Credit rating agency, CRISIL Equities has assigned a CRISIL IPO grade of 2/5 to the proposed initial public offer (IPO) of Microsec Financial Services (MFSL). This grade indicates that the fundamentals of the IPO are below average relative to other listed equity securities in India.

However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The grade is not a recommendation to buy, sell or hold the graded instrument, or a comment on the graded instrument`s future market price or its suitability for a particular investor.

The assigned grade reflects MFSL`s position as one of the established equity broking and investment banking companies in Eastern India. However, in its pan-India expansion, we expect the company to face strong competition from brokers who have nationwide operations.

MFSL is also likely to face integration challenges as it aggressively rolls out branches and franchisees across India over the next two-three years.

In investment banking, the company`s experience is limited to a few small-ticket deals in Eastern India. The limited deal-execution experience will constrain MFSL`s ability to bag deals outside the Eastern region.

The investment banking industry is dominated by established players who have a strong relationship with institutional clients and corporates. To develop client relationships beyond the Eastern region, MFSL will need to ramp up its management team for investment banking operations.

The grade also takes into account MFSL`s concentrated presence in Eastern India, where fund-raising activity is lower than in other regions in the country. Although we expect fund-raising to pick up in Eastern India, the region will still account for a lower share of total fund-raising than the other regions.

The grade also factors in the fragmented nature and inherent volatility of the capital market business.

Talent retention, an industry-wide challenge, will be a daunting task for an emerging player like MFSL. Although the company does provide stock options to its key management personnel, its ability to retain employees will be a key monitorable.