Standard Chartered PLC

Background

Standard Chartered PLC (SCP) is coming up with Indian Depository Receipts (IDRs) of 240 Mn. 10 IDRs represent 1 equity share of the company (with a face value of USD 0.5 per equity share). SCP is headquartered in the UK where it is regulated by the FSA (The Financial Services Authority of the UK). SCP’s equity and preference shares are listed and traded on the London Stock Exchange & Hong Kong Stock Exchange. It has market capitalization of USD 48.08 Bn. The bank operates through a number of subsidiaries including SCB (Standard Chartered Bank, UK), one of the leading international banking and financial services company. 

Investment Rationale

SCP is well positioned to benefit from recovery in emerging markets SCP’s Korea operations are about to see a turnaround with the management expecting an improvement in he profitability on the back of an increased market share and rising interest rates

SCP’s has well diversified revenue streams spread across emerging markets.

SCP’s wholesale banking business achieved a superior financial performance across client segments, products and markets, continuing

the growth trajectory

SCP’s consumer banking business has shown a decline in its operating income in CY09. However, bank is likely to focus on the consumer deposits to increase its performance in the consumer banking division

Concerns

The issue of regulatory changes for the banking sector remains significant  Changes in interest rates, foreign exchange rates, equity prices and other market risks could adversely affect the groups financial condition and results of operations  Lower institutional participation could lead to a discount in trading multiples Institutional participation in the bank’s IDR is likely to be restricted IDR Holders will bear the risk of factors affecting the price of the SCP’s shares in overseas market.

Valuation & Recommendations

The Indian Investor is getting an opportunity through Standard Chartered Bank’s IDR to invest in global company. The issue has certain constraints in terms of lower institutional participation & higher incidence of tax. In terms of valuation, the stock is currently trading at 1.7x book value. Its peer group valuation is in the range of 1.5x-3.4x. Further, for retail investors it is offered in the Price band of INR 95-109 which implies a P/B of 1.5-1.7x. However, considering the wide presence in the emerging economies which will benefit bank’s future performance, we recommend investors to SUBSCRIBE to the issue.