Wednesday, November 28, 2007

Almondz Global Securities Ltd - Striding Ahead

It is said that the best investment ideas are often the simple common sense ones. This report will introduce you to an investment idea whose beauty lies in it’s simplicity.

The answers to 2 simple questions will give you, the reader, a gist of where the author is coming from :
· Is India really in a midst of an unprecedented & huge secular growth story ?
· Can this growth story sustain without a corresponding growth in the financial services sector ?

If your answer to the first question is the affirmative, you would be in the company of most economists, analysts, institutions, government agencies, the World Bank ….. the list is endless. Most predictions of the growth of the Indian economy range from a minimum of 7 % per annum (the conservative estimates), to double digit growth per annum (the optimistic estimates).

This would lead us to the second question & the obvious answer :
No, this growth story would undoubtedly need the financial services sector to also grow at a frenetic pace, ensuring that capital can be raised efficiently by businesses, and investment opportunities & instruments were readily available for investors, both institutional & retail. Thus India’s growth story presents huge opportunities for players in the financial services sector capable of grabbing them.

For an investor, identifying the companies in this sector that are most geared up to & capable of grabbing these opportunities, while at the same time being comparatively under-researched, could lead to potential multi-bagger returns in a market where most of the “known” stories are already adequately discounted. The author believes he has found one such company :
Almondz Global Securities Ltd (BSE Code : 531400)
CMP : 70.45 (closing price on the BSE on 27.11.2007) .

Note : This is an updated recommendation, the author has recommended the stock on various message boards a year ago at Rs 25/- levels & thereafter made a formal recommendation at Rs 62.60 on 21.2.2007. This formal report is being re-issued herewith with suitable updates .

Almondz Global Securities Ltd – Company Profile
Almondz Global Securities Ltd (AGSL), formerly called Allianz Securities Ltd, was incorporated in 1994, and is the flagship company of the Almondz group.

AGSL is a SEBI registered Merchant Banker with vast expertise in Corporate Finance, Debt Portfolio Management and Retail Distribution of Financial Products. Post the merger of it’s sister concern Almondz Capital Markets Pvt Ltd (ACML), an emerging player in the retail brokerage industry, AGSL is set to emerge as an integrated broking firm with a wide range of service offerings. The merger is currently underway.

The holding company of the group Almondz Capital & Management Services Ltd, is also a listed company.

Board Of Directors
The Board Of Directors of AGSL consists of eminent personalities having rich & varied experience in the Indian financial sector :
• Atul Kumar Shukla, Chairman
(former Chairman, Life Insurance Corporation of India).
• K.L. Khetrapaul, Director
(former Executive Director, Reserve Bank of India)
• C.K. Tikku, I.R.S., Director
(former Chairman, Central Board of Direct Taxes (CBDT)).
• M.K. Aggarwal, Director
(former Managing Director, State Bank of Hyderabad.)
• S. R. Bansal, Director
(Lawyer; Member of Institute of Internal Auditors, USA and Member of Association of Certified Fraud Examiners, USA.)
• G.P. Agrawal, Director
(formerly Advisor / Director in various companies advising on Corporate Affairs, Capital Market, Company Law and Legal matters.)
• Jagdeep Singh, Director
(associated with Allianz Group since inception.)
• Navjeet S. Sobti, Executive Vice-Chairman.
• Vinay Mehta, Managing Director & CEO
(formerly Group Head – Risk, with Centurion Bank of Punjab Ltd)

Products / Offerings
AGSL has a gamut of products that cover the entire investment spectrum, organized under verticals with a focused approach & attention to each :
(A) Investment Banking
· Management of IPOs, FPOs & Rights issues
· Private Placement Of Equity & Debt
· Delisting, Takeover, Substantial Acquisition & ESOPs
· Managing Debt Issues
· Syndication Of Term Loans
· Tie-up of Project Finance

(B) Debt Portfolio Management Services
· Secondary Market Debt Operations
· Debt Portfolio Advisory

(C) Infrastructure Advisory Services
· Appraisal of bids/proposals on behalf of government institutions in the Power, Roads, SEZs and Urban Infrastructure Sector

(D) Retail & Distribution (Financial Products)
1. Distribution of Equity & Debt IPO’s, including institutional placement
2. Mutual Funds
3. Tax Saving Instruments
4. Fixed Deposits
5. Life Insurance products

(E) Equity Brokerage – Retail & Institutional (including Online trading)

(F) Retail Commodity Brokerage &

(G) Launch of India-Specific Funds at a later date (in a tie-up with the Noble Group)

AGSL's client base in the Corporate Finance segment covers all leading Public Sector Undertakings, large Corporates and the vast and increasingly important segment of SMEs.

In the Debt markets, the company has relationships with over 3500 leading Provident Funds.

In Retail Distribution, it has built a large base of retail customers along with an associate / sub-broker network of 1500 across the country.

The Company has also set up a Private Clients business to advise and manage Strategic and Private clients.

The biggest growth driver going forward is likely to be the brokerage foray, which is covered in detail below.

Brokerage Foray (via ACML, being merged with AGSL)

· AGSL (via ACML) has memberships of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) and offers broking services across market segments (Cash and F&O).
· It is a Certified Clearing Member for both the Cash and F&O segments of the market
· The company is a Depository Participant with the Central Depository Services India Ltd. (CDSL)
· It has a 100% subsidiary “Almondz Commodities Pvt. Ltd.” which has memberships of the Multi Commodity Exchange of India Ltd. (MCX) and the National Commodity and Derivatives Exchange (NCDEX)
· AGSL has chalked out plans to become a significant player in Institutional and Retail Broking. The organization is built around these two business segments, each having its own revenue and cost centers and separate business drivers
· AGSL’s larger foray is intended in Retail. Large scale recruitment is currently underway for Retail. Over 250 employees recruited, including 100 in operations and support functions. Total sales force estimated at 1500 people by early FY09.

Retail foray to have the following attributes:
-> Capital Intensive in the first year
-> Technology savvy (fast, easy to use online trading platform)
-> Clearly defined Risk Management and Operation Systems
-> Quality Manpower
-> Pan India footprint within 12 months

Institutional Business Model
The Institutional Business aims to have at least 50 empanelments over the next 12 months. The Almondz group is leveraging it’s existing institutional relationships to get a strong foothold in this business.

Institutions prefer to empanel only those companies with strong research capabilities & extensive access to company managements. Here again the Almondz group is leveraging it’s extensive existing Corporate Relationships built up over the years.

AGSL has already tasted success in it’s efforts, and has been empanelled by various banks & institutions.

Retail Business Model
· AGSL aims to be one of the Top Five Retail Financial Services players in the country

· The company has put in place high sales performance standards and a strong incentive system which will encourage performance. The system is expected to create a Retail organization over a period of time comprising high performers

· The Sales Force will be empowered by giving them access to different financial products.

· The Online Platform will have both Browser as well as an EXE based interface for HNI clientele

· Centralized Operations have been created to manage the backend needs of the Retail Organization. The back-office has been segregated into specialized functions such as DP, Stocks, Trade Processing, Risk, Funds, Dispatch, Help Desk etc

· Large Sales Hubs will be created across important Financial Centre's to drive Business. These Hubs will have more than 100 Relationship Managers

· Franchisee model may also follow at a later stage

AGSL – Latest Developments

Tie-up With Noble Group
AGSL has entered into a Memorandum of Understanding (MoU) with Noble Group (website , an Independent Investment bank in UK, to jointly pursue cross-border business opportunities in the financial services domain.

The principal areas of co-operation include setting up a Foreign Institutional Investor (FII) desk in London and Mumbai, starting primary equity operations, and establishing a fund through which principal investments will be made by Almondz and Noble Group in India.

The two firms plan to establish a FII desk in London. The desk will develop the business of selling Indian listed equity products and equity linked and hybrid securities to UK and other International Institutional Investors, and UK equities to Indian Institutional Investors.

Besides setting up the FII desk, Almondz and Noble will be working together to develop a strategy for Indian Companies interested in listing or offering equity (including ADRs, GDRs and equivalents) and also establish an India specific Fund.

AGSL - Growth Drivers

• With rising household incomes & investible surplus’s, and with hardly 5% retail participation in equity/debt markets, there is a humungous opportunity waiting to be tapped. AGSL is well poised to make the most of this opportunity.

• Strong macro economic factors, rising industry confidence, increasing capex & infrastructure spend make for an ideal environment for AGSL’s corporate finance segment to grow significantly in the coming years.

• Distribution of Life Insurance products opens up another lucrative line of business with great potential .

• AGSL is enhancing it’s focus & services in the Infrastructure Advisory line, which again offers a huge business opportunity. AGSL would be adding Debt Portfolio Management and Debt Advisory Services in the coming year, where it senses a lot of institutional & HNI interest

• Merger with ACML opens up an exciting opportunity in the brokerage industry, one that will pay-off from 2008 onwards.

• Tie-up with the Noble Group promises to open up another exciting opportunity for AGSL. Results of this association would be seen from FY09 onwards.

Risks / Mitigation

• The aggressive growth plans of AGSL would require timely availability of finance. However the holding company has committed itself to providing adequate & timely finance. The company has already been successful in issuing a preferential placement to the promoter group & the Bennett & Coleman group @ Rs 80/- , and is likely to bring in further capital by way of preferential issues in future too.

• Execution capabilities would be very important to make the most of the huge opportunities available . However AGSL has proved itself over the last few years & with the new team in place ably led by Mr. Vinay Mehta, and with strategic advice from an illustrious board of directors, this may not be a high risk area going forward.

• Any slowdown in the Indian economy would affect the prospects of the financial services sector. However the vast majority of opinion is in favour of the line of continued growth over the next few years.

• The brokerage division would gradually become a major contributor to the top & bottom line of AGSL. Since the major revenue would come from brokerage earnings, with the average brokerage earned per client as an important consideration, any long term lethargy in the stock markets would sap investor interest & reduce this figure. While this is something that cannot be predicted with any great accuracy, it is the opinion of the author that the country is in the midst of a multi-year boom in economic growth, and the stock market will have to follow suit, albeit with breathers from time to time.

• AGSL would need to ramp up it’s sales force & coverage rapidly to compete with the established players like IndiaBulls, Sharekhan, India Infoline, Geojit, Religare, Reliance Money etc. It would also face stiff competition from these brokerage houses in terms of client additions, brokerage rates, superior trading systems, recruitment & retention of appropriate human resources. Recruiting the right human resources at competitive packages & retaining them would provide quite a challenge.

The author’s anticipation of AGSL’s projected numbers for FY09 (post equity dilution) :

Estimated fully diluted Equity (post merger with ACML & estimated 2 further tranches of equity placement by FY09) : Rs 24 Cr
Estimated EPS for FY09 : Rs 12/-
Estimated Market Price (at PE of b/w 15-20) by July 2009 : Rs 180/- to Rs 240/- *

* Brokerage firms like India Infoline, IndiaBulls, MOST, Religare etc are currently enjoying P/E ratios of 30+ on FY07 earnings


Almondz Global Securities Ltd appears to be well placed to make the most of the humungous opportunity that India’s secular growth story offers the financial services sector. With the merger of the unlisted ACML with AGSL, the value in the Almondz group is all set to get unlocked through the group’s listed entities.

With respect to ACML, it is to be noted that Retail business is capital intensive in the initial year of operation with massive one time investments in establishment of Branches and Technology. Also, significant manpower recruitment in ACML will happen over the course of the first 2 years, the full impact of which will be realized in the following years. Given these two facts, the author feels that there will be huge improvement in both top line and bottom line numbers of AGSL from FY09 onwards, as the contribution from ACML rises exponentially.

The author expects AGSL’s discounting to steadily catch up with that of it’s peers, like IndiaBulls & India Infoline. The author feels that AGSL could well turn out to be a multi-bagger and suggests investment at current levels & on all declines taking a two year investment view on the company.

Author : Bosco Menezes

Recommendation Date : 28.11.2007

At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation.
Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor.
The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company.
Feedback / brickbats may be hurled at the author at .