ICICI DIRECT SAYS TRANSWARRANTY FINANCE IS FAIRLY PRICED

Transwarranty Finance Ltd

Issue detail
Bid/Issue opens: Jan 23, 2007
Bid/Issue closes: Feb 02, 2007
Price Band: Rs 48-55 per equity share of Rs 10 each
Minimum application: 120 shares and in multiples of 120 shares thereof
Maximum Retail Bid Amount: Rs 100,000

Capital Structure

Authorised Capital: 150,000,000 equity shares of Rs 10 each
Issued Capital before IPO: 80,000,000 equity shares of Rs 10 each
Issued Capital after the IPO: 140,000,000 equity shares of Rs 10 each

Background

Transwarranty Finance is a non-banking financial services company (NBFC) established in 1994. It is engaged in investment banking, project financing, trade finance, corporate finance and retail finance. It provides structured finance products for designing complex and innovative financial models and execution for leading companies in India including companies belonging to the Godrej, Tata, Mahindra groups and a large number of mid-cap and large-cap companies from a wide cross section of industries. The company’s promoter, Kumar Nair has over two decades of wide experience in the financial sector and was last positioned as Vice President of Kotak Mahindra Finance Ltd. From 2005-06, it has got four subsidiaries.

Objectives of the Issue

• Expansion of office premises for increasing the scale of operations.

• Strategic investments or acquisitions of companies in related business including banking.

• Investments in subsidiaries, technology upgradation.

• Geographic expansion through opening of regional offices and overseas branches.

• To meet issue expenses.

Key Investment Rationale

Diversified financial services portfolio
The company’s current business is to provide corporate advisory services, foreign exchange advisory, financial services BPO to Citi Financial Consumer Finance India Ltd, investment banking and wealth management services to corporates, retail and institutional clients. Though investment banking was started from 2005-06 only, it has gained huge business and revenue of Rs 2.57 crore that formed nearly 48% of its FY06 revenue. For trade and corporate finances, the company doesn’t do direct funding but uses its relationships with other banks and institutions to tie-up working capital facilities for their clients. Hence, the company’s model is not funding-based but fee-based and risks of non-performing assets (NPA) are non-existent. Trade finance and corporate finance together form 41% of total revenues for FY06. Transwarranty has completely exited the traditional hire-purchase and funding business.

Expanding scope, capacity of financial services BPO business
The BPO business dedicated for marketing of consumer finance products on behalf of Citi has consolidated its operations by increasing seat capacity. Encouraged by the success, the NBFC have embarked on a business strategy to elevate this business into the big league as a full-fledged BPO business. Its revenue of Rs 3.31 crore formed 10.8% of total H1FY07 revenue, rising from Rs 4.82 crore forming 9.1% of revenue in FY06. Expansion in seat capacity and high-credit growth in the system is expected to help the BPO to flourish.
 

IPOMONITOR.NET Say's Transwarranty  Finance is Good Issue

GODREJ, TATA CO’S & MAHINDRA GROUP ARE COMPANY’S CLIENTS

TRANSWARRANTY FINANCE LIMITED

Equity Shares offered: 6,000,000 Equity Shares of Rs. 10/- each

Out of which:
Employee Reservation Portion (1) 100,000 Equity Shares of Rs. 10/- each.

Net Issue to the Public: 5,900,000 Equity Shares of Rs. 10/- each

Lower Price Band: Rs.48

Upper Price Band: Rs. 55

Bid/Issue Programme

BID/ISSUE OPENS ON JANUARY 23, 2007

BID/ISSUE CLOSES ON FEBRUARY 2, 2007

Company was established as a financial services and investment banking company in the year 1994 by Mr. Kumar Nair. Mr. Kumar Nair has 21 years of experience in the financial sector. Mr. Kumar Nair, a Chartered Accountant by profession was part of Capital Markets team in Kotak Mahindra Finance Limited. Company is a Reserve Bank of India registered Non Banking Financial Services Company (NBFC) with active business in trade finance, corporate finance and investment banking activities. Company provides corporate finance, trade finance, foreign exchange advisory and other corporate advisory to its institutional and corporate clients and BPO activities to Citi Financial Consumer Finance India Limited. Company’s current business is to provide corporate advisory services, foreign exchange advisory and investment banking tocorporates, retail and institutional clients. Company is also running a 50 seat financial services BPO for the Citi Financial Consumer Finance India Limited for sourcing of personal loans for them. Company designs structured finance products by using innovative financial models and structures and execute the same for leading companies in India including companies belonging to the Godrej, Tata, Mahindra group and a large number of mid cap and large cap companies from a wide cross section of industries. Company derives its revenues from major sources namely, corporate finance, investment banking & advisory services and trade finance.

Company plans to utilize Rs.96.40 million raised through this Issue to invest in developing its businesses through its subsidiaries, viz. Equity Broking and Merchant Banking through Transwarranty Capital Private Limited.

AGREEMENT WITH CITI FINANCIAL CONSUMER FINANCE INDIA LTD. FOR 3 YEARS
Company has earned an income of Rs.4.82 million, which constitutes 9% of the total income for the financial year 2006 on account of BPO activities carried out by Company for Citi Financial Consumer Finance India Limited. Company has entered into an agreement with Citi Financial Consumer Finance India Limited for a period of 3 years renewable with mutual consent.

INVESTMENT BANKING IS THE CORE BUSINESS
A significant portion of company’s total revenues for the FY 2006 and half year ended September 30, 2006, are derived from the investment banking services offered by us. During the FY 2006 and half year ended September 30, 2006, revenues from investment banking services contributed 48.7%. (Rs. 25.72 million) and 48.2% (Rs. 14.81 million) of the total revenue derived during that period.

GROWTH IN REVENUES OVER 57% IN LAST 3 YEARS
Company’s revenues have grown by over 57% (CAGR) over the last three years. This growth has placed, and the future growth it anticipates in its operations will continue to place, a significant strain on our managerial, operational, financial and information systems resources.

EXPERIENCED PROMOTER
Promoter and Managing Director, Mr. Kumar Nair has 21 years of experience in the financial services and capital market sector. He is a Chartered Accountant by profession and was with Kotak Mahindra Finance Limited for 9 years. He was last positioned as Vice President of Kotak Mahindra Finance Limited. He is acting as the Managing Director of our Company from 1994.

COMPREHENSIVE FINANCIAL SERVICE PROVIDER
Company along with is subsidiaries is an integrated financial services provider, providing customised financial services such as retail & institutional broking of equity, merchant banking activities, commodities broking, debt broking and derivative products, forex operations, distribution of mutual funds and IPOs, advisory services, trade finance, corporate finance, and project finance.

GODREJ, TATA, MAHINDRA GROUP ETC. ARE COMPANY’S CLIENTS
Company designs complex and innovative financial models and structures and executing the same for leading companies in India including companies belonging to the Godrej, Tata, Mahindra group and a large number of mid cap and large cap companies from a wide cross section of industries.

THE ISSUE
Equity Shares offered: 6,000,000 Equity Shares of Rs. 10/- each

Out of which:
Employee Reservation Portion (1) 100,000 Equity Shares of Rs. 10/- each.
Net Issue to the Public: 5,900,000 Equity Shares of Rs. 10/- each
Qualified Institutional Buyers (QIBs) Portion (2)
(Allocation on a proportionate basis)
Out of which
a) Reservation for Mutual Funds
b) Balance for all QIBs including Mutual Funds
Non Institutional Portion (3)
(Allocation on a proportionate Basis)
Retail Portion (3)
(Allocation on a proportionate basis)
2,950,000 Equity Shares of Rs. 10/- each
constituting at least 50% of the Net Issue
147,500 Equity Shares of Rs. 10/- each
constituting reservation up to 5% of the QIB
portion
2,802,500 Equity Shares of Rs. 10/- each
constituting balance of the QIB portion
885,000 Equity Shares of Rs. 10/- each
constituting up to 15% of the Issue
2,065,000 Equity Shares of Rs. 10/- each
constituting up to 35% of the Issue
Equity Shares outstanding prior to the Issue 8,000,000 Equity Shares of Rs. 10/- each
Equity Shares outstanding after the Issue 14,000,000 Equity shares of Rs. 10/- each

OBJECTS OF THE ISSUE
The Objects of the present issue of Equity Share are:
1. Expansion of office premises for increasing the scale of operations;
2. Making strategic investments or acquisitions of companies engaged in the business of financial services and/ or banking;
3. Geographic expansion through opening of regional offices and overseas branches;
4. Investments in subsidiaries for expansion of their respective businesses; and
5. To meet issue expenses.
As a result of this Issue, the Company also expects to provide liquidity to its existing shareholders.
The main objects clause of the Memorandum of Association of the Company enables the Company to undertake the existing activities and the activities for which the funds are being raised through the present issue.

COST OF PROJECT AND MEANS OF FINANCE

A. Cost of Project:
1. Expansion of office premises for increasing the scale of operations 50.00
2. Strategic investments or acquisition of companies engaged in the business of financial services and banking
100.00
3. Geographic expansion through opening of regional offices and Overseas Branches
32.60
4. Investment in Subsidiaries:
(a) Transwarranty Capital Pvt. Ltd
- Technology up-gradation 15.65
- Working capital 56.00 71.65
(b) Transwarranty Forex & Commodities Pvt. Ltd.
- Acquisition and activation of NCDEX membership 4.00
- Merger of the foreign exchange broking firm – Trans Warranty Forex & Derivatives Company
3.00 7.00
(c) Transwarranty Credit Care Pvt. Ltd.
- Activation of Private Equity/Venture Fund registration with SEBI. 2.00 2.00
(d) Transwarranty Forex & Commodities DMCC - UAE
- Acquisition and activation of membership in the Dubai Gold &
Commodities Exchange
15.75 15.75
5. IPO Expenses [•]

Total [•]
B. Means of Finance:
1. Public Issue [•]
2. Internal Accruals [•]
Total [•]
20
DETAILED BREAK UP OF PROJECT COST

1. Expansion of office premises for increasing the scale of operations
2. Strategic investments or acquisitions of companies in related business including banking
3. Geographic expansion through opening of Regional Offices and Overseas Branches
4. Investments in Subsidiaries

MEANS OF FINANCE
The objects of the issue are proposed to be funded by equity by way of the proposed public issue as under:
The excess proceeds, if any, from the present Issue would go towards general corporate purposes of our company.

Bid/Issue Programme

BID/ISSUE OPENS ON JANUARY 23, 2007

BID/ISSUE CLOSES ON FEBRUARY 2, 2007

BASIS FOR ISSUE PRICE

Quantitative Factors:

1. Adjusted Earnings Per Share (EPS)
EPS for the half-year ended September 30, 2006 is Rs. 2.02

2. Price/Earning (P/E) Ratio in relation to Issue Price of Rs. [•] per share:
a. Based on year ended March 31, 2006 EPS of Rs. 3.10: [•]
b. P/E for Finance and Investments Sector
(Source: Capital Market Vol. XXI/17, Oct. 23 - Nov. 05, 2006; Segment: Finance and Investments Sector)

3. Weighted Average Return On Net Worth (RoNW):
Return on Net Worth for the half-year ended September 30, 2006 is 13.47%

4. Minimum RONW required on increased Net Worth to maintain pre issue EPS (%): [•]

5. Net Asset Value (NAV) per Equity share:

Year ended EPS (Rs.) Weight used
March 31, 2004 1.17 1
March 31, 2005 2.95 2
March 31, 2006 3.10 3

Weighted Average 2.73

Year ended RoNW (%) Weight Used
March 31, 2004 6.90 1
March 31, 2005 15.53 2
March 31, 2006 23.86 3'

Weighted Average 18.26

Net Asset Value (NAV) per Equity share Rs.
As on March 31, 2006 12.99
After the issue based on March 31, 2006 results [•]
As on September 30, 2006 15.01
After the issue based on September 30, 2006 results [•]
Highest 95.8
Average 18.2
Lowest 1.0

6. Comparison with Industry Peerset
1 B.V., EPS and RONW for our Company is as per the restated audited statements by M/s. Haridas Associates, Chartered Accountants. For details, please refer to the section titled 'Financial Statements' on page no. 70 of this Red Herring Prospectus ² Information for the peer group has been taken from Capital Market Vol. XXI/17, Oct. 23 - Nov. 05, 2006; Segment: Finance and Investments Sector.

7. The Issue Price is [•] times of the Face Value of Rs. 10/- per Equity Share
The issue price will be determined on the basis of the demand from the investors in accordance with the SEBI Guidelines. The BRLM believes that the Issue price of Rs. [•] is justified in view of the above qualitative and quantitative parameters.

Name of the Company B.V. (Rs.) EPS (Rs.) P/E RONW%
Transwarranty Finance Limited¹ 12.99 3.10 [•] 23.86
Peer Group²
Centrum Capital 26.0 3.6 69.7 8.7
India Infoline 37.2 5.4 24.8 23.9
Indiabulls Fin. 60.9 4.3 89.8 11.1

BUSINESS STRATEGY

Differentiate Company’s services

Continue to maintain a diversified service portfolio to cater most of the customer needs and demands:

Maximize revenues through efficient use of technology, focused marketing and optimization of resources

Further strengthen the brand name

Focus on other metro/mini metro cities

Launch of International operations and tapping international markets: International operations shall be launched from Dubai activating the membership awarded to the company in the DGCX. This shall be followed with offices in London & Singapore to provide a window for the emerging companies in India to tap international capital and to assist foreign funds as a facilitator to invest in India.

COMPANY’S GROWTH DRIVERS

Ø Strong Brand Equity - A well-known name among the top Companies, Banks, Institutions etc

Ø Diversified portfolio of financial services provided to Corporate and Retail clientele.

Ø Expected sustained credit off take growth by Corporate and Retail clients over the next 5-10 years.

Ø The Indian economy provides several attractive growth opportunities with GDP forecasted to grow above 8% per annum over the next few years.

Ø Huge demand for customized financial services among companies.

Ø Development of key infrastructure sectors is a focus area for government, which presents additional opportunities for companies like us that are active in areas of infrastructure investments

Ø Geographic expansions to further create opportunities in broking services of Equities, Derivatives & Commodities.

Ø Membership of all the major equity and commodity exchanges of the country.

Ø Deployment of latest technological infrastructure to provide scalability, reliability and delivery.

Ø One stop shop for a wide range of financial products and services.

TO HAVE 6 REGIONAL OFFICES & BRANCHES IN LONDON, SINGAPORE & DUBAI
Company operates from its head office at Nariman Point, Mumbai. As a part of groups' business strategy it is decentralizing its activities to 6 regional offices in India and 3 overseas branches in London, Singapore and Dubai.

SUBSIDIARIES TO PUSH GROWTH
Transwarranty Capital Private Limited is a SEBI registered stock broking company with membership in the National Stock Exchange (NSE) in both the Capital Market and Derivatives (Futures & Options) segments and Bombay Stock Exchange (BSE) in the Cash Segments. The company is also a SEBI registered full service Merchant Bank. Transwarranty Forex & Commodities Private Limited a member of the Multi Commodity Exchange (MCX) provides commodities broking services. The company has applied for membership in NCDEX. Transwarranty Credit Care Private Limited is in the form of proposed private equity/venture fund after obtaining necessary registration from SEBI.

International operations shall be launched from Dubai activating the membership awarded to it in the Dubai Gold and Commodities Exchange (DGCX). This shall be followed with offices in London and Singapore to provide a window for the emerging companies in India to tap international capital and to assist foreign funds and companies as a facilitator to invest in India.