Pioneer Investcorp

I have received a lot of mails asking my views on a company called Pioneer Investcorp. Its been touted as the a share with lot of potential. (Some tout is to be a 15-16 bagger)

Before I discuss my views on the stock let me first share some of the reasons due to which this company is thought to be the multibagger in the making
a) During its heydays (Jan 2008) the share price had touched its all time high of Rs 926 and it fell all the way to Rs 13.
b) During the period 2004-05 to 2007-08 its revenues had grown from Rs 1.52 crores to Rs 58 crores and the net profit had grown from 0.35 crores to 29.71 crores. Phenomenal is what one can say.
c) In 2007, Citigroup was rumoured to be investing approx Rs 400 crores in the company and the promoters then had taken warrants at a price of Rs 630 per warrant. Due to the financial turmoil the Citibank deal deal did not go through and nor were the warrants converted.
d) The promoters have converted warrants at Rs 110 issued when the share price was ruling at Rs 35.

My views. (Feel free to correct me if I am wrong)
Let me first begin by saying that the company is an excellent one. The management too seems quite good and based on past performance its business should do well. So what exactly is its business.
Its website (www.pincmoney.com) lists down the following areas of business

i) Investment banking
ii) Wealth Management
iii) Institutional broking
iv) Share broking
v) Mutual fund advisory
vi) Insurance advisory
vii) PMS

Does this make this company a niche company in its space. I would think the answer is a big no. The financial services sector is a hugely competitive market in each of the areas that the company is currently in. Infact, the performance of financial services companies largely mirror the fortunes of the stock market. Thus if the stock market is booming these companies tend to do well and vice versa. You can pick any company to check this fact.

This company is no different. Thus the performance of this company can also be correlated with the spread of the last bull run from 2005 onwards to Jan 2008. During those periods financial services was the indemand sector and thus this company did exceedingly well. So on the back of  very good numbers (although unsustainable) they got very high PE multiples as well. Thus when the E in the PE multiple vanished these stocks fell like nine pins.

Lets now come to the performance of the share price. Though the current price is way off the 2008 highs, I have my doubts regarding the share price doing just as well as in the year 2008. The reasons are as follows.
a) For FY08 the EPS was Rs 29 which means that at Rs 900 odd the PE was approximately 30. For the 9 months of this year the EPS is approx Rs7.5 (for the full year it should be Rs 10). But again this is on the back of a great year in the stock market. Hope you see the correlation. Thus if you are betting on the sensex doubling in the next 3 years I think investing in this stock could be a wise move. But then if that be the premise of investing then there are a lot of companies which you can look to invest in.
b) Please also note that this share was ruling at approx Rs 110 as on 30th June 2007 after which it shot up to 900 odd levels within 6 months. (that was one crazy time in the market). Incidentally this is the level that the promoters have converted warrants.

It should also be noted that this company is only in the advisory services for mutual funds, insurance etc. Thus it only gets a small commission.The real fun is really when you own a mutual fund or have an insurance product.

Thus I feel that though the company is undervalued but to say that it will be a 10 bagger is probably not correct. I think the fair value of the stock is around Rs Rs 100 to Rs 110 which could be reached if the next 2 quarters results are good. Personally I would like to wait for the next 2 quarters results.

However, this is only a personal opinion and I may be wrong. Please let me know if I am incorrect in my thinking.

Time for your comments