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Book Profits in Religare – Citi

January 6, 2008

Citi in a research report released minutes ago has recommended a SELL on Religare. Religare is India’s fastest growing, most aggressive and leveraged retail brokerage entity. The stock is up 280% from its IPO price; currently trading at 30x FY09E EPS.

India’s equity markets have grown rapidly in both retail and institutional volumes. Trading volumes have expanded rapidly (+150% yoy) and have exceeded growth in market capitalization. While economic growth continues to be strong, and expect structural growth in retail volumes, the recent rapid pace of growth suggests near-term volatility.

Religare is primarily a retail brokerage, driven by its large and growing margin finance book and a substantial distribution expansion; it is among larger brokerages with a 4%+ market share. Religare is diversifying into consumer financing, insurance and asset management, which should enhance its product offerings, offer synergies and scale.

Citi expects FY07-10E EPS CAGR of 90%, weighted towards retail brokerage and margin finance, and supported by its newer business initiatives. While capital markets sensitivity will remain high, it should moderate with increasing revenue diversification.

Religare is expected to report an EPS of Rs 23.31 for FY09 and Rs 29.70 for FY10. Citi recommends a SELL with a Target price of Rs 515. We recommend you to Book Profits if you HOLD the stock. Shorting is not recommended at current levels.

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