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JM Financial Ltd
Riding on a buoyant market
JM Financial Ltd is one of the leading players in the financial services sector
with business interests in investment banking, equity broking, wealth
management, lending, asset management and alternative asset management.
These diversified offerings have helped JM Financial establish itself as a one
stop financial shop and develop strong relations with clients. Accordingly, we
maintain the fundamental grade of ‘4/5’, indicating that JM Financial’s
fundamentals are ‘superior’ relative to other listed securities in India.
Buoyant capital markets drive investment banking and broking
business
Domestic capital markets are registering strong growth riding on buoyant
economic conditions. This has resulted in strong growth in JM Financial’s
broking revenues. The investment banking business has also benefitted from
increase in primary market activities. JM Financial has a strong pipeline of
equity capital and M&A deals which should continue to drive investment
banking fees.
Intense completion and pressure on broking yields
Intense competition in the broking business and preference for low-yielding
options vis-a-vis the cash segment has put significant pressure on brokerage
yields. JM Financials is focusing on the high yield cash segment which should
help it report stable yields going forward. Further, its emphasis on expanding
its business through a cost-effective franchise-based model should help it to
report strong operational performance.
Strong balance sheet supports securities funding and other businesses
JM Financial holds a strong balance sheet with low gearing of 1.08x at the
group level and ~3x at the NBFC level which should support lending and other
businesses. The securities funding book is registering strong growth with the
run-up in primary and secondary markets. The asset reconstruction business is
witnessing strong growth with a book size of Rs 12 bn. The strong balance
sheet should help the company support its lending and other businesses.
Expect two-year revenue CAGR of 11%
CRISIL Equities expects the company’s revenue to grow at a CAGR of 35.9% to
Rs 11 bn during FY10 to FY12, buoyed by the expected strength in the capital
markets. PAT is expected to increase at a CAGR of 30.5% to Rs 1.9 bn over
FY10 to FY12. EPS is expected to be Rs 1.8 in FY11 and Rs 2.6 in FY12.
Valuations: Strong upside from current levels
We continue to value JM using the sum-of-the-parts method and maintain the
fair value at Rs 45 per share. The stock price has corrected by 30% since our
previous update report dated November 03, 2010. Hence, we are revising our
valuation grade to ‘5/5’.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
JM Financial Ltd
Riding on a buoyant market
JM Financial Ltd is one of the leading players in the financial services sector
with business interests in investment banking, equity broking, wealth
management, lending, asset management and alternative asset management.
These diversified offerings have helped JM Financial establish itself as a one
stop financial shop and develop strong relations with clients. Accordingly, we
maintain the fundamental grade of ‘4/5’, indicating that JM Financial’s
fundamentals are ‘superior’ relative to other listed securities in India.
Buoyant capital markets drive investment banking and broking
business
Domestic capital markets are registering strong growth riding on buoyant
economic conditions. This has resulted in strong growth in JM Financial’s
broking revenues. The investment banking business has also benefitted from
increase in primary market activities. JM Financial has a strong pipeline of
equity capital and M&A deals which should continue to drive investment
banking fees.
Intense completion and pressure on broking yields
Intense competition in the broking business and preference for low-yielding
options vis-a-vis the cash segment has put significant pressure on brokerage
yields. JM Financials is focusing on the high yield cash segment which should
help it report stable yields going forward. Further, its emphasis on expanding
its business through a cost-effective franchise-based model should help it to
report strong operational performance.
Strong balance sheet supports securities funding and other businesses
JM Financial holds a strong balance sheet with low gearing of 1.08x at the
group level and ~3x at the NBFC level which should support lending and other
businesses. The securities funding book is registering strong growth with the
run-up in primary and secondary markets. The asset reconstruction business is
witnessing strong growth with a book size of Rs 12 bn. The strong balance
sheet should help the company support its lending and other businesses.
Expect two-year revenue CAGR of 11%
CRISIL Equities expects the company’s revenue to grow at a CAGR of 35.9% to
Rs 11 bn during FY10 to FY12, buoyed by the expected strength in the capital
markets. PAT is expected to increase at a CAGR of 30.5% to Rs 1.9 bn over
FY10 to FY12. EPS is expected to be Rs 1.8 in FY11 and Rs 2.6 in FY12.
Valuations: Strong upside from current levels
We continue to value JM using the sum-of-the-parts method and maintain the
fair value at Rs 45 per share. The stock price has corrected by 30% since our
previous update report dated November 03, 2010. Hence, we are revising our
valuation grade to ‘5/5’.
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