Equity market volumes in the cash segment have moved up 14% mom in August 2010 to Rs193 bn – a likely reversal from a declining trend reported over the past four quarters. Our current estimates for cash market volumes for BSE and NSE for 2010 are almost in line with the current volumes. The trend, if continues, will boost earnings of India Infoline (and other brokerages firms) and likely provide an upside to earnings estimates. We will revisit our estimates if the trend continues.
We believe that improving month-on-month traction in equity market volumes and buoyant markets will drive earnings and stock price performance of equity market participants. In this backdrop, we find India Infoline attractively placed at the current levels.
Kotak Sec has the following recommendation,
IIFL currently trades at 11X PER and 1.5X PBR FY2012E. Brokerage businesses have high leverage to equity markets. We believe that brokerage firms should trade in the range of 14-18X 1-year forward PER, i.e. closer to the mid-cycle trading band for Sensex companies. We are factoring a PER multiple of 17X in our SOTP-based target price (from 15X earlier) and revising our target price to Rs130 (from Rs120). We continue to factor the NBFC business at 1X PBR FY2012E in our SOTP.
