JM Financial

[rkgautam]

JM Financial is an Indian financial services company, founded by the well known Indian banker, Nimesh Kampani. The company operates in four segments: Investment banking and securities, fund based activities, alternative asset management and asset management.

Opportunity: Before we understand this special situation better, we should take a look at the following details:

Sales: FY12: 874cr, FY11: 896cr

PAT: FY12: 121.2, FY11: 174.6cr

Dil EPS: FY12: 1.61, FY11: 2.33

Networth: FY12: 1954cr, FY11: 1979cr

Cash: FY12: 1370cr, FY11: 1057cr

Working Capital: FY12: 1283cr, FY11: 943cr

• CMP: 12.16, Market Cap: 911cr (the stock is at 52w low, down from 52w hi of 26.4 inJun-11)

I guess now the opportunity should be clearer. The company is trading at a discount of 33.5% to cash and ~29% to working capital. What we need to understand is if this is a mispriced bet, factors offering protection/comfort and associated downside risks.

Factors offering protection/comfort:

• Dividend of 0.6 per share, i.e., a yield of ~5% and payout of ~37%

• Promoters have been increasing their stake: 67.18% by Mar-12 vs. 66.86% by Mar-11

• Nimesh Kampani and his son, Vishal Kampani seem to be trying to do the right things in one of the most difficult times in the industry and their careers.

Downside risks:

• Strong headwinds driven by macroeconomic concerns, global pressure and low investor sentiment;

• Take a note of the following (Note 3 on page 5 of the latest results release):

“Consequent upon the completion of assessment for FY09, the company had received a notice of demand from the IT dept amounting to 315.74cr (Quantum Appeal). The dept had also demanded a penalty of 169.29cr, levied on the enhancement of income, relating to FY09. Upon the appeal filed by the company, the IT Appellate Tribunal, Mumbai held that the Quantum Appeal be restored back to the assessing officer to decide the issues ss per the direction. Accordingly, the penalty levied has also been set aside. As a result of this, no amount is payable by the company as on date pending the completion of fresh adjudication by the assessing officer.”

Seems like the company had a cumulative penalty of 485.03cr by IT dept, which as of today has been set aside, and the company is awaiting further assessment/result.

• The long term debt of the company has increased from 26cr in FY11 to 271cr in FY12 (possibly because of consolidation, but anyway, need to understand this better)

Conclusion: Lets say the company has to pay 485cr to the IT dept and also pays 271cr to take the LT debt to zero. This will reduce the cash to 614cr. Net of that cash from 911cr market cap, i.e., for 297cr., I will get:

1). A profitable business doing 874cr sales and 121cr profit;

2). Brand JM Financial that includes the Kampani family and the team;

3). Opportunity to partner with the person who is the reason why Morgan Stanley was able to start their operations in India and subsequent growth of IB in India;

4). Networth of 1469cr;

5). Dividend of 0.6 per share, however, at an implied yield of 15%

If the company doesn’t have to pay anything to the IT dept, then I can buy all of the stuff mentioned above, pay the LT debt of 271cr and the market cap of 911cr, and will still have 188cr. cash!

This opportunity might materialise on its own as soon as the market participants realise it and start buying, and/or when there is clarity regarding payment due to the IT dept if any, and/or things turn brighter for the business. Bears time risk associated with opportunity cost, but looks good considering minimal downside and significantly higher potential upside.

A classic heads I win a lot, tails I don’t lose much.

Thoughts/suggestions welcome.

Discl: Invested

[rkgautam]

For those interested in reading some relevant legal stuff:

http://indiankanoon.org/doc/43978956/

http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=14489

[hitesh2710]

long term borrowings at 271 crores. But what do we infer from the short term borrowings of 2930 crores at end of fy 12 which was 3320 crores at end of fy 11?

There are assets against this in consolidated balance sheet but I guess it needs working to calculate total assets in terms of investments, cash, securities held as stock in trade etc.

[rkgautam]

The reduction of 390cr in short term borrowings could have been balanced by a mix of change in current investments (-246cr) and non current investments (-67cr) (and maybea part of the short term loans being converted to long term loans (increased by 245cr). Securities held as stock in trade, and cash might be involved as well. I guess this will get cleared once the AR is out. Meanwhile, I will check previous ARs.****

[rjt163]

Hi Rohit, just a doubt on why we are not reducing short term borrowings to calculate net cash.

For JM Financial, net cash = 1,370-3,202 = -1,832 cr, which doesn’t offer much comfort.

In case of cash bargains, just to double check, I usually compute EV/EBITDA multiple which takes care of cash component as well.

For JM Financial:

• Market Cap = 900 cr
• Debt = 3,202 cr
• Less: Cash = 1,370 cr
• Less: Current Investments = 50 cr
• => EV = 2,682 cr
• => EV/EBITDA = 6

It doesn’t look all thatattractivenow.

[constantseeker_]

[quote="rkgautam, post:1, topic:843762796"] > JM Financial is an Indian financial services company, founded by the well known Indian banker, Nimesh Kampani. The company operates in four segments: Investment banking and securities, fund based activities, alternative asset management and asset management. > > Opportunity: Before we understand this special situation better, we should take a look at the following details: > > Sales: FY12: 874cr, FY11: 896cr > > PAT: FY12: 121.2, FY11: 174.6cr > > Dil EPS: FY12: 1.61, FY11: 2.33 > > Networth: FY12: 1954cr, FY11: 1979cr > > Cash: FY12: 1370cr, FY11: 1057cr > > Working Capital: FY12: 1283cr, FY11: 943cr > > * CMP: 12.16, Market Cap: 911cr (the stock is at 52w low, down from 52w hi of 26.4 > > I guess now the opportunity should be clearer. The company is trading at a discount of 33.5% to cash and ~29% to working capital. What we need to understand is if this is a mispriced bet, factors offering protection/comfort and associated downside risks. > > Factors offering protection/comfort: > > * Dividend of 0.6 per share, i.e., a yield of ~5% and payout of ~37% > > * Promoters have been increasing their stake: 67.18% by Mar-12 vs. 66.86% by Mar-11 > > * Nimesh Kampani and his son, Vishal Kampani seem to be trying to do the right things in one of the most difficult times in the industry and their careers. > > Downside risks: > > * Strong headwinds driven by macroeconomic concerns, global pressure and low investor sentiment; > > * Take a note of the following (Note 3 on page 5 of the latest results release): > > "Consequent upon the completion of assessment for FY09, the company had received a notice of demand from the IT dept amounting to 315.74cr (Quantum Appeal). The dept had also demanded a penalty of 169.29cr, levied on the enhancement of income, relating to FY09. Upon the appeal filed by the company, the IT Appellate Tribunal, Mumbai held that the Quantum Appeal be restored back to the assessing officer to decide the issues ss per the direction. Accordingly, the penalty levied has also been set aside. As a result of this, no amount is payable by the company as on date pending the completion of fresh adjudication by the assessing officer." > > Seems like the company had a cumulative penalty of 485.03cr by IT dept, which as of today has been set aside, and the company is awaiting further assessment/result. > > * The long term debt of the company has increased from 26cr in FY11 to 271cr in FY12 (possibly because of consolidation, but anyway, need to understand this better) > > Conclusion: Lets say the company has to pay 485cr to the IT dept and also pays 271cr to take the LT debt to zero. This will reduce the cash to 614cr. Net of that cash from 911cr market cap, i.e., for 297cr., I will get: > > A profitable business doing 874cr sales and 121cr profit; > > Brand JM Financial that includes the Kampani family and the team; > > Opportunity to partner with the person who is the reason why Morgan Stanley was able to start their operations in India and subsequent growth of IB in India; > > Networth of 1469cr; > > Dividend of 0.6 per share, however, at an implied yield of 15% > > If the company doesn't have to pay anything to the IT dept, then I can buy all of the stuff mentioned above, pay the LT debt of 271cr and the market cap of 911cr, and will still have 188cr. cash! > > This opportunity might materialise on its own as soon as the market participants realise it and start buying, and/or when there is clarity regarding payment due to the IT dept if any, and/or things turn brighter for the business. Bears time risk associated with opportunity cost, but looks good considering minimal downside and significantly higher potential upside. > > A classic heads I win a lot, tails I don't lose much. > > Thoughts/suggestions welcome. > > Discl: Invested [/quote]

Hi Rohit,

To a large extent i agree that this could be a bargain bet. Since, it was difficult for me to predict the cash flows of JM, I tried to check if what was the Margin of Safety Available.For this I have taken the assets in FY12 balance sheet and have done a mark down on them to reflect worst case scenarios. Also, I have not considered cash on the books as this might be short term in nature.

Assets in FY12

	Value on Balance Sheet	Written Down Value	Loss
Noncurrent investments	520	52	468
Long term loans and advances	589	263	326
Assets for arbitrage	193	97	96
Stock in Trade	759	721	38
Trade Recievables	157	141	16
Short term loan & advances- Low lossprobability as there are loan against shares and hence quickly liquidated.	1945	1847	98
TOTAL	4163	3537	1042

Value of Equity= 1955 Crs.

Less loss of 1042 crs =913 crs

Safe BV/share= 12.17

This obviously assumes that company doesnt have too many exotic stuff on its balance sheet.

Regards,

saurabh

inJun-11)

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[rkgautam]

Q1 results out…consolidated sales at 245cr up 19% yoy; PAT at 35cr up 45% yoy. Promoters have increased their shareholding to 69.2%. Current market cap of 1035cr offers this opportunity at ~7x FY13(e) PAT. Stock might jump tomorrow and will most likely provide better entry opportunities later.

[Vivek_6954]

No update on this thread for a very long time.

Alongwith Edelweiss its has become one of the leading ARC co alongwith NBFC business which is doing good business. Tailwinds for NBFC seems strong as PSBs & foreign banks shying away from new business in India.

Anyone tracking it ? views invited on it

[Gaurav_Agarwal]

Promoters stake has reduced from 65.32% in q4fy17 to 65.18% in q1fy18. Anyone in know of reason?

[riken]

HI,

Check absolute number of shares. Promoter has actually increased stake by 1 lakh shares which is miniscule but still. Also total number of shares in this quarter has gone up compared to last quarter. As a result % wise stake has gone down.

[Gaurav_Agarwal]

You are right. The absolute number of shares have increased from 79,45,25,114 to 79,67,89,166 an increase of 22,64,052.

The increase in shares is due to ESOP given on 2-May-17 of 18,42,618 and 4,21,434 on 29-Jun-17. Total amounting to Rs. 27 crore @120/share.

[investr]

Isn’t that is too small a number to fret about?

[shashikapoorin]

JM financial has been growing at a scorching pace. The recent results have been very good. Mr Vishal Kampani is in his 40s and seems dynamic. They have applied for Housing Finance Business licence once granted they would extend lending for Home Finance. Investment Banking and ARC Business are also doing quite well, AUM/WM are a bit laggard. The stock has run up quite a bit and has been consolidating. This quarter there has been an increase of 49% YOY profits.

[james_kerala]

JM financials results are out during market hours.

http://www.bseindia.com/xml-data/corpfiling/AttachLive/2266984f-d7bb-4065-9de4-cdc886f14baa.pdf

Overall very good results (figures in Lakhs):

• Read as Net Cons Profit (instead of 'Not Cons Profit)
• Segment wise and other details are in the link

Disclosure: Invested 3% of PF

[a0132256]

Hi,
NPA rised to 0.6% from 0.1% , any commentary from management on concal for future npa trend?

Regards,
Sathish

[aammiitt2]

This will go up in next few quarters. Management is extremely cautious on loans to builder. they have max exposure to them and now deliberately re balancing the loan book towards corporate book and away from LAP. gong forward the cost will go up due to investments in HFC business and retail business.

They said the margins may supress in coming quarters but most of the downside has been seen in this quarters. margin downgrade due to management strategy to focus away from high yielding LAP loans to less yield Corporate loans.

Disc: Invested, but sold 50% holding today. Still a good long term fund bet.

[smehta]

JM Financial Concall
Discussion of Financial Result of 2nd quarter of 2018 and First half of financial year 2017-18
o Consolidated revenue for first half FY 18 is at 1464 Cr, up 40.77 % compared to 1040 Cr for first half FY 17.
o PAT for first half FY 18 was at 274 Cr, up 36.5% compared to 200.75 Cr for first half FY 17.
Performance Of Each Business Segment

• Wealth Management , Investment Banking and Securities Business
  o For First Half FY 18 Revenue- 374.11 Cr , PBT (Profit Before Tax) – 86.49 Cr
  o Business has contributed 15.55 % to our group PBT for the first half of FY18 .
  o PAT (Profit After Tax) seen growth of 93.59 % for the first half of financial year 18.
  o Investment Banking :-Business growing tremendously driven by very robust deal pipeline with several mandate transaction under execution.
  o Wealth Management Business – AUM stands at 27,289 Cr excluding custody assets . Equity AUM in this quarter has increase by 11.72 % to 11,146 Cr. Average Daily Turnover has to increase to 4748 Cr during this quarter up 9% Q-O-Q.
• Fund Base Business
  o Contributed 78 % to group PBT to the first half of FY 18 which is approximately 435 Cr on revenue base of 1033 Cr.
  o Two Categories in Funding Business : - (a) Financing Business (b) Distress Asset Business
  o Financing Business :-
   Overall loan book stands at 12,365 Cr as of 30thSep2017 (this does not include IPO funding book of 1536 Cr because it is very short term in nature and company had some IPO funding over after 30th Sep).
   62 % of this loan book comprises of Real estate sector lending which is approximately 7650 Cr ,which has registerd a growth of 23.5 % on y-o-y basis. We have entered the Kolkata market in first half of FY 18 and currently we are evaluating our capability to national capital region and hopefully we have some of loans completed before year end.
   19 % of the book comprises of capital market lending which stands at 2381 Cr and this book consider a Y-O-Y growth of 65% . Another 19 % the book comprises of Corporate lending which registered a Y-O-Y growth of 176 %
   Gross NPA of financing business is at 0.65 % and across to income stands at 37.40 %.
  o ARC Business :-
   During the quarter NBFC and banks had announce various NPA portfolio auctions . Company has participated in several of this prospects . AUM for SEP 2017 has grown by 20.46% Y-O-Y to 12,469 Cr.
• Asset Management Business
  o Contribute 5.4 % OF PBT for the first half of FY 18 which is approximately 30.05 Cr on a revenue of 46.64 Cr
  o Mutual Fund side average quarterly AUM stood at 13951 Cr breakup comprises 6987 Cr equity and 6964 Cr in Debt schemes
  o Completed Buyback of 9.8% of outstanding equity capital of our asset management company
  o Combined AUM In private equity fund and Real estate stands at approximately 600 Cr
• Group Financials :-
  o In Q2 FY 18 company revenue grow by 33.99% Y-O-Y to Rs 755 Cr from Rs 564 Cr. Q2 FY 18 PBT is at 286 Cr with increase of 25% Y-O-Y. PAT grown by 27.2 % in Q2 Y-o-Y From 114.65 Cr to 145.84 Cr.
  o For H1 FY18 the gross revenue is at 1464 Cr and a consolidated profit is at Rs 274 Cr. EPS stood at 3.44 versus 2.54 for the same period last year. In H1 FY 18 networth now 3404 Cr with book value of 42.27 per share with a growth leverage of 2.71 times in a net leverage of 2.54 times .
  o Group rating is AA Stable
  o Revenue from fund base business has grown to 132 Cr rupees in FY 18 first half which is a growth of 42.99 % y-o-y
  o Loan book grew from 8479 Cr for first half FY 17 to 12365 Cr in first half FY 18 which is an increase of 45.85% Y-O-Y
  o Revenue from fee base business has increases by 37.84 % Y-O-Y to rupees 430.75 Cr for first half FY 18
  o Expenses including finance cost has increased by 34.57 % to rupees 364 Cr
  o Finance cost has increased to rupees 543 Cr as against 369 Cr during the previous year,primarily on account of leverage increase from the business
  o Company continue to do efforts to diversify its borrowing profile and have a healthy borrowing mix with long term borrowing now constitute 57 % of entire borrowing V/s 47% as of 30th Sep2016.
  o Cost of fund has come down from 9.29% to 8.70% yoy
  o PBT increase to rupees 566 Cr which is a growth of 38.98 % yoy

Q&A

• What is your plan and long term vision of your wealth and asset management business ?
  o Focus on asset and wealth management is more
  o On asset management side, 70-75 % of AUM is from Corporate and HNI (High Networth Income) segment. Planning to raise AUM from retail and make a perfect strategy for it in next 6 month to 1 year to make it a healthy mix.
  o On wealth management side, we will be very strong to make mix of older wealth families and action plan now going forward is cultivate more of the younger and the newer generation wealth targeted clients so that is the plan.

• On NBFC part we are cautious after Demonetisation , So can you highlight what you are in terms of builder cash flow and what is builder community trying to do in terms of coping up from RERA and GST , How JM will handle the entire scenario created over the last 9 months ?
  o We are at very early stage and given a cautious call on real estate that we don’t want to increase loan book and that was a good call as the risk has increased tremendously in real estate as sales are slow
  o When we look at property cover it is not easy to see it when cash flow are significantly delay and parting a few developer with a very good brand about I think 60-70 % of real estate sector is facing serious stress and one has to be extremely careful in lending money to this space. Currently I dont think one should get over excited and get grow very quickly in this stage. There is still room over the next 6-12 months of sales cycle to get further slow and for cash flow to further detoriate for developer and therefore there will be more pressure on lender to recover their money.
  o We had already seen last 3 quarter of no growth and de-growth in the last quarter in real estate AUM but I hope this will stop soon and we will be build back our book in next 3-4 quarter in real estate, but it will be as the same pace which we always communicated that we don’t expect more than 15-20 % growth in the real estate lending book over next 3 years. Our next 3year CAGR in real estate will be lower than previous 3 year CAGR in terms of growth.
  o

• Do you put pressure on builders to clear inventory or clear payment?
  o No we deal with very good quality developers and they don’t want to be defaulters. Lender Pressure works tremendously but when we look in our loan book we don’t want to exercise lender pressure excessing 20 % of my book. So when sector is running in a problem then you cant come out by growing your book you can sort out by limit problems in your book that make you exercise these kind of event here. We had also face lots of prepayments in last six month because not only is there slow sales but there are also 2-3 very aggressive lender in the market who are willing to lend much more excess then their capability while we see to correct our risk here

• Is competitor increasing aggression though overall sector dynamics are not favourable ?
  o It’s a high beta bet right now it is an inverse view from us, but one has his own view like some has view of economy slow down, It depends on his risk management capability to be able to take share or some has view that no turnaround will happen and things change more sharply from here where most people think that I would take out market share today.
  o But a year ago I had told that real estate sector Is to large as a proportion of our business currently and we don’t wanted to be that large. So for us it is not just a real estate sector, we are also a JM Financial where we cannot have such a significant proportion of our earning comes from real estate over next 3-5 years. It’s a combination of both things.

• Out of 950 Cr of real estate book how many builders you have and what is your ticket size ?
  o Average ticket size-100 Cr , 70 builders , Number of loan- 160-170 , Average Yeild – 14

• By seeing your capital utilising Is there is any capital raising plan going on ?
  o No we are not utilizing any capital our lending ration has come to 2.65 % and we are converting our wholesale loan to more granular loans. So from capital market prospect of course I will raise capital as the stocks are doing well as the market are very liquid but not for business or fundamental purpose.

• How do we see asset management business as growth in your AUM is flat on yoy basis ?
  o 70-75 % of our AUM that’s comes from Corporate or HNI and we are very profitable in that business and if we have to grow retail we have to go retail profitably . Our margins are phenomenal and same time we are working on a retail plan and over next 1 year you will see changing toward mix of more retail investors and more sticky money in the market but that would be at upfront investment so that would be from profitability but that would be increasing AUM at a more granular mix.

• Reason for spike in NPA to 0.60 % is it from one account
  o Yes the spike is from our real estate book .
  o It Is from one account and we are very well covered on the account so I don’t expect any LGD effect on this account and in next 6 months we will cover most of our capital.

• Give some information on geography mix of your real estate book.
  o 5.7% from Mumbai , 32% from Bangalore , 10 % in Pune , 0.5% from Chennai, 2% each in Kolkata & Hyderabad.

• When you say that 60-70 % real sector is in stress which geography you want to point out here ? Is your exposue is in more to premium developers ?
  o Each & Every geography is in stress ,Banglore would be least in stress in all .
  o Our exposure is in more to premium developers as you see our yield is n lower side most of our competitor lending above 16 and we are at 13-13.5

• How growth is coming is it from prepayment and refinancing of interest and principal ?
  o Yes absolutely it’s a lot of refinancing in the growth for example in Mumbai market we don’t see any new project undertaken from last 2 year and as a lender 0 and it is not a good sign.

• Capital adequacy ratio of 16.3% so do you have to infuse capital is there or any QIP plan there ?
  o This include 1500 Cr of IPO funding which is over after 30th sep . So if you remove the IPO funding our networth is 1300 Cr that gives us enough room to next 18 months or no more capital raising . So because of IPO you see spike in leverage.

• Give some idea of Corporate lending book
  o Most of our loans are long term loan in nature, you also see spike in long term borrowing to lend corporate and real estate long term loans.
  o So basically we want to do is structured finance and give structural finance solution which include acquisition finance , promoter loans,etc.
  o In mid-market lot of corporates are talking to us for working capital and term loans. So we are cautiously starting with a few . The entire growth coming in NBFC space is coming because of lack of lending opportunity at the PSU.
  o Of the 2361 Cr of our Corporate lending book, 1000 Cr is Flat another 1000 Cr is structured finance of term loan , another 361 Cr is property loan. Average yield- 12-12.5

• Dips in your margin is because of switching from real estate sector to corporate sector
  o Right assumption because real estate yeilds are 14 and corporate yields are close to 12 and capital market lending close to 10.50 to 11

• What is your comfort level of margin to continue with ?
  o As most of dips has already been seen and now I don’t see any dip and corporate market is very well I don’t see too much of tension there. In real estate we had already seen a very large dip another 30-35 points dip to go.
  o It also depend where you want to make your book. On our side in next 6 months we have to build it in more quality asset book. So if you want a higher quality asset book you want higher quality developers you want better comparable covers and you want better competitive market like this. Our dip could be higher than market dip.

• In your real estate lending whether it is more residential or commercial lending projects ?
  o Large part is from Residential funding. Even after GST and RERA most part of our growth lending in real estate will come from Residential funding. It is too early to see full impact of GST and RERA on developers I think it need more clarity in the next 3-4 quarters. So we will continue be very cautious to how we will expand our book.

• In this scenario do you see probability of rising NPA
  o Yes, In next one year where we will stand at NPA in SMA 1 and SMA 2 and nothing significantly concern us and also our book is very well covered in terms of collateral most of loans are at 2x property cover. Most of our loans has 2x cash flow cover. So our covers are very very strong . Others competitors have to grow so aggressive that they are lending towards 1.5x cover and that is what market is going to offer then we would not lend.

• What kind of growth we can see in AMC business ?
  o Significant portion of growth is coming from large funds. Top 6 funds which are backed by banks distribution are seeing significant addition of equity capital. There are 2-3 equity special funds that are doing very very well. We are in the markets where valuation is very expensive but liquidity is very strong so the market may continue rising over next year. But having sense that it is very expensive build out today in terms of retail and what is the guarantee that we will attract the flow so that require certain organisational changes at our end, if we were to go through this retail build out and organisational change will take 6 month to 1 year to change to happen. So I would not anticpate that there will be a very addition of retail in next 6 month to 1 year. It will take 6 month to 1 year to build out that strategy and post that to execute it.

• Can I get shareholding breaken of this particular AMC business
  o 16 % by us , 16 % by company and 40 % by promoter family . Employee holding roughly 3-4 % in listed entity.

• What are the steps taken to grow Wealth Management Business ?
  o Key thing we are focusing is to grow the AUM by way of adding more wealth advisors and that to in different location of India not just in Mumbai. We are present at 8 locations at the moment.
  o So effectively from 27500 Cr our objective will be two kind of growth One will be equity and second will be assets that will give us Better Yield and improve the yield across all the assets.
  o It is not easy to add wealth advisors as cost of adding wealth advisors is very high and we are comfortable with our existing wealth advisors because I don’t predict to bull market to continue in India over 4-5 year. So there is a little bit problem adding new advisors but we will increase the productivity with almost similar numbers of advisors and our AUM has increased up so high because of adding equity and more yield assets than fixed income assets.

• What number of assets increase in AUM business
  o Last quarter AUM was 24000 Cr which move to 27300 Cr
  o Last quarter Equity growth from 9900 Cr to 11146 Cr QOQ
  o YOY Equity growth from 7163 Cr to 11143 Cr almost 50 %
  o Debt grown from 5000 Cr to 7670 Cr yoy
  o Liquid come down from 9649 Cr to 8465 Cr

• You find difficulty in hiring new advisors so do we expect low growth in this segment ?
  o Growth depend on mix of adding new advisors and how productively you use your wealth advisors. We have 60 advisors and will grow to 90 advisors not more than that. We can hire more financial advisors but we don’t choose to hire.

• What is your Housing Finance Strategy and what kind of book we are looking to build here ?
  o Focus on affordable housing loans which comprises more of self employed people and our strategy Is to deploy 2.5 to 3000 Cr over next two years. We are too excited about the business .
  o Affordable Ticket Size - Below 40 lakh
  o JM financial is not invested in Indian home, it is hold by a private equity fund and we are just holding for it.

• Operating Expense Spike Can you give reason for that ?
  o Our is that our ARC business was not consolidated last year because we get approve from RBI to increase our stake above 50 % only in the first week of October so it is just a accounting entry.
  o Second we are going to build our SME Finance business and our HFC business and those is almost front loaded and revenue will seen in next quarter so there cost is seen
  o We have case of NPA so that NPA also increase in provision so you see operating expense spike
  o We will invest more in our SME finance business and we will not doing more provisions next year.

[hemtan100]

JM Financial Q2:
No 1 in ECM league YTD 2017 - Strength in core IB business!
Q2 IPO funding - 15k cr!! - Playing the IPO boom

Based on JM’s Q2 commentary it seems
PEL n JM Fin taking contrasting approaches to real estate funding.
PEL raising capital. JM not looking to aggressively grow their RE book.

[hemtan100]

With management guiding for slowdown in real estate funding, the growth mantle now rests with the SME lending, corp credit and structured finance division.

JM clearly not firing on all cylinders at the moment

Overall, valuations at these levels do not appear comforting enough.

[hemtan100]