Stockrabit · Analysts
Questions across 6 calls

Vishal Kampani

Firm not listed in source transcripts

JM Financial Limited

JM Financial Limited CC-Feb26.pdf · 2026-02-06
Yes. So I think, Digant, both these divisions, though they have a common underlying trend of capital market activity, they operate a little differently. The Capital Markets and Corporate Advisory business is obviously highly deal related and what we actually monitor is where the pipeline is healthy and what percentage of the pipeline we can actually put through over the next 1 year to 18 months. And there's always volatility which sets in because of geo politics or FPI selling, or there are always reasons in the markets where sometimes deals get pushed out on a quarter or 2 -quarter basis. But the underlying momentum and the breadth of the business that we are seeing today, I mean, I've never seen it in my career over the last 3 decades. So it remains very strong. The activity levels that we anticipate over the next foreseeable future, 1, 2 and 3 years will remain very, very strong. So it's just better to see how we perform on this business in larger gaps and from a peak-to-peak perspective than looking at it purely from a quarter -on-quarter. So you're right. We had a very strong Q2. And you may have a very strong Q4, you may have a good Q1 and Q3. But overall, if we track our internal budgets in the busine ss, we are actually ahead of our budgets in this business. So that is how the Capital Market and Corporate Advisory business works. And therefore, we give a sneak peek into where the pipeline is in terms of how it's building, how it's being executed and how we are ramping up on certain measures like equity research coverage, etc., which are super critical to even the primary issuance business. On Wealth and Asset Management, the story for us is very different. This is, as I've always said, a long-haul business. Our brand, JM Financial, deserves to be much larger in these businesses. And we will just continue to invest. We've done that for the last almost 2 years, and I think we will do that this year as well. And the size of our business needs to be much larger in terms of distribution and the client touch points that we're able to reach. This is the most exciting part of the business that we are building and we'll continuously invest. So again, here, you will see volatility which sets in from two aspects of the business. One is broking volumes, broking being a significant portion of this revenue. And second, for us, as we build wealth management, we have a lot of transactional income which we, as a house, does not want to lose. While our focus will always be on recurring revenues, but being a transaction house, we're able to put through a lot of innovative products as well as exciting pre-IPOs, etc, etc, for our client base in wealth management. And we'll continuously pound the floor to make sure that we are making those products available for our clients. So the volatility in the business remains high only from a revenue perspective in brokerage as well as in the transactional deals. But again, the transactional part, from a 2 to 3 year perspective, just like the investment banking business is very strong. The pipeline is extremely strong. And we'll continue to do well. Brokerage, we are solidly expanding. In fact, I think we've had the least disruption in terms of growth among most of our competition in terms of our brokerage revenue purely because of the expansion we've done in terms of branches and people. And we will continue our focus on making our wealth RMs more and more productive. We are in the recruitment phase, as I mentioned on my last few calls. A large part of our recruitment phase gets completed somewhere around June -July of 2026, which is this year. And there will be an intense focus on productivity, which has already begun again this year. So that, sort of, sums up how we look at these two businesses.
Yes. So as I said that from where the loan book stands today, I think 20% Y -o-Y growth is something for the next 3 years we are comfortable in terms of building. But again, Digant, I want to be very focused on syndication. For example, we could have taken more assets on our balance sheet last quarter, but we chose not to, and we chose to increase the fee component. So I'm very happy and pleased with the way the business is getting built out. Again, as I said, our credit pipeline is looking stronger. We are having a lot of integrated efforts between our credit funds as well as our balance sheets to put some interesting transactions through for our clients on the wealth side, asset management side as well as the institutional side. So I think it will be a judicious call we wil l take in terms of how much exposure we want to have in transactions that we underwrite. But yes, the target is 20% growth on the book side. But don't hold me to it. It could be 15%. It could be 10%. It could be even 25%. It's just a decision we take ever y quarter in terms of our hold, in terms of risk -adjusted returns as well as the demand for many papers in terms of syndication. But I must highlight that I feel the next 2 years, we will also see heightened activity in the Private Credit space. We are ge tting the feelers for it in the last 6 months to 9 months. I think a lot of deal volume growth will be visible over the next 2 to 3 years.
JM Financial Limited CC-Mar25.pdf · 2025-05-13
Yes, sure. So, you are right. The M&A pipeline, which was built, a significant part of that execution happened in the last quarter. Even in the private equity syndication, a lot of the transactions were completed in the last quarter. Also, a good uptick on the Institutional Equity side in terms of gains in market share across a lot of clients, which has also helped the first segment performed very well. This segment is, as I have always said, is an extremely profitable segment. It operates at almost 50% ROE and almost 40% PBT margin. And I think our pipeline continues to be very robust. ECM was weak last quarter, but ECM was weak for the entire industry, not just us. And I think the pipeline is very robust, as I said, and we expect very decent growth to continue in the next foreseeable future. Anything else you want to add, Sonia or Chirag?
Yes, so that's a good question , Digant. I think because of our good capitalization, we are in a very fortunate space where we will not only grow, but despite growth, we will also have a very good dividend payout ratio. And just so investors understand this, you know, our first business, which we talked about earlier in your first question, the Corporate Advisory and Capital Markets business, as I said, we will generate a very decent ROE and does not require much capital. And we feel that we should have a payout ratio in excess of 50% in that business. And even in Private Markets, we do not need excess capital. We are very well capitalized. And as Nishit explained in his call that we have done over Rs. 1,000 crores of provisioning, and we feel we are fully provided , and the businesses should see very good traction and profitability over the next two years. And again, as we are well capitalized, we should be able to again sustain between 40% to 50% payout ratio in terms of profits of that business as dividend. And I would say, assuming that the Capital Markets are healthy and the state we have been in the last 3 -4 years and the pipeline continues to get executed , then I think dividends will stay higher from the levels we have done in the last three years. So, two years back the dividend was Rs. 1.8 a share, last year was Rs. 2, and we have proposed Rs. 2.7. So, in effect, in the last three years, we have doubled our dividend. And if profitability continues, which I am fairly confident it will, we should be able to double dividend in another three years as well.
JM Financial Limited CC-Dec24.pdf · 2025-01-29
Yes. Let me just start, then I'll hand over to Sonia on the specifics of investment banking. So, the reason we have two formats is because we will be moving to the new format, Digant, from next year in June quarter, but we want investors to have a comparable number available to them next June, and therefore, we're reporting the new format right now. And also, we want to continue with the old format, so people can compare from last year to this year how the businesses have moved. So, it's just being more transparent and giving more disclosure. In the new format, there is no earnings from any loan business in the Corporate Advisory and Capital Markets segment. So, it's purely the investment banking segment, which is reported, and the institutional equity segment, which is being reported. On the specific question of investment banking, Sonia will take the question.
Digant, to simply put. The order came sometime in the first week of March. So, March, April, if we lost a couple of transactions, those transactions would have showed up in terms of execution in October, November, December. The execution time -line for a transaction is 6 months. But having said that, the market share is still very go od. It's very rich. The pipeline is very, very strong. And in this business, you'll win a few, you'll lose a few. As long as the growth is there on an annual basis, that's more important to track. Secondly, in investment banking, it's very difficult, as y ou know, to predict quarter -on-quarter growth because sometimes your deals slip. So sometimes a deal which is supposed to happen in December, 2 or 3 deals can slip to January, February. Third, just seasonally, it's been challenging to push all transactions through in Q3 because there has been softness in the markets and also softness in terms of what valuations investors are willing to take for issuers.
JM Financial Limited CC-Sep24.pdf · 2024-10-25
Yes. So, as I mentioned earlier that over the next 2 to 2.5 years, you would see most of our loan book would degrow. I'd also mention that a significant portion of our loan book now is the post- COVID loan book, and it's actually performing decently well. Third, frankly, there is a dearth of a lot of new credit opportunities on the wholesale side, in the real estate side, sales have been very strong, and therefore, the pricing for many of these loans is at certainly low levels from banks and some of the other larger kind of NBFCs. So, it's natural that many of these assets are being taken over, and we don't want to match rates or keep these loans anyway on our books. And therefore, you've seen this rundown. It's a very healthy rundown, and we are very happy with it because the more cash we can accumulate and the more we can buyback debt, it's better for us. So, this is a combination of real estate book rundown, which has been approximately almost INR 700 crores. And FIFG has a natural rundown of another INR300 to 400 crores. Bespoke has seen a rundown of almost INR1,000 crores, but that will build back, so that a lot of deals are already in the pipeline for syndication. So, as I mentioned, that Bespoke will be a book, which we will maintain around INR2,500-3,000 crores on the corporate side, but a lot of it will get syndicated out. So, we don't see the ne ed to have debt on our balance sheet to grow that book. Our equity is good enough to be able to generate a good ROA and a good ROE. On the MSME side, as you all know, we announced on 28th September 2024, that we would assign our MSME book and the first tra nche of the assignment has been executed. So that is, again, part of the degrowth. So, all in all, very healthy and extremely happy with the rundown of the book. Even the loan assignment on the MSME side, has been a profitable transaction. And what we have conservatively done is that the profit that we have got from the assignment, we've made the provisions on the loans against the profit. So, we will sell down the balance book in the next 2 quarters, and then we will see healthy returns accumulate from that book as well. So, all in all, very good. I will also address the question on some provisions, while you are here. So, this incremental provision is just from a regulatory and conservative perspective. If you see the gross NPA, it has barely moved, it has moved only from INR813 crores to INR835 crores. We've only increased the provision coverage from 59% to 70% to be very conservative and make sure the regulators are very comfortable.
ARC actually is every 6 months. You know this business Digant. It's really in March quarter and September quarter, it's not much in the June and the December quarters, and you have to reassess the book. So, we are being very conservative. Wherever we are seeing time line delays, we are in fact pushing auditors that we want to actually provide more. And it is just better to keep doing that instead of it becoming lumpy sometime at the end of 2 years and 3 years. But again, I think the value in many of these security receipts has not gone down. The accounting of provisions is really because of time delay. And there is considerable time delay in many of the assets. So, it's just prudent to make sure that we are taking these provisions.
JM Financial Limited CC-Mar24.pdf · 2024-05-27
Thank you, Heramb. That's a very interesting question. So, let me just give some background. As you would have observed in the last year, year-and-a-half, we have been discussing with our investors on calls as well as in meetings on strategic direction of the wholesale credit business. And at the same time, I just point out some significant sort of changes that have happened over the last 12 to 18 months. One which I have been consistently speaking about is the competitive intensity is sort of back in the business, especially from a lot of AAA rated NBFCs, number one, and from number two, a lot of banks, which is pushing down yields in some of the segments of clients that we lend to. Number three is there is a big gray area around land financing and approval financing. What we understand is that banks have stopped doing land and approval financing and it is not very clear from a regulatory perspective whether NBFCs are allowed, not allowed or will be allowed to engage in land and approval finance. Land finance has been close to almost 15% to 20% of our book and if we extend that to approval and initial sort of pre-construction finance, that's another 15% to 20% of book. So, largely 30% -40% of our book which is the higher yielding part of the business that we do which will have to pivot out of balance sheets of both banks as well as NBFCs. Fourth, some interesting new draft sort of regulatory papers which substantially increase provisioning requirements on real estate and infrastructure sectors and if you specifically see real estate, the paper talks about 40 basis points provisioning cover expanding to almost 500 basis points, which is an increase of 12.5 times. Assuming that there is some relaxation on that, it is still a pretty significant number. I think on average our provisioning will be close to between 1% to 1.5% or slightly higher. So, even if there is a relaxation from 500 basis points on standard assets to maybe 300, 350, still means there is a doubling of provision on standard assets that we already have on balance sheet as well as the same provisioning would apply to all standard assets that we put on balance sheet. This kind of shaves off close to almost 1% plus of ROA effective immediately on new loans and existing loans. And fifth, we are seeing a lot of AIFs and a lot of private c apital that are being able to do the land finance and the approval finance. And real estate developers have realized that when they are taking early-stage financing, it is just easier to do that from an AIF platform than doing it from an NBFC platform for reasons not just related to pricing and the regulatory forbearance at least with banks in terms of doing land financing , but also it is more longer-term capital with a lot of relaxation on interest servicing. And the last and the most important challenge is that for the long -term success of any good wholesale credit business in a country, I think the recovery timelines on these assets need to be very tight. And our experience specifically after the IL&FS crisis followed by the COVID waves as well as all of the geopolitical tensions where we had a lot of issues in the commodity cycle, we realized that whatever we modeled in terms of our model that we can recover NPA in 18 months, we realized that the recovery of these NPAs take almost three years to three-and-a-half years. And this becomes kind of a pretty heavy burden on the NBFC balance sheets because it's like deadweight capital sitting on your balance sheet, which is not utilized, and you are not recovering that deadweight capital back into cash flow. So, that again puts almost 1% of pressure on incremental ROAs that you may generate on the business over three to four years. And another challenge we face on the NBFC side is that many of these assets which don't do well are either early stage or in the middle of construction where there is an external event that has hurt the asset. And as an NBFC, you have to provide capital to resurrect the asset, working capital or construction finance to resurrect the asset. That working capital is classified as NPA. So, that again becomes a challenge because you are trying to put more capital behind an asset which is already struggling and then you have to provide that as NPA which creates an issue on your liability side because your NPA is rising and then your cost of liabilities goes up. So, all in all , we figured that this is a business that needs to pivot. Our investors , both on the equity side and the credit side, need a clear message and therefore, we had a lot of deliberations in the last six months. Many of these questions were actually pointed out by investors to us whether on our earnings calls or in our private meetings. And finally , we have taken a decision both at our NBFC board level as well as our listed company board level that we will pivot thes e businesses. We have great teams, great expertise. We have learned a lot in the last 10 years, 12 years in the up cycle and the down cycle. And I think we will be able to make a fabulous sort of investment banking -led distribution and syndication business. And we will have a strategic AIF in the group specifically for land financing and approval financing where we have a ton of client relationships and we will be able to use those relationships to give them money from an AIF vehicle perspective. So, that is sort of the strategic shift from the real estate book. And while we were primarily discussing real estate, we also figured in the last six months that similar things apply to many of the other businesses. Look at the distressed credit, for example. We are probably the only ARC in India which took turnarounds and reconstruction pretty seriously. And RBI allowed these licenses in ARCs from a perspective that ARCs would actually turn around assets, provide them reconstruction capital and b ring sick units back to a working condition. And I think we had kind of taken that very seriously, and we invested a ton of money to restructure and reconstruct many of these assets. And again, we realized that from a balance sheet perspective, the liabilities in a distressed credit business can be very fragile. And a lot of people who lend on a distressed credit platform , lend on group strength, they lend because of JM Financial Group backing an ARC. And we realized that again, the timelines to sort out these assets and the outcomes on what we consider the right valuation, the outcomes are actually pretty lower compared to what we modeled in the last few years. So, again, the turnaround and the reconstruction sort of assets, we will pivot to an AIF model as well as a syndication and distribution -led model. The RBI has allowed us to do 2.5%, 97.5% structures. And that again morphs many of these assets onto a fee-based model. So, again, we will go completely leverage light on the ARC. We will use our balance sheet to acquire only opportunistic retail MSME assets, which portfolios have done very well. And most of our turnarounds and strategic sort of initiatives with partners for distressed assets will morph into an AIF platform. We built an FIFG business again, that can scale nicely from INR 1,500 crores book to around INR 3,000 to INR 4,000 crores. But again, we are lending to NBFCs. A lot of the NBFCs who want to borrow from us are MFIs, FinTechs and unsecured players. And again, we are seeing a big shift in the terms of risk perception, especially for FinTechs and unsecured players from a regulatory perspective and generally what we are hearing in the markets. And the idea there again is that , can this be a large business? Can we make a INR 10,000 or a INR 15,000-crore business over here? And the answer is no. And therefore, this will morph again into a syndication distribution business, as well as we will create a specific AIF, which is a hybrid kind of AIF, where we will take 80% exposure in credit and 20% exposure in good, fast- growing sort of NBFCs in specialist areas. Our bespoke business, which is our corporate, as well as our promoter finance business, which works with our investment bank and wealth, has already morphed very successfully into both a successful sort of distribution and syndication -led initiative. And second, it's already built up extremely good AIF. They are expecting to close at over $100 million in commitment very soon. And that actually has nicely sort of integrated both, as I said, on the investment bank side in terms of origination and the distribution and AIF side. So, a similar model will be adopted for all of the wholesale finance business. So, if you fast forward, say, three years from now, we will be extremely balance sheet light in terms of literally our net debt-to-equity will be zero in the next three years in both our NBFCs. We will hold cash. We won't hold leverage. And therefore, our incremental borrowing requirements will be very closely linked to transactions, which will be sold down, which will be distributed. We don't see the need to be in the project finance and the long -term financing space. We are hoping that we will be allowed to do the LAS business again from RBI very shortly and that is a business we will continue doing which supports our capital markets and our wealth business. And as I said that in both these N BFCs, we are currently holding around INR 3,000 crores of surplus cash and over the next three to four years, we will generate more than INR 2,000 crores of surplus cash purely from the rundown of the book as well as other initiatives which will grow profit. So, this is kind of the whole strategic shift. I am glad you asked that question so I could take the opportunity upfront in the call and explain how we are looking at the business. And it's a very interesting thought on price to book versus PE and I kind of agree with that. I mean , when we see our valuation, when we see the way people vie w us, there are a lot of investors who would be very keen to see leverage light in a fast-growing sort of company which is focused on more granular businesses and that would morph us into a PE model. So, in a sense , yes, your observation is correct. That would be the idea to move away from a price to book-led sort of valuation over the next few years and be driven more by a PE and a PE adjusted to growth-led valuation.
So, we have done a rights issue of INR 1,000 crores. We are going to be putting almost INR 600 crores from our group into the rights issue. Our partners have an option if they want to participate or not in the rights issue. Our rights issue will close tomorrow . So, we will have that answer tomorrow if they are participating or not. If you were to ask me, I do not think they will participate. A few of them have end-of-fund life issues as in their fund life has been completed and that means that with our contribution , our stake in the ARC as a group will significantly go up. If none of the others participate , then our stake will go upwards of 80% in the ARC. On the question of provisions, no, we do not expect any exceptional provision like the one we have had for Bombay Rayon. We will have normalized provisions , which will be part of the business, and much more granular and smaller in nature. Second point, there is only one significant asset which we still need to resolve in our ARC. Rest of them are almost in final resolution stages. Many of the turnaround assets have been sold last year. I mean, if you notice that we have also had almost INR 890 crores of recoveries last quarter that we have done. We expect a similar number, in fact, maybe even higher number of recoveries. So, it is just that the cash flow is coming in, but what values have been recorded at higher levels before have to be adjusted for where the transactions are closing. So, the only significant asset which we need to resolve is actually Unitech. I think our exposure in Unitech is somewhere between INR 350 and INR 400 crores. And we are hoping that some action will happen . The case is in Supreme Court. The only sort of positive I would alert in Unitech's case is that unlike some of the manufacturing assets, whether it is Bombay Rayon or whether it is NITCO Tiles or Bheema Cements, where we have attempted a turnaround and not been as successful and theref ore we are selling these assets and taking a write down. The only case in the real estate assets, specifically in Unitech and some of the others, the valuation of the underlying land and the mortgaged assets has substantially gone up. So, we expect that any resolution that is done because of the valuation of the land parcels having gone up, we would expect that the resolution should be pretty sort of positive. The only challenge over there is going to be timelines, right. Also, happy to report that NITCO, which is one of the assets which we had attempted turnaround has been fully resolved and it is completed from our end. And similar to that, we expect at least 3-4 other assets to be fully resolved and completed over the next 12 to 18 months. To your pointed question, yes, if no one participates, which is what we expect, our ownership in the ARC will be upwards of 80%.