Sharekhan up for sale, valued at Rs 3,000 crore; Actis, Warburg Pincus & IndusInd eye brokerage: Sources

MUMBAI: Top private equity houses Actis and Warburg Pincus, and private lender IndusInd Bank are in the race to acquire Sharekhan, a leading brokerage valued at Rs 3,000 crore, three people directly familiar with the matter said. This could be one of the largest deals in the stock broking industry. Citi Venture Capital International (CVCI), the majority owner of Sharekhan, has hired Citi to find a buyer. CVCI, now a part of The Rohatyn Group, is the erstwhile venture capital arm of Citigroup. “Multiple due-diligence process is going on. It will take a couple of months before the preferred suitor is selected,” said one of the shareholders of the Mumbai-based online retail brokerage firm.
Some of the other private equity funds that had shown preliminary interest in the transaction are no longer in the fray. A top IndusInd Bank official declined to comment while a spokesperson for Warburg Pincus said, “As you know, the firm does not comment on such activities and deal-related queries. Hence Warburg Pincus is unable to share any perspectives or comments in this regard.” Actis South Asia head JM Trivedi in an emailed response said: “We do not comment on market speculation.” CVCI owns 60% in Sharekhan. Other shareholders are Barings Asia (14%), IDFC (10%), Samara Capital (5%) and the balance is held by the employees of the broking firm.

In 2007, CVCI had acquired 85% stake in Sharekhan for about Rs 825 crore, buying out the 37% stake held by the promoter Shripal Morakhia and 48% equity held by a clutch of PE funds including General Atlantic and Intel Capital.
The investment then was both primary and secondary — Rs 200 crore was infused into the company by subscribing to issue of shares and Rs 625 per share was paid to exiting shareholders. Along with CVCI, IDFC and Samara Capital too had invested in the company. Subsequently in 2008, Barings Asia picked up around 12% in Sharekhan.

“If the deal goes through, CVCI, in rupee terms, would make 3-3.5 times return on their eight-old investment which would generate an internal rate of return of 15-20%,” said one of the persons quoted above. The IRR is the net return earned by private equity funds over a certain period of time.
In terms of retail reach, Sharekhan is the second-largest brokerage firm after ICICI Direct.

It is expected to make a profit of Rs 170-175 crore in FY15. Its profits for the past two years were Rs 100 crore and Rs 110 crore.

Among the large listed intermediaries in the retail broking space, Motilal Oswal Financial Services posted a net profit ofRs 42 crore for FY14 while Geojit BNP Paribas Financial Services reported a net loss of Rs 78 crore in FY14. The market capitalisation of Motilal Oswal and Geojit are Rs 4,135 crore andRs 1,201 crore, respectively.

“If you want to purchase a controlling stake in a large Indian broking firm, Sharekhan is the only target,” said a senior private equity fund official. Last year, IDFC entered into an agreement with Barings Asia to divest its 10% stake to the latter, valuing Sharekhan at around Rs 2,000 crore. But the Foreign Investment Promotion Board is yet to clear the deal.

Most private equity deals in broking space were struck in 2007 when 9 deals worth over $400 million were closed, according to Venture Intelligence data.