Abans Holdings coming with an IPO to raise upto Rs 345.60 crore

Abans Holdings

• Abans Holdings is coming out with a 100% book building; initial public offering (IPO) of 1,28,00,000 shares of Rs 2 each in a price band Rs 256-270 per equity share.
  
• Not more than 10% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 30% of the issue will be available for the non-institutional bidders and the remaining 60% for the retail investors.
  
• The issue will open for subscription on December 12, 2022 and will close on December 15, 2022.
  
• The shares will be listed on BSE as well as NSE.
  
• The face value of the share is Rs 2 and is priced 128 times of its face value on the lower side and 135 times on the higher side.
  
• Book running lead manager to the issue is Aryaman Financial Services.
  
• Compliance Officer for the issue is Sheela Gupta.
  

Profile of the company

The company represents the financial services arm of the Abans Group. It operates a diversified global financial services business, headquartered in India, providing NBFC services, global institutional trading in equities, commodities and foreign exchange, private client stock broking, depositary services, asset management services, investment advisory services and wealth management services to corporates, institutional and high net worth clients.

The company operates a RBI Registered NBFC (Non Deposit taking). Its Finance business is primarily focused on lending to private traders and other small and medium businesses involved in the commodities trading market. It is SEBI registered Stock and Commodity Exchange Brokers with memberships across all the major stock exchanges in India, including BSE, NSE, MSEI, MCX, NCDEX and ICEX. Further being FCA registered financial services firm in London, it has direct/indirect memberships in various international exchanges like DGCX (Dubai), LME (London), INE and DCE (China). It is also a SEBI Registered Portfolio Management company as well as a SEBI Registered Category-I FPI.

The company offers various institutional and non-institutional trading services, wealth management and private client brokerage services, mainly in equity, commodities and foreign exchange. Its Capital Business includes its internal treasury operations which manage its excess capital funds. It does so by investing its capital in low / medium risk strategies, maintaining positions in physical as well as exchange traded commodities and other instruments. The company structures its treasury investments to maintain sufficient liquidity in its portfolio to support the capital needs of its other businesses. Further it provides Warehousing Services to commodity market participants.

Proceed is being used for:

• Further investment in the company’s NBFC Subsidiary (Abans Finance) for financing the augmentation of its capital base to meet its future capital requirements.
  
• General Corporate Purpose.
  

Industry overview

India has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of existing financial services firms and new entities entering the market. The sector comprises commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The banking regulator has allowed new entities such as payment banks to be created recently, thereby adding to the type of entities operating in the sector. However, financial sector in India is predominantly a banking sector with commercial banks accounting for more than 64% of the total assets held by the financial system. The Government of India has introduced several reforms to liberalise, regulate and enhance this industry. The Government and Reserve Bank of India (RBI) have taken various measures to facilitate easy access to finance for Micro, Small and Medium Enterprises (MSMEs). These measures include launching Credit Guarantee Fund Scheme for MSMEs, issuing guideline to banks regarding collateral requirements and setting up a Micro Units Development and Refinance Agency (MUDRA). With a combined push by Government and private sector, India is undoubtedly one of the world's most vibrant capital markets.

The banking and non-banking financial company (NBFC) sector in India has witnessed significant market-driven and regulatory events in the last decade. Cumulatively, these have had a profound impact on the industry. Some of the noteworthy developments include the issuance of new bank licences for universal banks, introduction of a new category of banks (small finance banks and payments banks); insolvency processes and the resolution of a few large nonperforming assets (NPA) situations; and consolidation of public sector banks (PSBs), etc. Before the onset of the COVID-19 pandemic, the sector was dealing with the contagion effects associated with the collapse of a few NBFCs and co-operative banks. However, innovation and the continuous adoption of technology did not falter within the sector even through these tough times. The evolution of the core banking system has transformed the banking sector‘s propositions, with anywhere banking and internet banking reducing the customers‘ need for visiting the branch. Digital payments not only helped in business-to-business (B2B) transactions but also pushed the adoption of e-commerce.

India commodity market consists of both the retail and the wholesale market in the country. The commodity market in India facilitates multi commodity exchange within and outside the country based on requirements. Commodity trading is one facility that investors can explore for investing their money. The India Commodity market has undergone lots of changes due to the changing global economic scenario; thus throwing up many opportunities in the process. Demand for commodities both in the domestic and global market is estimated to grow by four times than the demand currently is by the next five years.

Pros and strengths

An integrated financial services platform: The company offers its clients an integrated financial services platform, offering various financial services and products, including financing, institutional trading, private client brokerage, asset management and investment advisory services. Further, these services are provided not only in the Indian markets but across various markets and exchanges globally. Besides being members of the BSE, NSE, MSEI, NCDEX, ICEX, MCX and IIEL in India, it has memberships across various global commodity and forex exchanges including London Metal Exchange (LME), Dubai Gold & Commodities Exchange (DGCX), Dalian Commodity Exchange (DCE) and Shanghai International Energy Exchange (INE). Further it has in-house NBFC business which provides lending support to its clients. Its integrated service platform allows it to leverage relationships across lines of businesses and its industry / product knowledge by providing multi-channel delivery systems to client base, thereby increasing its ability to cross-sell its services.

Global exposure providing innovative financial products: The company is a global financial services provider offering opportunities in multi-asset global institutional trading in equities, commodities and foreign exchange, private client broking, asset management and investment advisory services and wealth management services to corporate, institutional and high net worth individual clients. Its International exposure helps its customers diversify a portfolio, which in turn provides a balance between geographies. The company offers its clients with access to various commodity trading avenues through its direct/ indirect memberships in London Metal Exchange (LME), Dubai Gold & Commodities Exchange (DGCX), Dalian Commodity Exchange (DCE) and Shanghai International Energy Exchange (INE). Also, it offers its clients an advanced trading platform and FIX API connectivity that provides ultra-low latency. It specifically offers a Contract for Difference (CFD) product to its institutional and HNI clients with a risk appetite.

Strong relationships with clients and market participants: The company has been in the business of commodities, equities and forex trading, domestic and global and has amassed an experience of more than a decade. Over the period it has grown its network of clients and traders not only in India, but also on a global scale, mainly in UK, Mauritius, Hongkong and the Middle East. Its focus on nurturing long-term relationships with its trading counter parts as well as HNI and institutional clients, and serving them through the course of their development, has enabled it to form strong relationships with these clients, thereby leading to long term sustainable and scalable business operations. Its dedicated focus on client coverage and its ability to provide ongoing and innovative solutions in terms of diversity of investment avenues and global execution, enables it to establish long term relationships with institutional and high net worth individual clients. These deep relationships provide it with an advantage in attracting better brokerage fees and trade commissions.

Standardized operating procedures and efficient use of technology: The company has implemented standardized operating procedures that have enabled it to develop a scalable and replicable business model across the globe and across its various financing product portfolios. Its business operations involve a large number of transactions, across various countries and locations involving different currencies. It has implemented standardized terms for its financing products, as well as standardized operating procedures for customer acquisition, customer engagement, account management and cash collection. It typically have separate teams for customer origination, disbursement and collection and an entirely different team for compliances and for research into a large number of equities, commodities and other financial products, aimed at improving operating efficiencies, productivity and risk management. Its trading and financial research team also typically undertakes daily reconciliation of financial transactions. It provide training to its employees to ensure they are able to effectively engage with and educate its traders & customers about possible opportunities, arbitrages, investments, etc. also and the terms of the financing.

Risks and concerns

Reliance on third-party intermediaries: The company relies on third parties, such as stock exchanges, clearing houses and other financial intermediaries to facilitate its financial transactions. In addition, it relies on several warehousing space for its client‘s and its internal treasury‘s commodity trades done on physical delivery basis. Any of the above risks may result in litigation or regulatory action against it, which could have a material adverse effect on its business, reputation, financial condition and results of operations. In addition, it hires various warehousing spaces to store its commodity trading goods purchased via exchange or OTC transaction. These goods are primarily stored for short duration i.e. till the open position is squared off and the delivery of such commodity is passed to the buyer. The company has tie-ups with various large scale 3rd party warehousing service providers wherein it utilizes the storage space not on a fixed rent, but based on storage, weight & duration. Though, it has generally enter into agreement with such service providers for obtaining storage space as and when required, it may be subject to availability and logistical arrangements.

High working capital requirements: The company’s business requires a high amount of working capital. Its NBFC Business needs working capital for providing loan disbursements and making timely payments towards borrowing obligations, its physical commodities trading activities requires it to provide credit to customers from time to time and make payment to its creditors on a lower credit period and its broking operations require it to maintain adequate liquidity in form of margins at Stock Exchanges and Commodities Exchange for ensuring smooth trading services. As per the Restated Consolidated Financial Information, its total gross working capital asset for the FY 2022, FY 2021 & FY 2020 were Rs 91,573.89 lakh, Rs 89,288.61 lakh & Rs 1,05,886.44 lakh respectively and the same are funded from combination of owned & borrowed funds. The total borrowed funds for the FY 2022, FY 2021 & FY 2020 were Rs 8,590.43 lakh, Rs 26,738.56 lakh & Rs 31,879.45 lakh respectively. To finance such capital requirements, it has and may in the future avail various loan facilities including, but not limited to secured & unsecured debentures, overdraft facilities, working capital demand loans and bank guarantees.

Face significant competition: The financial services industry globally and in India is fragmented and typified by low barriers to entry. Accordingly, its competitors are other non-banking financial companies, brokerage firms, AMCs and financial advisory firms. It competes with various brokerage companies, AMCs and financial advisory companies on a national scale as well internationally. It competes on the basis of a number of factors, including execution, depth of product and service offerings, innovation, reputation, price and convenience. Further, many of its product and service offerings in the wealth management, brokerage and distribution businesses are easy to replicate. This increases the risk of competition from commercial banks, service providers and distribution platforms to enter the market. Further, any consolidation in the Indian financial & securities industry would also expose it to competitive pressures. These competitive pressures may affect its business, and its growth will largely depend on its ability to respond in an effective and timely manner to these competitive pressures. Its business, financial condition, cash flows, results of operations and prospects may be materially and adversely affected if it is not able to maintain its market position, sustain its growth, develop new products or target new markets.

Vulnerable to the volatility in interest rates: The company’s operations, particularly NBFC operations, are highly vulnerable to volatility and mismatches in interest rates. Its net interest income and profitability directly depend on the difference between the average interest rate at which it lend and the average interest rate at which it borrow. The cost of its funding and the pricing of its loans are determined by a number of factors, many of which are beyond its control, including the RBI‘s monetary policies, inflationary expectations, competition, deregulation of the financial sector in India, domestic and international economic and political conditions and other factors. Even though it has not had any such material incident in the past, these factors could affect the interest rates charged on interest-earning assets differently than the interest rates paid on interest bearing liabilities. While any reduction in its cost of funds may be passed on to its customers, it may not have the same flexibility in passing on any increase in its cost of funds to its customers, thereby affecting its net interest income.

Outlook

Abans Holdings offers its clients an integrated financial services platform, offering various financial services and products, including financing, institutional trading, private client brokerage, asset management and investment advisory services. Further, these services are provided not only in the Indian markets but across various markets and exchanges globally. Besides being members of the BSE, NSE, MSEI, NCDEX, ICEX, MCX and IIEL in India, it has memberships across various global commodity and forex exchanges including London Metal Exchange (LME), Dubai Gold & Commodities Exchange (DGCX), Dalian Commodity Exchange (DCE) and Shanghai International Energy Exchange (INE). Further it has in-house NBFC business which provides lending support to its clients. Its integrated service platform allows it to leverage relationships across lines of businesses and its industry / product knowledge by providing multi-channel delivery systems to client base, thereby increasing its ability to cross-sell its services. On the concern side, the company’s agricultural-commodities business is seasonal in nature. Since agricultural commodities follow a certain cropping season and accordingly volumes in these commodities may increase its decrease substantially quarter on quarter leading to differential results of operations for it to that extent. Besides, the company requires several statutory and regulatory permits, licenses and approvals to operate business.

The issue has been offered in a price band of Rs 256-270 per equity share. The aggregate size of the offer is around Rs 327.68 crore to Rs 345.60 crore based on lower and upper price band respectively. On the performance front, in fiscal 2022, the company’s total income decreased by Rs 68,513.05 lakh or (51.46%), from Rs 1,33,136.51 lakh in fiscal 2021 to Rs 64,623.46 lakh in fiscal 2022. After accounting for taxes at applicable rates, the company’s Profit after Tax increased by Rs 1,617.58 lakh or 35.32%, from Rs 4,579.57 lakh in fiscal 2021 to Rs 6,197.15 lakh in fiscal 2022. Meanwhile, the company aims to leverage the technology it currently use and progress further towards a model that meets its clients‘ requirements by facilitating easy on-boarding, ease in transacting and access to other relevant data through its digital platforms. Through these initiatives, it expects its client‘s user experience to improve, which should enable it to build client loyalty.