Net gain in fair value in my opinion mean profits or notional profits (I am not sure between the 2) that the company would accrue from buying/selling investments in the quarter. This could largely be an unpredictable variable in future earnings - as it would depend a lot on market direction.
It could make PE look optically low if it is very high in some quarters.
Discl : Not invested. Not a registered advisor. Not investment advice.
Hi,
Iâm a novice investor. Could you please guide me on how you arrived at the PE calculations to figure out a price range of 1200 to 1300? As I see that the present PE is 9, PAT is 1245, EPS is 104. Assuming they grow at an average CAGR of 15% and assuming no PE rerating then share price lands at 1200 - 1300.
If we assume PE rerating along with EPS 15% CAGR
PE @15 - 2000 - 2100
PE @ 20 - 2700 - 2800
I couldnât follow your Net Fair Value gain calculation. Would be great if you throw some light
It would be hard to expect linear growth as their earning from broking business is highly cyclical and it is highly dependent on stock market movement. There is a reason why Angel broking IPO was priced at the level it was⌠If the promoters had even the slightest inclination of the upcoming quartersâ bumper earnings they would have timed the IPO later.
Thanks for the response. I agree it may not be linear but if you see I have only taken the bare minimum of 15% CAGR and PE expansion of Max 20. For angel, it is around 25 at the current levels. However, I spent a long time and understood the business in detail which I have listed down in this thread. Please read and share your opinion on it.
First of all thanks for your analysis. It triggered me to really dive deep into MOFS in detail. Please see if what I have found is helpful to you.
The Net Gain on Fair Value change is a term used to assess an increase in the value of Equity holding which is notional but however, this assessment is done to increase book value. In Taxation terms, this is called Fair Value through Other Comprehensive Income (FVOCI). You could see this term used in the MOFS Annual report as well.
So the question comes why does MOFS use this? MOFS is a bundle of multiple businesses (Broking, AMC, Wealth Management, PE, and Home Finance). In this, the Private Equity part invests in Private Business as well.
MOFS has invested in over 31 Business which you can see here, even I was surprised that their PE funds have invested in some marquee names (IEX, Dixon, Kurlon, Dairy Day, Cycle Brand etcâŚ).
Coming to the point the value in these companies needs to be reassessed from time to time to revise book value. Although MOFS hasnât explicitly given a breakdown there is another example publicly available which is from xelpmoc technologies. This company invests in startups and makes software for them. In this list, you could see how they have been reassessed quarter on quarter.
MOFS has done the same thing and has reassessed and they have also paid taxation on the same. The reassessment and holding are not publicly available. In FY21 they have increased the value of their holding by 327 Crores and paid around 12% Taxation on that. (Looks like a Capital gain tax not sure).
The calculation in your blog subtracts the Net Fair Value gain into PAT but the PAT of 1259 declared in FY21 is without consideration of FVOCI Income. Please see the highlighted picture below.(Pg 36: FY21 Annual Report)
So I believe you should reassess your calculation. Further, I wanted to point out that you have assessed the balance sheet based on âBrokergateâ/Dividend Income/Interest income. If you dig further deeper they have given the split up clearly based on Business which will give you a better perspective. Iâm preparing a detailed investment note. I will share it in a day or two
Loans(housing finance) are around 45% of their liability side, isnât it the concern given it is not their core competency. Or am I wrong in saying that?
From their latest presentation GnPA and Net NPA are well under control though, even better than some mid-sized banks.
On housing finance MOSL has gone through a big learning curve. It started off as diworsification with an intent to deploy the excess cash generated by other streams of business generating free cash( strategy is easy, execution is tough). Over a period of time MOSL has gone through itâs learning curve on housing finance and learnt that lending is not an easy business, and risk management is not an easy competency to develop. It seems now, from GNPA & NNPA trends that MOSL has learnt its lesson.
Housing finance is going to see a big bull run on the back of uptrend in real estate cycle. I daresay that this segment of MOSLâs business may surprise on the upside.
Having said that the way Angel has metamorphosed itâs broking business, one wonders if the broking arm of MOSL has missed a trick or two.
My feeling is that this diversification is a deviation from the core services that MOFSL is doing currently. We need to wait and watch to see how it turns out.
Looking it to the business categorically:
Revenue and PAT
Presently the home business is around 20% to 11% of the revenue and 3% to 4% PAT.
(Business has shrunk relatively in FY21 @14% compared to FY20 @22% but itâs growing in FY22)
Physical Spread
It is presently spread in 101 cities and may require more investment to expand further. So itâs relatively very small and may have to grow to really make any dent in the market.
NPA Trend
While the GPA and NPA trends are acceptable. It needs to be seen in the long-term trend if they are able to maintain it.
Cost of Fund
The cost of funds as reported in their Board report FY21 is 8.25% which is relatively higher so operationally they have to be slick as established players can manage to get a lower cost of funds.
While other parameters like Collection ratio(98% Q2FY22), Capital adequency ratio(50%), Net Leverage (2.5%).
The entire segment is âwait and watchâ for MOFSL as of now
Here are my concerns
The objective of MOFSL is to increase ROE in the longer term and build stable revenues.
If focussed well the business could become as good as the brokerage if not it can be a left-alone kid.
Hey, you are right and I was not sure about the Fair Value thing thanks for clarifying it in the screener it is showing a multifold jump in profit so was not sure about it
I have the following doubts because of that I am not ok to invest at the current price
All and all with so many if and buts itâs not a straightforward bet to me
Thanks
@casperkamal or @prabhatg1 - since you both have been actively tracking this franchise, appreciate your inputs with the current development. Thanks
They were good all around be in top-line or Operating PAT only difference was MTM PAT
MTM PAT includes profits/(loss) on account of Fund based investments made in Equity & Alternate Funds
Taken from their presentation , I do not see concern here, but yes if return this year is not good, their brokerage business might see some downturn in future
Please read my post on Fair Value gain dated Jan 16th to understand this article further.
The spoilsport is Net Fair Value gain otherwise the company seems to be growing well.
Please look into the highlighted red box. The QOQ growth for all segments is 92%(First line) but in the next line, you see -98% degrowth for MTM Pat. To understand what is MTM PAT read the last highlighted red box. It comes from the Equity assessment. In fact, the usual slogging Housing finance has also improved this time at 300 QOQ. So the actual 30% profit is due to the MTM drop.
If you observe the Net Fair Value gain has been significantly growing since 2020 but now it has started slowing down. MOFSL doesnât publish any details on this but what I could trace based on assumption is the following.
MOFSL holds companies like IEX (see my previous post dated 16thJan for other PF list), Post March 2020 Equities have been growing quarter on quarter phenomenally but the last quarter has been the first one where the slow down has begun and itâs felt harder now. So I assume the PF companyâs values have pretty much stabilized which is why there is no NetFairValueGain.
To see MOFSL performance observe segment-wise and exclude the MTM PAT.
This can be a dark horse as I feel a significant value unlocking will happen through Fund fee incomes as they are going to exit each of these PE funds with significant Fund management fees. (see below chart). .
See PAT breakup below where it contributes to significant PAT. (18 to 23% Revenue Contribution)
They have only exited from two funds (IBEF I/IREF II) so far which has contributed significant fee income in 21/22. More Funds are planned to be exited between FY22-32.
On a side note, PPFAS has been accumulating Motilal Oswal Shares (Donât know the rationale though)
Disclosure: Iâm not invested. In fact, I took up to analyze the company considering itâs a complex structure with so many different kinds of business under the hood.
Operating PAT 182 Cr. New client addition 2.1 Lakhs. MTM Loss 150 Cr (but this is fine as it seems current/todayâs NAV of their investment is above 31st march 2022 closing hence high probability of reversing is loss in to gain in next quarter.
In Private equity ⌠there will be some mnagement fee but this will just cover cost of running the team Profit will come from carry when exits happen
This stock seems to be available at cheap valuations.
At a PE of 7.5, it available cheap historically.
Sales and profits have grown steadily yoy over the past decade from 600odd cr revenue to 4000cr revenue in past 8-10years
20+% profit margins and good ROE.
Is there anything I am missing here.
Disc: Taken a position recently
Yes - I also believe this is available at very cheap valuations. This bear market is a silent crash where nifty is not going down but many small & mid cap stocks down more than 50%
Given that markets have corrected, there could be a huge MTM loss on their investments which will show up on their Q4 quarterly results. See what happened when markets crashed during peak covid.
Yes thats true actaully. Have been adding more quantity during the fall of the stock.
MOFSL Insider Acquisition: Ramdeo Agarwal & Motilal Oswal (Promoter/Director) have started buying shares from open market. First Buying was done yesterday. Total Value of Buying is 2 cr. which is nothing as compared to Total Mkt. Cap (8495 cr) and Free Float Mkt. Cap. (2038 cr). Lets see if they buy more.
