MOTILALOFSNSEQ1FY 2022-23August 04, 2022

Motilal Oswal Financial Services Limited

6,074words
68turns
8analyst exchanges
3executives
Management on call
Raamdeo Agarwal
Chairman; Mr.
Ajay Menon
CEO, Broking; Mr. Shalibhadra Shah – Chief
Chetan Parmar
Head of Investor Relations.
Key numbers — 40 extracted
Rs. 182 crore
mance for this quarter: In the first quarter, we have reported an operating profit after tax of Rs. 182 crores which is a growth of 40% year-on-year. This is being driven by Capital Market business profit af
40%
st quarter, we have reported an operating profit after tax of Rs. 182 crores which is a growth of 40% year-on-year. This is being driven by Capital Market business profit after tax growth of 16% year-
16%
h of 40% year-on-year. This is being driven by Capital Market business profit after tax growth of 16% year- on-year. Asset and Wealth business profit growth is muted at 6% year-on-year on the back o
6%
rofit after tax growth of 16% year- on-year. Asset and Wealth business profit growth is muted at 6% year-on-year on the back of the mark-to-market in the AUM that we saw during the first half of th
3.7x
ter for the financial year. And finally, the Housing Finance business reported a very strong near 3.7x in profits year-on-year at Rs. 32.1 crore on the back of COVID provisions that were there in base
Rs. 32.1 crore
d finally, the Housing Finance business reported a very strong near 3.7x in profits year-on-year at Rs. 32.1 crore on the back of COVID provisions that were there in base of the last year and so this is a more no
Rs. 56.5 billion
d run rate of the profitability of the Home Finance business. Our consolidated net worth stood at Rs. 56.5 billion. Net debt is at Rs. 41.6 billion and net of all the investments that we have made in various prod
Rs. 41.6 billion
f the Home Finance business. Our consolidated net worth stood at Rs. 56.5 billion. Net debt is at Rs. 41.6 billion and net of all the investments that we have made in various products of the firm, we have a net c
14.5 lakh
nce sheet. We have also successfully completed the third buyback of the firm since its listing of 14.5 lakh shares aggregating to Rs. 200 crores. Ever since our listing back in 2007, we have never issued s
Rs. 200 crore
ully completed the third buyback of the firm since its listing of 14.5 lakh shares aggregating to Rs. 200 crores. Ever since our listing back in 2007, we have never issued shares in either the parent company o
160%
siness delivered consistent growth in various business parameters. We had a very strong growth of 160% year-on-year in the average yearly turnovers; meaningful improvement in market share, particularl
75 basis point
aw good traction of flows towards the alternate assets. Our net revenue yield was intact at about 75 basis points during the first quarter. We launched newer products during this quarter in the asset management
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Guidance — 16 items
The key highlights for the first quarter include
opening
“Our largest ever private equity fund raise – India Business 2 Excellence IV – with a target size of 45 billion completed raise of 40 billion till date and we expect to close the balance fund in the coming quarters.”
The key highlights for the first quarter include
opening
“380 crores with only 16% of our 31- lakh retail client base tapped for single cross sell, we expect continued increase in the AUM and fee income over the coming quarters.”
Turning to the Asset and Wealth Management business
opening
“Track record of the past funds’ performance both on the private equity growth capital as well as the real estate side has led to the largest fundraise IBEF-IV where out of the target size of Rs.”
Turning to the Asset and Wealth Management business
opening
“4,000 crores and expect to close the balance in the coming quarters.”
Vivek Ramakrishnan
qa
“Secondly, I wanted to also understand your strategy in terms of construction finance where you said you will be tied up with Motilal Oswal Real Estate and what proportion of the book will be in such funding?”
Shalibhadra Shah
qa
“So, we will be leveraging internal synergies to create a very strong good quality construction finance book in our housing finance business as well.”
Shalibhadra Shah
qa
“While we have a good proportion of the retail housing finance book, the idea is to create a meaningful non-housing book through funding the CAT A developers and there we believe that this book will be close to 20% of our overall loan book.”
Shalibhadra Shah
qa
“We expect to maintain spreads over 5.5% in this business on a consistent basis.”
Navin Agarwal
qa
“And we were of the belief that this can again repeat itself in the current decade and we also expect a very strong profit growth.”
Shalibhadra Shah
qa
“Overall, we expect the slippage to be around 25% of that total book.”
Risks & concerns — 8 flagged
Impact of some of these should come through in the coming quarters.
— The key highlights for the first quarter include
Investment banking continues to enjoy a reasonably strong pipeline, although execution has been extremely weak.
— The key highlights for the first quarter include
Have you seen any impact of this 50% cash margin for the intraday and all?
— Kajal Gandhi
I would have expected it to be more volatile, especially given what is happening in the markets.
— Madhukar Ladha
We are seeing that impact while there was also some impact of the overall regulatory framework since the last few quarters.
— Shalibhadra Shah
That also includes the overall impact of the RBI regulations on not allowing the international investing in 9 a couple of large passive funds.
— Shalibhadra Shah
To that extent, we have seen the overall flows getting negative because of the impact of the offshore investing.
— Shalibhadra Shah
We believe that the same impact will be reflected in the affordable housing business also, but maybe with a little lag given the impact of COVID on jobs in general.
— Navin Agarwal
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Q&A — 8 exchanges
Q
My questions are all on the Home Finance business. I will just ask the questions sequentially. There has been a small pickup in GNPA, so wanted to understand why. Secondly, I wanted to also understand your strategy in terms of construction finance where you said you will be tied up with Motilal Oswal Real Estate and what proportion of the book will be in such funding? And the third question was on the yield or interest rates charged to the customers. Given the higher rates that are there in the market, have you been able to pass on hikes and is it being done with higher EMI or did you need to
Shalibhadra Shah
On the first point, in terms of the asset quality, asset quality if you look at it from the new RBI circular perspective, from a quarter-on-quarter basis, the GNPA increase is only 19 basis points because we are still under the old method, and as of 30th September, this will get realigned. So, the focus is on actually collecting the complete overdue EMIs and that's why we are getting catched up with the new circular impact. Even in quarter 1, the collection efficiencies have been improving month on month. So, generally the whole industry stats had a lower efficiency in April-May, which starts
Q
My question is more towards the retail broking business, as was mentioned by Navinji that this is a cash cow business. I would like to understand it in three parts. One is, how the business was fairing pre- COVID? Obviously, during the COVID time, there was a huge traction or aberration happened and how the business is faring as of now? If you can break it on the run rate basis the type of traction which was there, both from industry perspective and from Motilal Oswal perspective. If Mr. Ajay can answer that this is Dharmesh here.
Navin Agarwal
As you know that the addition to the retail investor base has been quite dramatic in the last 3-4 years. If you have attended any of our earlier calls, we have always cited that given the under-penetration of equities in India, you will have phases of 5-6 years when this base will multiply at least a few times over. That happened if you go back in time in the decade of 2000 to 2010 which also coincided with very strong corporate profit growth. And we were of the belief that this can again repeat itself in the current decade and we also expect a very strong profit growth. If you look at the ADT
Q
The breakup that you have shown in the presentation, what was the 11% Others part in the book?
Shalibhadra Shah
That portion actually consists of loan against property. In the construction finance book, what would be your typical average ticket size? Average ticket size here is almost 20 to 25 crores. The NPA which has increased sequentially is more due to slippages from your restructured book. Any color on restructured book on where it stands and what amount has slipped from the restructured book? Restructured book if you see, there has been an overall improvement. As of now, the collection efficiency of that book stands at 82% versus the overall collection efficiency that we report. So, there is margi
Q
I wanted to understand, in your brokerage, you have mentioned that your ARPU is one of the highest. In that, what will be the share of sub-brokers that may be coming to you? And what is the formula that you are using for your ARPU calculation – basically the underlying?
Shalibhadra Shah
Formula used is trailing 12 months revenue divided by the active customers. And as far as the ARPU mix is concerned, almost half of our business comes through the franchisee channel. So, it’s a blend of that which gets accounted in the overall assets. Any color on your brokerage in terms of retail and institutional? We don’t give that out separately. The second question is, in the new customers who are coming on the platform, how much are purely digitally acquired or other modes? And when we say digitally, it is like 100% on their own or it’s online and we assist? How is the client acquisition
Q
The first question is just on this rule change from 1st May. Can you elaborate exactly what the change is and what sort of impact it could have? Second, I see your funding book has stayed quite strong. I would have expected it to be more volatile, especially given what is happening in the markets. What do you think is the reason for this resilience and do you think it can sustain if markets continue to be the way they have been in Q1? Would you expect it to drop? Or the nature is something else? Maybe you can comment a little bit on that. And what is the net sales in the listed AMC business fo
Shalibhadra Shah
As far as the new 50:50 rule is concerned which is effective from 1st May, what it means is that the form of margin was earlier required by the broker at an overall level to be kept at 50:50. It was not required by the clients to be brought in the 50:50 fashion; 50% cash component 50% non-cash component. For example, if the customer brings 100% margin in the form of shares, which is typically the case in our derivatives, now the customer has to bring in 50% in the form of cash and 50% in the form of shares. But if he doesn't do that, still we as a broker can actually fund that exposure to that
Q
I had a couple of questions. First, what is the growth guidance we are looking for in the next 2 to 3 years in terms of revenue as well as net profit? Secondly, we had a buyback call last month. I wanted to understand what was the buyback you meant for. These are the two questions I had.
Navin Agarwal
We don't really give out any guidance. As I articulated in the opening remarks, we are very optimistic about how the entire broking business can grow as there is more and more financialization of savings, and within that, the share of equities has gone up and we are a pure play on that across our various businesses. As far as the private equity business and the Wealth Management business is concerned, they have both seen very strong traction. The public market asset management business has consolidated and its performance is improving. We are very hopeful that like in the first round we saw AU
Q
First question is on your private equity management business, what are the kind of opportunities that you are looking at right now in this current market scenario? Also, as far as the housing finance business is concerned, what is your market view as indexes are going up now? I am not asking for guidance. I am asking for a view, basic commentary.
Navin Agarwal
Basically, as I mentioned to you, we have completed 4,000 crores of raise out of the 4,500 crores of targeted raise. We have received an overwhelming response. So, in the coming quarters, we should close this fund. We will be making about a dozen investments of the order of 400 crores range of size of investments. This business has a 15-year vintage and the first fund had returned money at an IRR of 26.8%. We are very excited about the prospects and the investment opportunities that this business has been offered and we continue to announce in the coming quarters our traction on deployment of
Q
On behalf of Motilal Oswal Financial Services, I would like to thank every participant for attending the Q1 FY23 Con Call. If there are any further queries, please do get in touch with me or our investor relations desk. Thank you and have a good day. 11
Management
Speaking time
Shalibhadra Shah
24
Moderator
9
Samip Bhansali
7
Madhukar Ladha
7
Navin Agarwal
5
Kajal Gandhi
5
Dharmesh
4
Rushab
2
The key highlights for the first quarter include
1
Turning to the Asset and Wealth Management business
1
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Opening remarks
Navin Agarwal
Good morning friends. It is my pleasure to welcome all of you to the Motilal Oswal Financial Services call for the first quarter of the financial year ending March '23. We hope that all of you and your families are safe and in good health. Let me take you through the key highlights of the operation and the financial performance for this quarter: In the first quarter, we have reported an operating profit after tax of Rs. 182 crores which is a growth of 40% year-on-year. This is being driven by Capital Market business profit after tax growth of 16% year- on-year. Asset and Wealth business profit growth is muted at 6% year-on-year on the back of the mark-to-market in the AUM that we saw during the first half of this calendar year, which had its full impact in the first quarter for the financial year. And finally, the Housing Finance business reported a very strong near 3.7x in profits year-on-year at Rs. 32.1 crore on the back of COVID provisions that were there in base of the last year a
The key highlights for the first quarter include
The Capital Markets business delivered consistent growth in various business parameters. We had a very strong growth of 160% year-on-year in the average yearly turnovers; meaningful improvement in market share, particularly in the very significant F&O segment; growth in active clients and client addition led by meaningful traction in the digital acquisition channel; robust net sales in the distribution part of the business; growth in the funding book; and investment banking mandate pipeline. Turning to the Asset and Wealth Management businesses: We saw good traction of flows towards the alternate assets. Our net revenue yield was intact at about 75 basis points during the first quarter. We launched newer products during this quarter in the asset management business. As far as the Wealth Management business is concerned, our net sales was Rs. 19.9 billion, up by almost 88% year-on-year. Our largest ever private equity fund raise – India Business 2 Excellence IV – with a target size of 4
Turning to the Asset and Wealth Management business
Our AUM across mutual funds, PMS, and AIF stood at Rs. 43,400 crores. This was lower on a quarter-on- quarter basis because of mark to market. In fact, as I speak to you, our AUMs are now at about Rs. 46,000 crores before the end of July. Revenues for this business stood at Rs. 140 crores in the first quarter. Our Equity Mutual Fund AUM stood at Rs. 27,400 crores based on this Rs. 434 billion end-of-quarter number. We have seen improvement in performance of some of our flagship products. We added 3 47,000 new SIPs in the first quarter with traction witnessed in active funds which saw a growth of double digit on a year-on-year basis. Our share of alternate assets continues to be at the higher end of the spectrum at about over 35% of our total AUM. Our private equity business AUM stood at Rs. 11,400 crores across the three growth capital PE funds and 4 real estate funds. In the first quarter, revenues grew by 35% year-on-year to Rs. 31.8 crores. Our first private equity fund had delivere
To sum up
4 All of our businesses have delivered robust and sustainable performance in the first quarter amidst a challenging environment. Our retail broking business, which is our cash cow, has improved its market share and is benefiting from market expansion and industry consolidation. Our strategy is to diversify our business model towards linear sources of earning continues. Asset Management business should gain because of some improvement in the performance of our products. Wealth management business has a lot of headroom to grow given the small size in the context of the very strong brand that we enjoy. The private equity business, as I mentioned earlier, raised the biggest fundraise on the back of very strong performances of the past funds. The Home Finance business has witnessed a solid run-in terms of disbursements improving, asset quality being under control, cost to income being reasonable, and is very well geared for building up from here given the low gearing and profitability of th
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