>STANDARD CHARTERED: IPO NOTE (ANGEL SECURITIES)

Standard Chartered Plc's first-ever Indian depository receipt (IDR) will open on May 25, 2010, at a price band of Rs100-115. The company will issue 24 crore IDRs (10 IDRs representing 1 share), accounting for 1.16% of the bank's capital. The issue of IDRs will allow Standard Chartered to significantly boost its market visibility and brand perception in India. The company is already listed in London and Hong Kong. Standard Chartered Bank (SCB) is the main operating entity of the group. SCB focuses on developing its wholesale and consumer banking business in Asia, Africa and the Middle East, from where it derives 90% of its operating income and profit. The bank operates a network of over 1,700 branches and outlets (including subsidiaries, associates and joint ventures) and employs 73,000 people.

An Emerging Market Play

Rationale for our Subscribe recommendation
■ Well placed to play the emerging market recovery: SCB is well positioned to benefit from the recovering emerging markets. The bank has well-diversified revenue streams spread across emerging markets such as Hong Kong, Singapore, India, Korea, the Middle East and Africa. Diversification of the business, capital employed and operating income across economies act as a natural hedge and offers the bank an opportunity to dynamically and optimally utilise its resources. In 2009, Asia accounted for 83% of SCB's profit before tax (PBT), 83% of its loans and 78% of its assets.

■ Wholesale Banking and Trading business-The key drivers for Profit: SCB's wholesale banking business accounts for ~80% of its PBT. Unlike the consumer banking business, this business does not require any large distribution. The bank has enhanced its service capabilities (acquisitions and investments in technology), with relationships increasingly becoming multi-country and multi-product.

■ RoAs superior to peers and RoEs higher at 18%: From 2007 to 2009, the bank has been consistently reporting return on assets (ROA) and return of equity (RoE) in the range of 0.8% and 14-15%, respectively. Subdued RoEs are a result of high goodwill, which was created on account of acquisitions. If one looks at adjusted RoEs vis-à-vis price to adjusted book value, the parity is quite attractive with 18% RoEs. The bank is adequately capitalised with capital adequacy ratio (CAR) at 16.5% (as on December 31, 2009) and a strong core tier-1 ratio of 11.5%.

■ Outlook and Valuation: SCB's IDR provides Indian investors a vehicle to invest in a global entity that has a global presence. As a result of its diversified presence and emerging market focus, SCB came out relatively unscathed from the sub-prime crisis and is now well poised to benefit from the ongoing recovery in emerging economies. Hence, the bank is an excellent diversified multinational banking play, with strategic positioning in high-growth emerging markets. The stock is currently trading at 1.7x CY2010 P/B vis-a-vis 2.9x and 3.8x FY2010 P/B for Axis Bank and HDFC Bank, respectively. We recommend Subscribe to the Issue.

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