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Peer Group
Investment Highlights
Stock Data
Sector Financial Services
Face Value (Rs.) 10.00
52 wk. High/Low (Rs.) 944.00/244.30
Volume (2 wk. Avg.) 114900
BSE Code 530499
Market Cap (Rs.mn.) 4686.00
Financials (Rs.mn.) FY10 FY11E FY12E
Net Sales 1558.43 1854.53 2114.17
EBIDTA 936.76 1086.32 1237.24
PAT 523.74 644.89 740.99
EPS (Rs.) 79.35 97.71 112.27
P/E (x) 8.95 7.27 6.32
A.K. Capital Services Ltd BUY F
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SYNOPSIS
A K Capital Services is India's leading Securities & Exchange Board of India (SEBI) registered category-I merchant banker.
Company is engaged in providing various fee-based services such as fund mobilization through issue of debt, equity, structured hybrid instruments and through loan syndication, etc for various central and state government undertakings, private and nationalized banks, financial institutions & private sector corporates.
The members of the company have approved the raising of funds by placement of equity shares to Qualified Institutional Buyers (QIBs) through Qualified Institutional Placement (QIP) for an amount not exceeding Rs. 200 crores.
The company is associated with deals of over Rs 490 billion in the FY2009-10 as against approximately Rs 440 billion in the last year (FY2008-09), cornering a market share of approximately 29%.
The company has instituted AK Capital Finance, as a subsidiary of AK Capital Services, a NBFC to carry out fund based activities like providing loan against securities.
Net Sales and PAT of the company are expected to grow at a CAGR of 18% & 25% over FY09 to FY12E.
1 Year Comparative Graph
A.K. CAPITAL BSE SENSEX
V.S.R. Sastry
Equity Research Desk
Dr. V.V.L.N. Sastry Ph.D.
Chief Research Officer
C.M.P: Target Price: Rs.710.00 Rs.817.00
Share Holding Pattern
January 04, 2011
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Peer Group Comparison
Name of the company
CMP (As on Jan 04,
2011) Market Cap. (Rs. Mn.)
EPS (Rs.)
P/E (x)
P/BV (x) Dividend (%)
A.K. CAPITAL 710.00 4686.00 91.37 7.79 2.53 60
POWER FINANCE 308.70 35431.56 21.92 14.08 2.85 45
MUTHOOT
CAPITAL 157.00 102.05 13.00 12.08 4.77 25
CHOLAMANDALAM
DBS FINANCE 185.90 2217.49 6.89 26.98 4.12 10
Investment Highlights
• Q2 FY11 Results Update
A.K. Capital Services reported a rise in standalone net profit for the quarter ended
September 2010. During the quarter, the profit of the company increased by 39.06%
to Rs 167.07 million from Rs 120.14 million in the same quarter previous year. Net
sales for the quarter rose 26.47% to Rs 473.72 million, while total income for the
quarter rose 22.72% to Rs 482.63 million, when compared with the prior year period.
During the quarter, it reported earnings of Rs 25.31 a share.
Quarterly Results - Standalone (Rs in mn)
As at Sep - 09 Sep - 10 %Change
Net Sales 374.56 473.72 26.47
Net Profit 120.14 167.07 39.06
Basic EPS 18.20 25.31 39.06
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Key business highlights:
o Structured and placed over 100 deals in the primary debt segment.
o Associated with deals of over Rs 490 billion in the FY2009-10 as against
approximately Rs 440 billion in the last year (FY2008-09), cornering a market
share of approximately 29%.
• CARE revises rating
Credit Analysis & Research (CARE) has revised the ratings assigned to the
company’s long term bank facilities aggregating Rs 250 crore to 'CARE A' from
'CARE A-'.
• Recommends Dividend
AK Capital Services Ltd has recommended dividend @ Rs. 6 per equity share of face
value Rs. 10 each for the year ended March 31, 2010.
• Receives member’s approval to re-classify Authorized share capital
The members of the Company have approved re-classification of part of authorized
share capital as 800,000 Convertible Cumulative Preference Shares of Rs. 225
amounting to Rs. 180,000,000 be reclassified as 18,000,000 equity shares of Rs. 10
each amounting to Rs. 180,000,000. They also approved the raising of funds by
placement of equity shares to Qualified Institutional Buyers (QIBs) through
Qualified Institutional Placement (QIP) for an amount not exceeding Rs. 200 crores.
Company Profile
A. K. Capital Services Limited is the flagship company of AK Group. A. K. Capital
Services Ltd is India’s leading SEBI registered Category - I Merchant Banker engaged
in providing various fee-based services such as fund mobilization through issue of
debt, equity, structured hybrid instruments and through loan syndication etc for
various Central & State Government Undertakings, Private & Nationalized Banks,
Financial Institutions & Private Sector Corporates.
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Following its positive attitude and philosophies, A. K. Capital Services Ltd has in a
very short span of time emerged as one of India’s leading Merchant Banker for the
Indian Corporate Debt / Fixed Income Securities market through Private Placement /
Public Issues and for Management Consultancy, Advisory Services, Financial
Restructuring, etc.
In the Year 2007, A.K. Capital Services Ltd won the Prestigious International
Financing Review (IFR), Asia Bond Deal of the Year 2006 Award in Hong Kong for
successfully structuring & placing Rs 1,500 million perpetual bond issue for UCO
Bank, one of the leading Public Sector Bank in India.
AK Capital Services, a flagship company of AK Group, has emerged as the largest
mobiliser of debt through private placement of bonds and non-convertible debentures
(NCDs) during financial year 2008-09 as per annual report released by Prime
database (non-bank category). This is the eighth consecutive year during which the
company has topped the category.
AK Group operates in the identified core areas of Indian Financial Markets that have
shown tremendous growth potential over the past few years. To cater & excel in these
key areas, the group has floated the following companies:
• A. K. Capital Services Ltd.
• A.K. Stockmart Pvt Ltd.
Services offered by the company:
The company has continuously endeavored to operate in certain key identified areas
in the financial services sector, which have shown high growth potential and
sustainability. Going forward, the group aims to seek sustained growth through
synergy in its various areas of operations. The current portfolio of services of AK
Group consists of:
• Private Placements
• Initial Public Offering (IPO) Management
• Debt Trading
• Mutual Fund Distribution
• Project Finance & Loan Syndication
• Structured Finance
• Venture Capital Funds.
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Clientele:
Nationalized & Private Sector Banks:
• PNB
• IOB
• Bank of Maharashtra
• Federal Bank
• J&K Bank
• Canara Bank
• UCO Bank
• Vijaya Bank
• South Indian Bank
• Development Credit Bank
PSUs & FIs:
• BSNL
• IOC
• HUDCO
• NCRPB
• IDBI
• LICHFL
• PFC etc
Private Corporates:
• Peninsula Land Limited
• Aban Offshore
• Gammon India
• DHFL
• OCL India
• Philips Carbon Black
• Ashok Leyland etc.
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Financial Results
12 months ended Profit & Loss A/C (Standalone)
Value(Rs. in million) FY09 FY10 FY11E FY12E
Description 12m 12m 12m 12m
Net Sales 1302.01 1558.43 1854.53 2114.17
Other Income 11.52 26.58 29.24 32.16
Total Income 1313.53 1585.01 1883.77 2146.33
Expenditure -576.70 -648.25 -797.45 -909.09
Operating Profit 736.83 936.76 1086.32 1237.24
Interest -129.17 -117.09 -105.38 -110.65
Gross Profit 607.66 819.67 980.94 1126.59
Depreciation -16.58 -15.35 -18.42 -20.63
Profit before Tax 591.08 804.32 962.52 1105.96
Tax -209.32 -280.58 -317.63 -364.97
Profit after Tax 381.76 523.74 644.89 740.99
Equity Capital 58.00 66.00 66.00 66.00
Reserves 1056.14 1579.88 2224.77 2965.76
Face Value (Rs) 10.00 10.00 10.00 10.00
Total No. of Shares 5.80 6.60 6.60 6.60
EPS (Rs) 65.82 79.35 97.71 112.27
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Quarterly ended Profit & Loss A/C (Standalone)
Value(Rs. in million) 31-Mar-10 30-Jun-10 30-Sep-10 31-Dec-10E
Description 3m 3m 3m 3m
Net Sales 438.84 400.71 473.72 511.62
Other Income 0.29 5.37 8.91 9.62
Total Income 439.13 406.08 482.63 521.24
Expenditure -180.85 -177.96 -202.21 -220.00
Operating Profit 258.28 228.12 280.42 301.24
Interest -12.47 -11.58 -33.67 -33.00
Gross Profit 245.81 216.54 246.75 268.25
Depreciation -2.87 -3.17 -3.36 -3.53
Profit before Tax 242.94 213.37 243.39 264.72
Tax -82.82 -72.59 -76.32 -87.36
Profit after Tax 160.12 140.78 167.07 177.36
Equity Capital 66.00 66.00 66.00 66.00
Face Value (Rs) 10.00 10.00 10.00 10.00
Total No. of Shares 6.60 6.60 6.60 6.60
EPS (Rs) 24.26 21.33 25.31 26.87
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Key Ratios
Particulars 2009(A) 2010(A) 2011(E) 2012(E)
EBITDA Margin (%) 56.59% 60.11% 58.58% 58.52%
PAT Margin (%) 29.32% 33.61% 34.77% 35.05%
P/E (x) 10.79 8.95 7.27 6.32
ROE (%) 34.26% 31.82% 28.15% 24.44%
ROCE (%) 54.39% 50.47% 43.13% 37.75%
EV/EBITDA (x) 5.59 5.00 4.31 3.79
Debt Equity Ratio (x) 0.19 0.11 0.08 0.06
Book value (Rs) 192.09 249.38 347.09 459.36
P/BV (x) 3.70 2.85 2.05 1.55
A-Actual E-Expected
Charts
1. Net Sales & PAT
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2. P/E Ratio
3. P/BV
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4. EV/EBITDA
Valuation
At the market price of Rs.710.00, the stock trades at 7.27x and 6.32x for the earnings
of FY11E and FY12E respectively. Earning per share (EPS) of the company for the
earnings of FY11E and FY12E is seen at Rs.97.71 and Rs.112.27 respectively for
equity share of Rs.10.00 each. Revenue of the company is expected to grow at a CAGR
of 18% over FY09 to FY12E.
AK Capital is fully equipped and dedicated to take further initiatives to add more vigor
in the debt markets and it has been instrumental in innovating and introducing new
debt instruments like India`s first perpetual NCD issue from a NBFC - Magma Fincorp
as a `sole arranger` in the market and has maintained an unparallel track record of
delivering near 100% strike rate in bond placements. Its robust business strategies
and firm understanding of the Indian debt capital market, have aided it to further step
the upward path to reach the pinnacle and set new industry benchmarks in the
Market.
The company has instituted AK Capital Finance, as a subsidiary of AK Capital
Services, a NBFC to carry out fund based activities like providing loan against
securities. Company intends to extend its services to portfolio management services
for both retail and institutional investors and it will soon be foraying into providing
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retirement advisory solutions, where its plan is to offer both discretionary and non-
discretionary investment advisory services to retirement funds in India. So we
recommend ‘BUY’ in this particular scrip with a target price of Rs.817.00 for Medium
to Long term investment.
Industry Overview
The Indian economy is estimated to have grown by 6.7 per cent in 2008-09. According
to the latest Central Statistical Organisation (CSO) data, financial services, banking,
insurance and real estate sectors rose by 7.8 per cent in the third quarter of 2009-10.
The government has taken a number of steps in recent months to revive the economy,
including slashing interest rates, lowering factory levies and more than doubling the
limit on foreign investment in corporate bonds. The financial services space is a
rapidly growing one in India.
As per the Securities and Exchange Board of India (SEBI), number of registered FIIs as
on March 29, 2010 was 1710 and the cumulative investments in equity since
November 1992 to March 29, 2010, was US$ 76.74 billion, while the cumulative
investments in debt during the same period were US$ 11.85 billion.
The average assets under management of the mutual fund industry stood at US$
174.06 billion for the month of February 2010, an increase of nearly 36 per cent from
US$ 111.55 billion in February 2009, according to the data released by Association of
Mutual Funds in India (AMFI).
Funds raised by the Indian corporate sector via ADRs/ GDRs has jumped over 33
times from around US$ 101.72 million in 2008 to about US$ 3.50 billion in 2009.
Furthermore, with economic outlook on Indian as well global markets being positive,
PE funds are closing deals more speedily than last year. The merger and acquisition
(M&A) activity has shown similar momentum, with domestic deals ruling the charts.
PE funds closed 29 deals in January 2010 compared to only 16 during the same
period last year. The value of such deals saw a significant jump of 303 per cent, from
US$ 309 million in January 2009 to US$ 1.24 billion this year.
Also, a study by Project Finance International (PFI), a source of global project finance
intelligence and a Thomson Reuters publication has ranked India on top in the global
project finance (PF) market in 2009, ahead of Australia, Spain and the US.
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The study said the main market for PF in 2009 was the domestic Indian market,
which raised US$ 30 billion, accounting for 21.5 per cent of the global PF market. This
was up from US$ 19 billion in 2008.
The country's foreign exchange reserves were US$ 278.19 billion as on March 19,
2010, according to the figures released in the Reserve Bank of India's Weekly
Statistical Supplement.
The World Bank and India have concluded negotiations for loans worth US$ 3.2 billion
for recapitalising state-run banks and funding for the India Infrastructure Finance
Company Ltd.
Indian debt capital market
The Indian debt capital market is no more into apprentice mode and is now
magnetizing investor`s interests towards itself in a significant manner. To promote and
to provide a synchronized framework to the debt markets; the regulatory bodies in
India are introducing commendable reforms to infuse liquidity, transparency and
price-discovery into the markets. These measures are further attracting and
encouraging the investor communities to divulge into, explore and leverage the
strengths of the fixed income markets. The raised limit for Foreign Investors to invest
their monies in the debt markets will further augment the depth of the debt
markets.
Qualified Institutional Placements (QIPs)
QIP is a capital raising tool, whereby a listed company can issue equity shares, fully
and partly convertible debentures, or securities other than warrants, which are
convertible into equity shares, to a qualified institutional buyer (QIB).
In 2009, Indian companies had raised close to US$ 7.18 billion by way of 45 QIP
issuances.
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Stock markets
India's market capitalisation (m-cap) touched US$ 1.04 trillion in June 2009 making it
the ninth largest in the world. According to data from Bloomberg, India's market cap
as a percentage of world market cap was 2.8 per cent as on December 31, 2009.
In 2009, there were 21 IPOs that raised US$ 4.25 billion as compared to 36 IPOs in
2008 that raised US$ 3.68 billion.
Moreover, on the back of an increase in the participation of agriculture and other
commodities, the 23 commodity exchanges posted 50 per cent year-on-year growth in
turnover in the April-February period of the current fiscal, to touch US$ 1.53 trillion,
according to the commodity markets regulator, Forward Markets Commission (FMC).
According to data collated by international stock market research firm Bespoke
Investment Group; India has the best PEG multiple (price earnings-to-growth)
amongst several emerging and developed markets. At over 26 times trailing P/E
multiple and an estimated 2010 GDP growth rate of 8 per cent, India (denoted using
Sensex) commands a rather comfortable PEG multiple of 3.27 times.
________________ ____ _________________________ Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of its
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
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Firstcall India Equity Research: Email – [email protected]
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Corporate Finance Offerings include Foreign Currency Loan Syndications,
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