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Investors can give the initial public offer (IPO) of Onelife Capital Advisors a miss. Onelife Capital provides investment banking services and plans to enter equity broking and portfolio management services (PMS).
It is yet to make meaningful inroads in investment banking , and PMS and equity broking businesses are yet to kick off. The company's businesses depend heavily on equity market which may expose earnings to considerable volatility.
Onelife Capital is raising Rs 36.8 crore, which pegs its overall market value at Rs 146 crore. Proceeds from the offer will contribute more than 70 per cent of the company's net worth.
The price at the upper end of the price band (Rs 110) would value the company at 2.9 times FY11 book value (plus the infusion), which is at a premium to larger financial services companies such as Motilal Oswal Financial Services (1.1 times FY11 consolidated book) and Emkay Global Financial (0.8 times FY11 book). These businesses are profit-making while Onelife Capital incurred losses in FY11.
BUSINESS
For the year-ended FY11, the operating income fell by 40 per cent due to slowdown in fund-raising by companies. This, along with team expansion expenses, resulted in the company incurring a loss of Rs 60 lakh. As on July 15, Onelife Capital signed nine mandates for fund-raising through IPO and two mandates for joint venture which amount to Rs 473 crore. These mandates, if executed, may improve its fee income, but the visibility of execution now is low, given the weak market. According to Bloomberg League Tables, Onelife Capital Services has three IPO mandates, of which one IPO got listed in May 2011 (Paramount Printpackaging). The other two IPOs are yet to tap the market. .
Onelife Capital Services ranks 63rd of the 72 underwriters from beginning of February 2010 (when the company began its operations). The fund plans to concentrate on SME mandates which have higher fee and is an under-penetrated segment. It also plans to leverage on SME relationships for various other advisory services. However, this strategy may only deliver over the long term.
With the BSE and the NSE planning to open SME exchange platforms, companies such as Onelife Capital may have an important role to play. However, fund raisings of small and medium sized companies may be more susceptible to market volatility than well-known names and the business may be quite cyclical for this reason.
USE OF THE PROCEEDS
The company plans to use close to one-third of the Rs 33 crore proceeds to develop its PMS business and another Rs 7 crore to purchase property for its corporate office. The rest is expected to be used for brand-building and general corporate purposes.
The lack of branch network and brand in the retail segment would make its job difficult in the highly competitive PMS and equity-broking businesses. Equity broking is in a difficult phase with retail margins and volumes shrinking.
The company is a late entrant in the PMS industry, which already has some big names. Many established equity brokers and financial institutions, to diversify their revenue streams, have entered the PMS business. SEBI has recently proposed stricter regulations for PMS providers, with higher ticket sizes and defined areas of operations. This is expected to raise the bar for existing and new entrants to the business.
