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Jm-Financial Crisil 270612
Jm-Financial Crisil 270612
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CRISIL IERIndependentEquityResearch
CRISIL IERIndependentEquityResearch
Assessment
Excellent fundamentals Superior fundamentals Good fundamentals Moderate fundamentals Poor fundamentals
Assessment
Strong upside (>25% from CMP) Upside (10-25% from CMP) Align (+-10% from CMP) Downside (negative 10-25% from CMP) Strong downside (<-25% from CMP)
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Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company.
Disclaimer:
This Company-commissioned CRISIL IER report is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / report is subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assume the entire risk of any use made of this data / report. CRISIL especially states that, it has no financial liability whatsoever, to the subscribers / users of this report. This report is for the personal information only of the authorised recipient in India only. This report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose.
YEARS
JM Financial Ltd
Profit from sale of investment boosts bottom line
Fundamental Grade Valuation Grade Industry 4/5 (Superior fundamentals) 5/5 (CMP has strong upside) Capital markets
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Rs 36 Rs 12
Fundamental Grade
JM Financial Ltds Q4FY12 earnings were marginally higher than CRISIL Researchs expectations boosted by the profit from sale of investments. Though the financial sector is facing challenging times due to a subdued market environment, we remain positive on the financial services industry and JM Financials strong positioning in the sector. Hence, we maintain the fundamental grade of 4/5. Q4FY12 result analysis (consolidated) Revenues grew 36.5% q-o-q (up 34.9% y-o-y) to Rs 2.6 bn driven by investment banking, securities funding and profit from sale of investments. Securities and investment banking business were up 55% q-o-q to Rs 1.2 bn as the company managed to close five deals (four debt deals and one QIP issue) despite challenging market conditions. Revenues of the securities funding and fund-based activities grew 18% q-o-q to Rs 1.2 bn due to increase in yields (average yields at 15%) despite the lending book declining 6% q-o-q to Rs 20 bn. As the company passed on the higher cost of borrowings, net interest margins were maintained at ~4%. Segment PBT (after interest) grew 25% q-o-q. The AMC business, which turned profitable in 3Q, went the negative way this quarter due to bonus payouts (as retention strategy). Alternative asset management posted a gross profit of ~Rs 250 mn because of its exit from the special situations fund of Rs 2 bn and fees earned from private equity (PE) and real estate fund of Rs 13 bn (where promoters contribution is ~8%). However, segment PBT was Rs 47 mn as it provided Rs 60 mn for the PE and real estate fund following the triggering of the claw back provisions. The company also sold current investment of ~Rs 2 bn during the year which stands at Rs 5 bn as of FY12. Hence, cash levels grew to Rs 13.7 bn in FY12 vs. Rs 10.6 bn in FY11. Following revenue growth, EBITDA grew 30% q-o-q to Rs 1.5 bn despite higher brokerage, commission fees and other costs (as brokerage pass-outs to distributors increased due to five IB deals executed during the quarter). Operating and other expenses grew 83% q-o-q to Rs 431 mn due to legal tax on IT expense and initial investment in overseas expansion. EBITDA margin fell by 283 bps q-o-q to 56.0%. Adjusted PAT grew 42% q-o-q (up 45% y-o-y) to Rs 408 mn in line with the growth in revenues and lower tax rate. The tax rate fell to 27.8% as against 33.4% in Q3FY12. The company reported EPS of Rs 0.54 vs. Rs 0.38 in Q3FY12. Valuations: Current market price has strong upside We continue to value JM Financial based on the sum-of-the-parts method. Our fair value of Rs 36 per share implies P/E multiple of 17.1x FY13E earnings. At the current market price of Rs 12, our valuation grade is 5/5.
5 4 3 2 1
Poor Fundamentals
Valuation Grade
Strong Downside Strong Upside
SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jun-11 Sep-11 FII Dec-11 Others Mar-12 66.9% 67.0% 67.1% 67.2% 7.3% 7.4% 7.3% 7.1% 25.8% 25.6% 25.6% 25.7%
KEY FORECAST
(Rs mn) FY09 FY10 FY11 Operating income 4,644 5,751 8,478 EBITDA 1,446 2,098 4,472 Adj Net income 501 1,107 1,847 Adj EPS-Rs -1.4 2.0 2.3 EPS growth (%) NM NM 15.1 Dividend Yield (%) 1.0 1.3 5.0 RoCE (%) 5.3 6.8 9.4 RoE (%) -5.5 7.9 8.5 PE (x) NM 18.7 5.2 P/BV (x) 0.8 1.4 0.4 EV/EBITDA (x) 7.5 18.2 7.1 NM: Not meaningful; CMP: Current market price # abridged financials Source: Company, CRISIL Research estimates FY12# 8,642 4,785 1,212 1.6 -30.6 5.0 8.7 5.8 7.4 0.4 5.9 FY13E 9,676 5,080 1,576 2.1 30.1 5.6 9.1 7.2 5.7 0.4 5.6
Promoter
ANALYTICAL CONTACT
Mohit Modi (Director) Elizabeth John Vishal Rampuria Client servicing desk +91 22 3342 3561 clientservicing@crisil.com mohit.modi@crisil.com elizabeth.john@crisil.com vishal.rampuria@crisil.com
For detailed initiating coverage report please visit: www.ier.co.in CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.
CRISIL IERIndependentEquityResearch
Q4FY12 Result Summary (Consolidated)
(Rs mn) Income from operations Employee Cost Sub-brokerage, fees and commission Operating and other expenses EBITDA EBITDA margin Depreciation EBIT Interest and finance charges Other income Operating PBT PBT Tax PAT Minority Interest Profit of Associates Adj Consolidated PAT Adj PAT margin No of equity shares (mn) Adj EPS (Rs) Source: Company, CRISIL Research Q4FY12 2,602 466 249 431 1,456 56.0% 27 1,429 846 N.A 583 583 162 421 22 10 408 15.7% 749.9 0.54 Q3FY12 1,907 433 117 236 1,121 58.8% 28 1,093 648 N.A 445 445 149 296 33 24 287 15.0% 749.9 0.38 Q4FY11 1,929 305 140 329 1,155 59.8% 31 1,123 778 N.A 345 345 69 277 27 31 281 14.6% 749.7 0.4 q-o-q (%) 36.5 7.5 113.2 82.9 29.9 (283) bps (4.8) 30.8 30.6 31.1 31.1 9.2 42.0 (32.9) (59.6) 42.2 63 bps 42.2 y-o-y (%) 34.9 52.8 77.2 30.8 26.1 (387) bps (13.7) 27.2 8.8 68.7 68.7 136.2 52.0 (18.5) (69.1) 45.3 112 bps 0.0 45.2 FY12# 8,642 1,767 917 1,173 4,784 55.4% 115 4,670 2,942 100 1,827 1,827 596 1,232 95 75 1,212 14.0% 749.9 1.6 FY11 8,478 2,049 830 1,127 4,472 52.7% 124 4,348 2,437 473 2,384 2,384 532 1,852 73 69 1,847 21.8% 749.7 2.3 y-o-y (%) 1.9 (13.8) 10.5 4.1 7.0 261 bps (7.8) 7.4 20.7 (78.9) (23.3) (23.3) 11.9 (33.5) 29.9 9.4 (34.4) (776) bps 0.0 (34.4)
Segment revenue
Rs mn Investment banking and securities business Securities funding and fund based activities Alternative asset management Asset management Others Total segment revenues Intersegment revenues Total revenues Q4FY12 1,187 1,202 251 75 67 2,782 180 2,602 Q3FY12 763 1,022 41 82 61 1,970 64 1,907 Q4FY11 1,003 869 -26 77 159 2,081 152 1,929 q-o-q (%) 55 18 507 -8 10 41 183 36 y-o-y (%) 18 38 -1057 -2 -58 34 19 35
JM Financial Ltd
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1,715
1,930
2,328
2,764
1,929
2,081
2,152
1,907
500 -
2,602 Q4FY12
10% 0%
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12 65%
Revenues
PAT
27%
30%
34%
29%
35%
37%
44%
51%
53%
57%
53%
48%
45%
44%
43%
39%
39%
36%
33%
31%
29%
24%
67%
31%
28%
25%
25%
26%
23%
24%
20% 10% 0%
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Cash
Futures
Options
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Source: Company
Q3FY12
-200
20%
16%
16%
Q3FY11 14%
Q4FY11 11%
Q1FY09
Q2FY09
Q3FY09
Q4FY09
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
FY08
FY09
FY10
FY11
67%
CRISIL IERIndependentEquityResearch
JM Financials securities lending book declined 6% q-o-q due to challenging times
(Rs bn) 22
MF AUM declined 15% q-o-q as debt AUM (90% of AUM) was down 16% and equity AUM down 9% q-o-q
(Rs mn) 80,000 70,000 60,000
20
18 19
20
20,000 10,000 -
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Source: Company
Source: Company
JM Financial
NIFTY
JM Financia
-indexed to 100 Source: NSE, CRISIL Research Source: BSE, NSE, CRISIL Research
Q4FY12
JM Financial Ltd
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Key Developments
JM Financial has amalgamated its subsidiaries - JM Financial Institutional Securities Pvt Ltd, JM Financial Securities Pvt Ltd and JM Financial Ventures Ltd - with its wholly owned subsidiary JM Financial Consultants Pvt Ltd with effect from March 31, 2012. Hence, the broking business arm under JM Financial Institutional Securities Pvt Ltd and JM Financial Securities Pvt Ltd as well as the special situations fund business arm under JM Financial Ventures Ltd has been merged with the investment banking business. JM Financial plans to enter international markets for broking and investment banking business. In that context, it has recently registered for a licence in Singapore.
CRISIL IERIndependentEquityResearch
Valuation
We continue to value JM Financial based on the sum-of-the-parts method. Our fair value of Rs 36 per share value implies P/E multiples of 17.1x FY13E earnings. The valuation grade is 5/5.
Nov-07
Dec-08
Nov-09
Nov-11
Jun-10
May-08
Feb-08
Jan-11
Feb-10
Nov-09
Nov-10
Nov-11
Sep-08
Sep-09
Sep-10
Sep-11
JM
8x
10x
12x
15x
19x
JM
0.5x
1.1x
Sep-10
1.5x
Aug-11
P/E movement
(Times) 25 +1 std dev 20 15 10 5 0 -1 std dev
Nov-09
Nov-10
Nov-11
Jan-10
Jun-10
Jan-11
Jun-11
Jan-12
Mar-12 Apr-12
Jan-10
Jun-10
Jan-11
Jun-11
Jan-12
Jun-12
Apr-10
Apr-11
Apr-12
1.5x
Sep-09
Sep-10
Sep-11
Nov-09
Nov-10
Nov-11
Sep-09
Sep-10
Apr-10
Apr-11
Jan-12
Apr-12
Jan-11
Jan-10
Jun-10
Jun-11
Jun-12
Premium/Discount to NIFTY
Sep-11
Median PE
Jun-12
Apr-10
Apr-11
Jun-12
Jul-07
Apr-07
Apr-09
Jul-09
Apr-11
JM Financial Ltd
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CRISIL IERIndependentEquityResearch
Annexure: Consolidated Financials
Incom e statem ent (Rs m n) Operating incom e EBITDA EBITDA m argin Depreciation EBIT Interest Operating PBT Other income Exceptional inc/(exp) PBT Tax provision Minority interest PAT (Reported) Less: Exceptionals Adjusted PAT Ratios FY09 Grow th Operating income (%) EBITDA (%) Adj PAT (%) Adj EPS (%) Profitability EBITDA margin (%) Adj PAT Margin (%) RoE (%) RoCE (%) RoIC (%) Valuations Price-earnings (x) Price-book (x) EV/EBITDA (x) EV/Sales (x) Dividend payout ratio (%) Dividend yield (%) B/S ratios Inventory days Creditors days Debtor days Working capital days Gross asset turnover (x) Net asset turnover (x) Sales/operating assets (x) Current ratio (x) Debt-equity (x) Net debt/equity (x) Interest coverage Per share FY09 Adj EPS (Rs) CEPS Book value Dividend (Rs) Actual o/s shares (mn) (1.4) (1.2) 25.0 0.2 750 FY10 2.0 2.2 26.5 0.5 750 FY11 2.3 2.5 28.3 0.6 750 FY12# 1.6 1.8 27.9 0.6 750 FY13E 2.1 2.3 30.7 0.7 750 7.4 0.1 (0.3) 2.2 9.6 0.9 0.4 3.3 10.4 1.5 1.0 1.8 15.6 1.5 0.9 1.6 11.6 1.4 0.8 1.8 Quarterly financials (Rs m n) Net Sales Change (q-o-q) EBITDA Change (q-o-q) EBITDA m argin PAT Adj PAT Change (q-o-q) Adj PAT m argin Adj EPS Q4FY11 1,929 -30.2% 1,155 -32% 59.8% 277 281 -53% 14.6% 0.40 Q1FY12 2,081 7.9% 1,149 -1% 55.2% 241 244 -13% 11.7% 0.33 Q2FY12 2,152 3.4% 1,158 1% 53.8% 274 273 12% 12.7% 0.36 Q3FY12 1,907 -11.4% 1,121 -3% 58.8% 296 287 5% 15.0% 0.38 Q4FY12 2,602 36.5% 1,456 30% 56.0% 421 408 42% 15.7% 0.54 NM NM NM NM 5.9 13.4 NM NM NM NM 6.6 16.0 NM NM NM NM 9.6 27.3 NM NM NM NM 8.8 29.3 NM NM NM NM 8.5 32.1 NM 0.8 7.5 2.4 29.9 1.0 18.7 1.4 18.2 7.0 33.8 1.3 5.2 0.4 7.1 4.1 24.4 5.0 7.4 0.4 5.9 3.3 37.1 5.0 5.7 0.4 5.6 3.2 31.7 5.6 31.1 (22.7) (5.5) 5.3 8.6 36.5 26.4 7.9 6.8 10.1 52.7 20.6 8.5 9.4 15.1 55.4 14.0 5.8 8.7 12.5 52.5 16.3 7.2 9.1 13.1 Cash flow (Rs m n) Pre-tax profit Total tax paid Depreciation Working capital changes Net cash from operations Cash from investm ents Capital expenditure Investments and others Net cash from investm ents Cash from financing Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries) Net cash from financing Change in cash position Closing cash (1) (8,895) (176) (2,841) (11,913) (3,778) 5,246 17,080 (439) 838 17,479 (392) 4,854 14,215 (525) (75) 13,615 5,898 10,751 0 (619) (527) (953) (2,098) 2,949 13,700 (0) 700 (585) 1,064 1,179 306 14,006 (661) 2,871 2,210 (65) (3,932) (3,998) (179) 1,122 943 847 3,138 3,985 (162) (162) FY09 754 (409) 121 3,905 4,372 FY10 1,609 (499) 120 (14,695) (13,465) FY11 2,384 (580) 124 (10,691) (8,762) FY12# 1,828 (564) 115 (317) 1,062 FY13E 2,339 (763) 159 (2,447) (711) (44.2) (64.5) NM NM 23.8 45.1 NM NM 47.4 113.2 15.1 15.1 1.9 7.0 (30.6) (30.6) 12.0 6.2 30.1 30.1 FY10 FY11 FY12# FY13E FY09 4,644 1,446 31.1% 121 1,325 604 721 34 (1,553) (799) 281 (28) (1,052) (1,553) 501 FY10 5,751 2,098 36.5% 120 1,978 606 1,372 237 409 2,019 478 24 1,517 409 1,107 FY11 8,478 4,472 52.7% 124 4,348 2,437 1,911 473 (102) 2,283 532 5 1,746 (102) 1,847 1,212 FY12# 8,642 4,785 55.4% 115 4,670 2,942 1,728 100 1,828 596 20 1,212 FY13E 9,676 5,080 52.5% 159 4,921 2,807 2,114 225 2,339 763 1,576 1,576 Balance Sheet (Rs m n) Liabilities Equity share capital Reserves Minorities Net w orth Convertible debt Other debt Total debt Deferred tax liability (net) Total liabilities Assets Net fixed assets Capital WIP Total fixed assets Investm ents Current assets Inventory Sundry debtors Loans and advances Cash & bank balance Marketable securities Total current assets Total current liabilities Net current assets Intangibles/Misc. expenditure Total assets 789 428 8,891 5,246 1,919 17,274 2,320 14,954 1,597 21,067 7,462 1,143 17,654 4,854 5,015 36,128 3,777 32,351 1,608 39,247 12,536 1,115 24,233 10,751 283 48,918 4,710 44,208 1,708 54,769 7,596 1,579 27,585 13,700 501 50,961 3,270 47,691 745 53,934 8,788 1,990 29,917 14,006 501 55,201 4,757 50,443 745 56,689 386 24 410 4,107 333 12 344 4,944 289 10 299 8,554 300 300 5,198 303 303 5,198 1,339 1,339 1,009 21,067 750 16,725 1,244 18,719 750 17,819 1,271 19,840 18,420 18,420 988 39,247 750 19,173 1,272 21,194 32,635 32,635 939 54,769 750 18,794 1,403 20,947 32,016 32,016 971 53,934 750 20,850 1,403 23,002 32,716 32,716 971 56,689 FY09 FY10 FY11 FY12# FY13E
# abridged financials Note: FY12 financials are not strictly comparable with that of the previous years due to the new format of disclosure under Schedule VI of the Companies Act Source: CRISIL Research
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CRISIL IERIndependentEquityResearch
CRISIL Research Team
President
Mukesh Agarwal CRISIL Research +91 22 3342 3035 mukesh.agarwal@crisil.com
Analytical Contacts
Tarun Bhatia Prasad Koparkar Binaifer Jehani Manoj Mohta Sudhir Nair Mohit Modi Jiju Vidyadharan Ajay D'Souza Ajay Srinivasan Rahul Prithiani Senior Director, Capital Markets Senior Director, Industry & Customised Research Director, Customised Research Director, Customised Research Director, Customised Research Director, Equity Research Director, Funds & Fixed Income Research Director, Industry Research Director, Industry Research Director, Industry Research +91 22 3342 3226 +91 22 3342 3137 +91 22 3342 4091 +91 22 3342 3554 +91 22 3342 3526 +91 22 4254 2860 +91 22 3342 8091 +91 22 3342 3567 +91 22 3342 3530 +91 22 3342 3574 tarun.bhatia@crisil.com prasad.koparkar@crisil.com binaifer.jehani@crisil.com manoj.mohta@crisil.com sudhir.nair@crisil.com mohit.modi@crisil.com jiju.vidyadharan@crisil.com ajay.dsouza@crisil.com ajay.srinivasan@crisil.com rahul.prithiani@crisil.com
Business Development
Siddharth Arora Vinaya Dongre Sagar Sawarkar Deepak Mittal Prosenjit Ghosh Director, Customised Research Director, Industry & Customised Research Associate Director, Equity Research Associate Director, Funds & Fixed Income Research Associate Director, Industry & Customised Research +91 22 3342 4133 +91 22 3342 8025 +91 22 3342 8012 +91 22 3342 8031 +91 22 3342 8008 siddharth.arora@crisil.com vinaya.dongre@crisil.com sagar.sawarkar@crisil.com deepak.mittal@crisil.com prosenjit.ghosh@crisil.com
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