So here is my case. Geojit Financial Services reported a profit after tax of Rs 59.90 crore on an equity of Rs 20.90 crore (Rs 1 face value) for 2007-8. Everyone, including my mother-in-law, knows that if the national industry leader is expensive, buy the regional proxy; if the regional proxy is expensive, buy the alter ego.
And so it is with JRG Securities. Take a look at the quarter-to-quarter numbers for 2007-8 and you might shrink. The company reported a profit before tax of Rs 9 crore on an equity of Rs 12.79 crore for the first nine months of 2007-8. Then came a drastic downfall with the company reporting a pre-tax loss of Rs 78 lakh in the last quarter.
Any sane analyst would defer judgments until the company announces its first quarter results for 2008-9. I am not; I am sticking my neck out for some good (in my opinion) reasons:
• The erstwhile management sold out to Barings Private Equity Partners.
• Barings Private Equity Partners is headed by Rahul Bhasin; highly agreeable, razor sharp, always smiling; turns out he was part of a twoman team that kissed BFL Software before it turned into a handsome prince that was later merged with Mphasis and bought over by Electronic Data Systems Corp; it also appears that Bhasin and his man Friday bought into Jyothy Laboratories, nursed it through relative obscurity before the big time and the IPO. So if you believe in backing managements by buying their stock, then you have some competent people running this show.
• What proof? It appears that within the first 60 days of changing the name plates, the new management has already rolled out a new insurance business line, recruited 700 people, relocated them to Kochi and written off Rs 5.56 crore in cleaning up the act (and balance sheet).
• The company’s business model revolves not just around the good old business of financial services that every one claims to be doing such an excellent job of providing, but financial services for the bottom of India’s financial pyramid.
• What better place to start than Kerala, which is really an extension of West Asia in India on the financial parameter and the developed West when you consider literacy.
At some point, the rationalist notes that JRG’s equity will increase to Rs 38.16 crore after the last warrant has been converted. But the optimist argues that JRG will make reasonable money even in 2008-9. The rationalist says that the take-off might take some years; the optimist insists that Barings Private Equity Partners is better off at enhancing value from a low-profit, low-PE reality if only you just have the patience to forget that you own the stock... until one morning you find yourself rich.
Patherya heads Trisys, an annual reports consultancy. His column identifies stocks that are not in the limelight
He can be reached at mudar@trisyscom.com
