Abans Holdings

Diversified financial services provider

Stable financial track record with global presence, but depends on market volatility, treasury operations and limited clients

Abans Holdings is the financial services arm of the Abans Group and operates a diversified global financial services business 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 Abans group is globally diversified organization engaged in Financial Services, Gold Refining, Jewellery, Commodities Trading, Agricultural Trading and Warehousing, Software Development and Real Estate. The group is founded by Abhishek Bansal, who leads a global team operating the businesses from multiple locations including India, United Kingdom, Dubai, Shanghai, Hongkong and Mauritius.

Since inception in 2009, the company has grown from being a commodities trader to a diversified multi-asset and multi-national financial services company with varied financial services businesses. The company is primarily a holding company and operates all businesses through seventeen (17) subsidiaries including three (3) direct subsidiaries and fourteen (14) indirect / step-down subsidiaries. Abans currently has active businesses in six (6) countries including HongKong, UK, UAE, China, Mauritius, and India. The employee base of the company stands at 100 full time employees end August 2022.

Finance Business: Abans operate an RBI Registered NBFC (non-deposit taking), primarily focused on lending to private traders and other small and medium businesses involved in the commodities trading market. The lending assets stood at Rs 174.95 crore end August 2022, down from the pre-covid level of Rs 455.38 crore end March 2020. Interest income from finance business represented 26% of total gross operating income in FY2022. The gross NPA in lending business was nil end August 2022.

Agency Business: The 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, Abans has a direct/indirect membership of 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.

Income from the agency businesses consists of financial intermediary business contributing stock broking income, consultancy and advisory income, wealth and asset management commissions, and commissions from the transactional advisory services and accounted for 14% of total gross operating income for FY2022.

Capital business and others: The capital business includes internal treasury operations which manages excess capital funds invested in low / medium risk strategies, maintaining positions in physical as well as exchange traded commodities and other instruments. The treasury investments are structured to maintain sufficient liquidity in portfolio to support the capital needs of other businesses. The company also provideswarehousing Services to commodity market participants.

The capital business vertical comprises mainly internal treasury operations including physical commodities trading combined with exchange-based trading in foreign exchange, equities and commodities and includes investments and dividend incomes. Gross profit from internal treasury operations and Investment and dividend Income from the capital business vertical accounted for 59% of total gross operating income in FY2022.

The Offer and the Objects

The initial public offer (IPO) consists of a fresh issue of 38 lakh equity share of face value of Rs 2 each to raise Rs 97.3 crore at lower price band of Rs 256 per share and Rs 102.6 crore at the upper band of Rs 270 per share. The offer for sale (OFS) comprises 90 lakh equity shares to raise Rs 230.4 crore at the lower price band and Rs 243.0 crore the at upper price band.

Promoter Abhishek Bansal has offered 90 lakh equity shares for sale in the OFS. The promoter and promoter group shareholding would decline to 72.09% post IPO from 97.42% pre-IPO.

The issue is to be made through the book-building process and will open on 12 December 2022 and will close on 15 December 2022.

The company proposes to utilize about Rs 80 crore from the net proceeds towards further Investment in NBFC subsidiary Abans Finance for financing the augmentation of its capital base to meet its future capital requirements. The net proceeds invested into the NBFC subsidiary will be utilized to grow their loan portfolio by reaching a larger client base.

In addition, it expects to receive the benefits of listing of the equity shares on the stock exchanges and enhancement of the company’s brand name amongst existing and potential customers and creation of a public market for equity shares in India.

Strengths

Abans offer 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.

In-house NBFC business provides lending support to clients.

Gross NPAs in lending business have been nil end August 2022 as well as in the earlier periods.

Integrated service platform with various lines of businesses increases ability to cross-sell services.

Abans 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. International exposure helps customers to diversify a portfolio, which in turn provides a balance between geographies.

Abans 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.

The company has implemented standardized operating procedures and it is efficiently using technology to drive the business.

The debt instruments issued by the company are currently rated BBB+ and have been maintaining a stable rating.

Weaknesses

The company has witnessed decline in revenues mainly due to reduction in physical commodities trading due to covid-19 related changes and gradual movement towards exchange traded commodity instruments instead of physical commodities.

The top line is highly volatile as it largely derives from trading in physical commodities market and cause fluctuations to financial results from quarter to quarter.

A significant portion of revenue is generated from treasury operations, which are are highly dependent on market conditions and the uncertain price movements in the commodities.

The treasury operations are affected by various factors like availability of capital, interest rates, impact cost of international trades, availability of leveraging opportunities etc.

The capital business vertical is restricted by the limits sanctioned by each exchange and the company may not be able to make the necessary and profitable trades if such limits are exhausted.

One of the subsidiaries, Abans Commodities, is involved in a proceeding before SEBI regarding allegations of participation/facilitation by it of pair-contracts as a trading member/clearing member. Abans Commodities contributed 2.6% of revenues and 1.7% of net profit in FY2022. Any adverse outcome in the matter would have an adverse effect on the operations and the reputation of the Abans Group.

The company has made substantial political contributions of Rs 34 crore in FY2021 and Rs 29 crore in FY2019 including contributions to electoral bonds and the same has resulted in reduction in net profits. Any such large contributions if any made in the coming years could materially adversely affect profits.

Entire lending assets/loan book is unsecured in nature as at end August 2022.

The business depends upon qualified personnel and ability to attract and retain it.

The business is dependent on economic and political conditions in India and other countries.

In the treasury segment the top ten parties represent 98%of total sale and purchase of physical commodities for FY2022. The top ten customers in the finance business represent around 73%of the total interest income for FY2022. The top ten customers represent around 92%of revenue from the agency business for FY2022. These dependences are primarily because the company wish to deal with trusted counter parties as these commodities being volatile in nature would expose to credit default risks.

Assets level may fluctuate from period to period depending on holding values of inventories.

Abans Finance, a subsidiary, has invested in unquoted compulsorily convertible debentures and unquoted market-linked debentures of third-party companies at Rs 30.30 crore, accounting for 32% of total investment end August 2022. The company may face problem from any decline in the value of these investments and liquidation at or prior to their redemption date to realize equivalent value.

The securities industry is characterized by rapidly changing technology and the future success of business will depend in part on ability to effectively adapt to technological advances and to emerging industry standards and practices on a cost-effective basis.

The financial services industry globally and in India is fragmented and typified by low barriers to entry. The competition isbased ona number of factors, including execution, depth of product and service offerings, innovation, reputation, price and convenience.

Valuations

Abans Holdings has grown its net profit at CAGR of 28% to Rs 56.88 crore in FY2022 from Rs 34.83 crore in FY2020, despite economic contraction caused by the pandemic & reduction in total income.

The consolidated EPS on post-issue equity works out to Rs 11.3 for FY2022. At the price band of Rs 256 to Rs 270, P/E works out to 22.7-24.0 times of consolidated EPS for FY2022.

Post-issue, the book value (BV) will be Rs 155.7 at upper price band and adjusted BV (ABV) is also Rs 155.7 (due to NIL NPAs). The scrip is being offered at price to Adj BV multiple of 1.7x at the upper price band.

Among the peer financial services companies, Geojit Financial Services is trading at PE multiple of 7.5 times and Edelweiss Financial Services at 32.8 times of consolidated EPS for FY2022.

On price to book value front, Geojit Financial Services was trading at 1.7 times and Edelweiss Financial Services at 1.0 times of their book values at end September 2022.