When the general meeting of Kochi-based broking firm JRG Securities Ltd—scheduled for 24 August—gives the nod to Duckworth Ltd, a wholly owned subsidiary of Baring India Private Equity Fund Ltd, to acquire a 44.8% stake in the firm, the last of the main broking firms in Kerala will have given controlling stake to an outside company. Duckworth is incorporated under Mauritian laws.
Given the trend of investors seeking a stake in big broking companies, the move by the small Kerala-based firms to tie up with bigger companies in order to grow and become national players amid stiff competition is natural, said T.S. Anantharaman, chairman of the Peninsular Group, which first started this trend by selling off its equity broking arm to Motilal Oswal Securities Ltd way back in February 2006 for Rs35-40 crore. “Our group has retained the commodity wing and has been expanding to reach 125 outlets”.
Planning ahead: JRG Securities’ Reji Jacob says the retail segment in financial services is expected to be hot in the next 5-10 years, and a small set-up would be a deterrent for business and growth.
In the case of leading player Geojit Financial Services Ltd, French financial services group BNP Paribas decided late last year to buy a 33.35% stake in it for Rs207 crore—the largest investment in an Indian retail broking firm. The deal got the approval of shareholders in March.
Geojit managing director C.J. George had then said that the French bank had been on the lookout for investments in India and finally zeroed in on the Kerala-based firm. The fund infusion would be used for expansion of business in West Asia, branch expansion across the country and strengthening the distribution of financial products.
The largest and oldest retail broking firm in Kerala, Geojit, has a network of nearly 400 branches, including overseas presence in West Asia, and 425,000 customers. For the April-June quarter, it recorded revenues of Rs35.12 crore and a net profit of Rs10.96 crore.
Even a relatively small broking firm, Select Securities, managed to find a suitor in Doha Bank, which acquired 49% stake in the company in early May this year. The unlisted company has not disclosed the size of the deal.
Following suit was Kerala’s second largest broking company, JRG Securities, whichoffloaded 44.8% of its stake to Baring India for Rs140 crore ($35 million). A warrant issue later would see Baring have more than 60% stake in JRG, which went in for a public issue in 2006. The broking firm has a network of 540 branches, including a presence in West Asia. JRG posted an income of Rs8.92 crore during the first quarter of fiscal 2007-08, and a net profit Rs1.57 crore.
JRG managing director Reji Jacob said given the small position being held by broking firms, it is not possible to have a competitive playing field. The retail segment in financial services is expected to be hot in the next 5-10 years, and a small set-up would be a deterrent for business and growth, he added.
Even major broking firms are under takeover threats, and so a tie-up for a small firm such as JRG with Baring sends the right signals. “This investment will also help us expand our network,” Jacob said. “We also plan to strengthen our operations across India and West Asia,” he added.
Justifying the deals, Peninsular’s Anantharaman said, “From a state like Kerala, it is not possible to grow to have a national presence. Neither is it possible to have a niche market confined to a small region, since the business is expanding at an amazing speed breaking boundaries. The amount of research and the investment needed, especially for the equity market, will make it impossible for such small firms here to cater to the needs of clients and also survive.”