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| Broking firms look to expand biz amid slump |
| Anju Yadav & Vandana / Mumbai Feb 24, 2009, 00:43 IST |
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The stock market may be showing signs of fatigue, but many broking firms are looking at it as an opportunity. Going by the proverbial ‘recession is the best time for expansion’, many brokerages are looking to expand their business. Many of these firms, which raised money through private placements, initial public offers (IPOs) or other sources during the market boom, have cash that they are willing to deploy for expansion.
For instance, Reliance Money, the broking arm of Anil Dhirubhai Ambani Group, is planning to double its number of branches to 20,000 by the end of the next financial year. Sources indicate that Religare Securities, the financial services arm of the Ranbaxy group, is looking at acquisitions in this space as well. It had recently acquired UK-based broking firm Hichens Harrison.
Angel Broking managing director Dinesh Thakkar says, “Like other industries, broking too will come through this bad phase. We have been evaluating some deals. The sector is hugely underpenetrated and, hence, there is still ample scope for growth and expansion.”
Delhi-based SMC Global, a diversified financial services group, is scouting for acquisions in the broking space in Gujarat and Mumbai. Sources say that the company is sitting on $100 million, or almost Rs 500 crore, cash. It has received three rounds of funding from Millennium India Acquisition Company, Bennett Coleman and Sanlam Investments. “In these times, consolidation is inevitable,” says Jagganadham Thunuguntla, chief executive officer, SMC Capital.
Analysts say that while there may not be any big-bang deals, some smaller companies will surely be bought out by larger ones. Though not keen on acquisitions, other broking firms such as Centrum Capital are planning to grow by setting up their own offices across the world. Centrum recently opened offices in New York and London and has hired people for its equity broking and forex businesses. It also plans to strengthen its team in New York, besides hire people for its merchant banking division.
Broking had been one of the most sought-after investments in 2007and the industry received $270 million, or Rs 1,350 crore, from private equity funds. While Citigroup Venture Capital along with other entities acquired 85 per cent in Sharekhan, the online broking subsidiary of SSKI, Bessemer and New Vernon, bought a 9.29 per cent stake in Motilal Oswal for $28.10 million (Rs 144.50 crore).
Expansion plans of brokerage houses come at a time when volumes are falling, leading to a fall in revenues and profits. According to sources, volumes of brokerages are down almost 60 per cent from their peak.
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