AK Capital services is probably not a counter that many of you may be aware of. You don’t find any interviews of these guys on business channels not is it a widely spoken counter by analyst community. But, this small 340 Crore Company is a leading player in the debt market segment. Yea, debt market and probably that’s one reason why there is not much fizz around this counter.
AK Capital Services is a Category I merchant banker registered with SEBI and does the business of raising funds in the debt markets for various institutions including corporate, banks and even government entities. Debt market or bond market, whatever you call it is still at a nascent stage in India. When you speak about an Equity market in a country with only 3% or so participation, what can you really expect out of the bond market? That’s the way it is. But, hopefully things will change over the decade both for equity markets and bond markets.
Whats gung ho about Indian Equity markets? What depth or breadth do we have currently? Not, much. Recently, Agriculture bank of China raised 19 biillion USD in its IPO and that’s something that we can hope to see over say a year’s time. And speaking about debt markets, it’s at a even more nascent stage but continue to hold tremendous potential in the country.
While I don’t really count much on projection, it is being said that the debt market in the country would contribute approximately to 55% of GDP or say around 1.5 trillion USD by 2016 from around 40% in 2009. The bond market witnessed a 50% growth in corporate bond trading and the Government securities market has grown by more than 70%.
While the growth is present, there is still a long way to go. Also, the change seems to be already in the air. More and more corporate entities are looking at bond markets and these instruments are slowly coming closer to the customers. Basically, the target audience would be the investors who usually go for bank deposits.
They will earn 4% or 5% higher than the bank deposits and that’s really an attractive factor. Even these debt placements are being advertised and these measures are creating awareness among the investors. To remember a few, debt placements from Shriram group, Tata s and Larsen and Toubro have been instant hits. Why would somebody go to an SBI for a 6% return when compared to 12% from TATA s or L&T.
Also, the government seems to be doing its part with its reforms in the bond market. For, it clearly knows there is no better solution to finance India’s infrastructure needs than a deeper bond market. Last year, the ceiling on investments by FII s into corporate bond markets has been raised from 10 billion USD to 15 billion USD.
While these are some clear signals that the dynamics are improving in the bond market, this could impact AK Capital services in a positive manner. This company has a 30% market share in the bond market and is a segment leader. They have been into this business for almost 15 years and they have slowly increased their market share over the years. And getting back to the topic of this article, this company is currently available on valuations of just 5 over its TTM earnings. Well, it’s a new thing for this company J The counter has always been cheap on the bourses.
However, with the changing dynamics of the bond markets, there is a good reason that the counter can be re rated on valuations. Moreover, there are quite a few interesting things going on. Well, consider that I have been doing this business for almost 15 years and I know the in and out of it. I am also the market leader in this segment. Can I leverage on these factors? Why not and that’s what the company is up to.
The company has floated a NBFC – AK Capital finance which will involve in providing loan against securities. The company is also planning to introduce portfolio management services. The company could really do well in these segments, looking at the income that they generate from investments. While a PE re rating is something that can be expected out of this counter, I am not really sure when it will happen and where it will take the counter to. There are chances that one is underway already.
The company also plans to raise 400 Crore through a QIP which is expected to fund both the organic and the inorganic growth for the company. There have also been latest inputs that the company has been recruiting heads of various brokerage houses and wealth management businesses.
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