000 and Fiscal 2007. This major inflow of funds has further helped in strengthening the financial
services sector.

            Business Overview of Motilal Oswal Financial Services Limited

Principal business activities of the company include:
Retail wealth management – Motilal Oswal Securities Limited (MOSL) provides broking and financing services to
the retail customers of the company as well as investment advisory, financial planning and portfolio management
Institutional broking – MOSL also offers equity broking services in the cash and derivative segments to
institutional clients in India and overseas. MOFSL has a good number of institutional clients including foreign
institutional investors (FIIs) as its corporate clients.
Investment banking – Motilal Oswal Investment Advisors Private Limited (MOIAL) offers financial advisory,
capital raising and other investment banking services to corporate clients, financial sponsors and other institutions.
Venture capital management and advisory – In 2006, Motilal Oswal Venture Capital Advisors Private Limited
(MOVC) was appointed as the investment manager and advisor of a private equity fund: the India Business
Excellence Fund, aimed at providing growth capital to small and medium enterprises in India, was launched with a
target of raising US$100 million and as of January 2007, has total commitments of Rs. 1,859.28 million.
As at March 31, 2007, the company had 2,072 employees, including 741 people on a contract basis.

                                                Capital Structure

                                   Details                                         Nominal Value @ Rs.5 / share

Existing Equity Capital of 2,54,21,290 shares                                                           12,71,06,450

Present Issue: 29,82,710 shares                                                                          1,49,13,550

Equity Capital after Issue: 2,84,04,000 shares                                                          14,20,20,000

 PF/IPOSM/18082007/277                Motilal Oswal Financial Services Limited

                                        Objective of the Public Issue

Motilal Oswal Financial Services Limited intends to utilize the funds from the net proceeds of the Issue for following
 S.No.    Particulars                                                                 Cost (in Rs. crore)
 1        To augment long term working capital requirements                                                     40.00
 2        To provide for financing activity                                                                    110.00
 3        To purchase / lease new office space for business expansion                                           35.00
 4        To fund expenditure for general corporate purposes                                                        -
 5        To fund technology                                                                                    10.20
 6.       To provide for the Issue expenses                                                                         -

                                      Board of Directors of the Company

Mr. Motilal Oswal, Chairman and Managing Director,            Mr. Ramesh Agarwal, Independent Director
Chief Executive Officer and Chief Financial Officer
                                                              Mr. Balkumar Agarwal, Independent Director
Mr. Raamdeo Agrawal, Non-Executive Director
                                                              Mr. Madhav Bhatkuly, Independent Director
Mr. Navin Agarwal, Non-Executive Director

                                             Subsidiary Companies

                    Company Name                                       Business
   Motilal Oswal Securities Limited (MOSL)              Stock Broking (Institutional & Retail)            99.95%
                                                        and Retail Wealth Management
   Motilal Oswal Commodities Brokers Limited            Commodity Broking                                   97.55%
   Motilal Oswal Venture Capital Advisors Private       Venture Capital Management and                      100.00%
   Limited (MOVC)                                       Advisory
   Motilal Oswal Investment Advisors Private            Investment Banking                                  75.00%
   Limited (MOIAL)

                                              Company Financials

Key performance (consolidated) figures for Motilal Oswal Financial Services Limited are as follows (in Rs. Crore):
                                                             Year ended 31/03/2007          Year ended 31/03/2006
 Operating Income                                                                  358.75                      257.65
 Other Income                                                                       20.37                       14.87
 Total Income                                                                     379.12                      272.52
 Net Profit after Tax                                                               76.50                       60.39
 Fixed Assets                                                                       68.49                       51.87
 Investments                                                                        85.62                        7.92
 Current Assets, Loans and Advances                                                746.32                      382.46
 Total Assets                                                                     900.43                      442.25
 Total Liabilities                                                                567.27                      332.05
 Net Worth                                                                        333.16                      110.21
 EPS                                                                                34.75                     229.16*
 RoNW                                                                             20.89%                      54.75%
 NAV                                                                               131.06                       98.08
* Basic EPS on non-annualised basis

PF/IPOSM/18082007/277              Motilal Oswal Financial Services Limited

                                           Peer Group Comparison

                    Company                              EPS               P/E                RoNW               NAV
   Motilal Oswal Financial Services Limited                  34.79                  -            20.89%            131.06
   India Bulls Financial Services                             6.90              96.30            11.10%            113.60
   India Infoline                                             9.90              82.80            23.00%             58.20
   IL&FS Investsmart                                          5.20              40.40             5.70%             99.00
   Peer Group Average                                            -              73.17           15.20%                  -
  P/E for peer group companies is based on trailing twelve month’s earnings ending March 31, 2007. Other data for peer group
  companies are for Fiscal 2007.
  Source: Capital Market, Volume XXII/11, July 30 - August 12, 2007 (Industry- Finance and Investments)

                                                 Business Strategy

Motilal Oswal Financial Services Limited is focused on further increasing its market share in a profitable manner and
capturing the significant growth opportunities across the Indian financial services spectrum. Key elements of the
strategy of the company are:
Increase market share in retail business: Company is offering a wide range of products to its retail clients
through multiple channels and its primary focus is to further increase its client base and capture a greater share of
their business. Company plans to increase its retail presence by: (1) continuing to grow its distribution
network across India – with a presence in major cities, company is focused on increasing its concentration in
these cities and also expanding into smaller cities and towns that it believes are currently under-serviced by financial
services firms. This network expansion, complemented by client-focused relationship management, will allow the
company to add new clients. (2) focusing on wealth management solutions and new product offerings –
improved client relationship management, wealth management solution offering and convenient and effective
channels of distribution, would help the company to grow its wealth management business both in overall terms and
on a per business location basis. Company is also evaluating an option to start distributing third-party insurance
products. (3) leveraging on research and advisory capability – company intends to further widen its research
coverage by increasing the number of companies and business sectors that it covers. Also, it proposes to enlarge its
team of advisors and dealers to strengthen its client relationships. (4) increasing usage of technology and
better processes – company plans to offer more technology-based products and services and to improve its
processes to enhance customer satisfaction.
Increase market share in institutional brokerage: Company is focused on sustaining and growing its market
share in the institutional brokerage segment. It plans this by: (1) focusing on overseas institutional investors –
overseas institutional investors have accounted for most of the incremental inflows into Indian equities over the last
five years. Company plans to improve its market position by servicing hedge funds, where, in particular, business is
driven by ideas generated by sound research. With increased balance sheet size, it believes in being able to service a
greater number of overseas institutional clients. (2) building stronger relationships – company’s plans to build
stronger relationships with its institutional broking clients by leveraging on its investment banking platform and
offering other equity and capital markets services. (3) increasing research support – company plans to support
the planned growth in its institutional brokerage business, by further expanding its research capability by increasing
the size of the research team and increasing the depth and spread of its research coverage. (4) growing
institutional derivatives business – company plans to strengthen its position in institutional derivatives business,
which accounts for a large proportion of institutional turnover. Company's early entry into this segment, in-depth
understanding of derivatives, technical research expertise, dedicated servicing team and idea-generation ability
would be of help to it in this regard.
Grow fee-based revenues: Company plans to diversify its revenue streams and lessen its dependence on
transaction-based revenues by increasing its focus on fee-based services. It intend to achieve this by: (1) growing
investment banking business – having recently established an investment banking business, company plans to
diversify its revenue stream through a combination of equity capital markets, debt capital markets and advisory
services. It believes offering these services alongside its existing brokerage business will strengthen its relationships
with its corporate clients and institutional investors. It also plans to leverage the existing retail distribution network
to build its market share for domestic equity capital markets offerings by distributing initial public offerings. (2)
enhancing portfolio management services and venture capital focus – company has enhanced its focus on
portfolio management services (PMS) and recently entered into venture capital investment management and
advisory business. Its revenue from these businesses is based on the amount of assets under management and the
returns generated from them. And it plans to increase the amount of assets under management for both PMS and
venture capital offerings. (3) increasing distribution of mutual fund schemes and adding insurance
distribution – company is planning to increase its distribution of third-party mutual fund schemes and is also
evaluating an option to begin distributing third party insurance products. Revenue from these businesses is based on
the number of mutual fund schemes and insurance policies distributed.

PF/IPOSM/18082007/277               Motilal Oswal Financial Services Limited

                                                      Risk Factors

Some of the risk factors that need to be taken into consideration before applying for this public issue are: (1). (22)
External risks factors include: (1) Company is involved in a number of legal proceedings. (2) Restrictive and/or penal
order(s) may be passed against the company by the market regulator in ongoing and or future proceedings. (3)
Company face intense competition in its businesses and this may limit it in its growth and prospects. (4) Downturns or
disruptions in the securities markets could reduce transaction volumes and could cause a decline in the business and
impact company's profitability. (5) Limited operating history of the Issuer, Motilal Oswal Venture Capital Advisors
Private Limited (MOVC) and Motilal Oswal Investment Advisors Private Limited (MOIA) makes it difficult to evaluate the
company’s financial statements. (6) Issuer is substantially dependent on Motilal Oswal Securities Limited (MOSL) and
on its equity brokerage business. (7) Company's inability to manage growth could disrupt its business and reduce
profitability. (8) Company's decision to enter into the businesses of venture capital management and investment
banking exposes it to additional risks. (9) Company is subject to risks relating to its Business Associates. (10)
Company's clients deal in securities and any default by a client could result in substantial losses to the company. (11)
Company's business is dependent on the relationships formed by its relationship managers. (12) Company may face
risks associated with potential acquisitions, investments, strategic partnerships or other ventures, including risks
associated with identifying, completing and integrating third parties with its business on favourable terms. (13)
Contingent liabilities to the extent of Rs.256.30 Crore were outstanding as on March 31, 2007, being not provide for.
(14) Company is subject to restrictive covenants under its credit facilities and these could limit its flexibility in
managing business. (15) Currently the company does not have any trademarks registered in its name. (16) Objects of
the Issue for which funds are being raised have not been appraised by any bank or financial institution. Also, company
has not entered into any definitive agreements to utilise a portion of the proceeds of the Issue. (17) Financial services
firms are subject to increased scrutiny concerning perceived conflicts of interest that increase the risk of financial
liability and reputational harm resulting from adverse regulatory actions. (18) Company's risk management policies,
procedures and methods may leave it exposed to unidentified or unanticipated risks, which could lead to material
losses. (19) A failure in company's operational systems or infrastructure, or those of third parties, could impair its
liquidity, disrupt its businesses, damage its reputation and cause losses. Security breaches could damage its reputation
and result in a liability to it. (20) Company has entered into a number of related party transactions. (21) Company's
insurance coverage may not adequately protect it against certain operating hazards, which may have an adverse effect
on its business. (22) Some of the Issuer’s Group Companies and subsidiaries have incurred losses during the past few
years. (23) Absence of comprehensive business continuity and disaster recovery plan may lead to a temporary
disruption of company's operations. External risk factors include: a slowdown in economic growth in India; political
instability or changes in the government; difficulties faced by other financial institutions or the Indian financial sector in
general; terrorist attacks, civil unrest and other acts of violence or war involving India and other countries; natural
calamities; any downgrading of India’s sovereign rating by an international rating agency; company's equity shares
may be volatile, or an active trading market for these shares may not develop.

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Broking nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information
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