I read lot of articles on VCcircle, and I have noticed that for most of the PE and VC backed companies JM financial is top choice for ECM transactions along with foreign IBs.
In India it seems that they have highest market share.
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Acquisition Approval: The Competition Commission of India (CCI) has approved JM Financialās acquisition of a 42.99% stake in JM Financial Credit Solutions Limited (JMFCSL). This is part of a larger plan to increase their shareholding in JMFCSL from 46.68% to 89.67% following the completion of this acquisition, which is valued at approximately ā¹1282 Crore.
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Sale of Shares: Concurrently, JM Financial plans to sell 71.79% of its stake in JM Financial Asset Reconstruction Company Limited (JMFARC) to JMFCSL for around ā¹856 Crore. This transaction will result in JM Financial no longer holding any direct stake in JMFARC.
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Market Reaction: Following the announcement, there was a noted increase in the market price of JM Financialās securities by 4.58%, which the company attributes to market dynamics rather than any undisclosed information.
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Future Prospects: The acquisition is expected to enhance JM Financialās control over JMFCSL, allowing for better capital allocation and profit distribution, thereby potentially increasing consolidated profits.
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Regulatory Compliance: The company has complied with the necessary regulations under the Securities and Exchange Board of India (SEBI) regarding disclosures about these transactions.
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Itās primarily market sentimentāmost stocks are down today. This could present a buying opportunity at lower levels.
P.S. - Please do your own due diligence.
Did in depth analysis of JM Financials:
Spent the day.
I feel it can be a huge wealth creator going forward.
JM Financials- is it the next Nuvama n Motilal Oswal n Elelweiss Alts biz combined!?
Important points-
5000 Crores idle cash on books as of now. No use.
Current borrowings is equal to the loan books they are going to sell going forward.
Company is focusing very deeply on Investment and Wealth management business and in Investment banking business and in Affordable Housing NBFC, which they plan to demerge going forward. And on lending fronts they want to focus on Bespoke (loans to promoters of companies) & Loan against securities & Margin trading.
The lending biz which they are focusing on except affordable housing will get synergies from other lines of businesses.
Selling off the NBFC biz (wholesale lending) sold huge chunks till now, rest 3500 crs will be sold by FY28 as most of the loans to real estate is of longer maturity cycle. Also they are syndicating these RE loans to AIF products.
Also company have sold off the MSME books.
So in crux,
What needs to be tracked from here-
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YoY growth in Investment Banking biz.
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YoY growth in Asset n Wealth Management biz (increase in RMs) they are investing 200 cr per annum to grow this business. And as we saw in Nuvama costs are upfront in this biz n Operating Leverage plays going forward. Till FY 27 they will invest to grow this.
Track YoY AUM growth. -
Track the broking business.
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Track AUM growth YoY of Bespoke financing & Margin against securities.
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SEBI n RBI approval to increase stake in Wholesale lending book to increase stake from individual investors.
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Overall run down of Wholesale credit books & ARC books.
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Also they have done huge provisioning, increased provisioning to 70%. 600 crs cash lying here. It will also free up after few quarters.
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In next 2 years, they will be sitting on an idle cash reserve of 6000 crores after settling all their debt. 0 borrowings.
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Will company be able to sell specialised AIFs to investors (main thing to track, as they are converting all their products to alts) How their distribution pans out.
Listening to past 4 concalls, I felt management to be very very honest and shareholder friendly, they want to share profits plus the treasury income going forward. Will announce dividend policy by next FY.
Current mandate of RBI is that NBFCs canāt share more than 50% pat, promoters talking wd sebi to get exception.
Their Wholesale lending book mainly comprise of Land n Approval funding for which RBI has mandated huge provisioning going forward, basically 12x of current provisioning rate. Now, their majority of books are there in this part. They will syndicate their books into AIF products n sell off.
3 lines of biz-
Investment Banking, Asset n Wealth Management, Alts- AIF etc etc will have huge huge cross selling synergies going head.
Letās see what management does with the surplus cash.
From NBFC to a pureplay IB n Wealth manager transition.
From Price to Book tracking metric to PE tracking metric.
From Interest based earnings to fee based earnings.
Its in complete transition stage, stock is v cheap right now.
PE is faulty metric right now to use, as still major business line item is NBFC as of now. PE would be good to look at 1 year forward. On P/B basis Its cheap.
And in the new lines of business, the company will continue to invest for next 2 years, keeping the Cost to Income ratio elevated as of now.
Major earnings will be seen from H2FY26 onwards.
Now earnings will constantly deaccelerate as they are selling off their loan books and investing hugely in developing new lines of businesses.
Q1Fy27, company will be fully debt free having 6500 crores of free cash. Plus an integrated wealth and asset management player generating fee income and a cash cow business which is Investment Banking. Plus the major play is on Alts, which company is highly bullish upon.
Its #1 player in IPO n #2 QIPs in India.
One of the best Investment Bankers.
Integrating all these 3 businesses will generate humongous synergies going forward. Will be a play on wealth management. This theme has made wealth globally.
I feel the JM has a huge brand equity in the market, leveraging their brand their can garnish good market share. Going forward, they will keep mix of manufactured product plus distribution.
I feel their experience as an NBFC and IB gives them a huge expertise in manufacturing proprietary AIFs n diversified products, generating good fees income.
It all depends upon the execution, whether they be able to sell their products or not.
I feel the management to be extremely honest and minority shareholder friendly plus having good forward vision.
Each segment of the business has its own vertical head. Plus now they are giving ESOPs to their heads to retain n make them more incentivise to work.
Story can play out in next 2-3 years.
Invested and Biased. Though major play will happen in H2FY26 I believe.
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JMFinancial approves acquisition of up to 49% equity in arm JM Financial Credit Solutions.
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This is ESOP and not open market purchase
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As per screener 10 years cumulative Net profit is ā¹ 6,918 crore and cash from operating activity is ā¹ - 5,333 crore. What could be the reason?
In lending business (they had a large one which they are writing down slowly now), you shouldnāt look at cash flows, we look at balance sheet (book value) Thereās a lot of accounting issues while using cash flow from ops, as most of their assets are interest bearing (CFI focus) and provisions for loan losses sometimes accounted for in CFO
Point is just donāt look at CFO in financial cos
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If the promoters and management follow through, the company will be a multibagger. With ā¹4500 crore in cash, it is the number one player in handling primary market IPOs. It is also building mutual fund and housing loan businesses.
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Q4 FY25 Concall Updates
- Shareholding increased from 47% to 97% in JM Financial Credit Solutions and paid out a sum of 1500 crores to its investors and brought the asset reconstruction business under it.
- Moving towards an off balance sheet model, loan book for wholesale real estate, land funding, financial institution financing, and MSMEs has gone down from 7500 crores in March 24 to 3570 crores in March 25.
- Management asked to compare the financial and operational results Q-o-Q rather than Y-o-Y because of the strategic changes which the company is taking.
- Business Updates
- Was the top company for QIP deals in FY25 by volume.
- The AUM of our wealth management business grew 11% y-o-y
- The recurring AUM of our non-retail wealth increased 50% y-o-y
- The margin financing book increased 12% y-o-y
- The mutual fund business doubled itās AUM since last year
- AUM of Affordable Housing increased 26% y-o-y with net worth in this business standing at 800 crore
- Money earned from fees, commissions, and brokerage services went up by 22% compared to the previous quarter and 15% y-o-y (excluding ARC and NBFC business) and is the main focus of growth.
- Interest income for the quarter was lower because they reduced their loan book.
- Completed a two-year cycle of setting aside money for potential bad loans with a provision of 1000 crores (most of which are in real estate) and expect to recover it in 3-4 years as writebacks.
- The increase in their ownership stake hasnāt fully reflected in the Q4 profit yet. If included on a pro-forma basis, their profit would be 13% increase q-o-q.
- Their corporate advisory performed well this quarter due to M&A advisory business completing a lot of business. Private Equity Syndication and institutional equity business also performed well. The corporate advisory doesnāt need much capital to operate and generates about 50% ROE and a 40% PAT margin. They expect to pay out more than 40-50% from its profits as dividend.
- In syndicated deals, money put by JM Financials would be deal-to-deal basis and not fixed.
- Wholesale Mortgage Lending
- They are shrinking this loan book due to stricter regulations, longer recovery periods which reduces ROA by 100 to 150 bps
- New strategy being deployed: only dealing with trusted developers, increased equity participation with the developers, doing more construction finance, syndication of deals and capping the book to 3000 crores
- Affordable Retail Home Loans
- Aim to grow this business at a 30% CAGR with an AUM target of 5000 crores by FY27 and 10000 crores by FY30
- Growing from 128 to roughly 200 branches by FY28, and about 275 branches by FY30 with ROE increasing to 11.5-12% by FY28 and roughly 14% by FY30 and ROA up from 2.5% current to around 3% by FY27
- They plan to deploy around 2800 crores of the 5000 crores in the treasury back into the business and itās usage will be discussed in the next quarter
- The net gain on fair value changes comes from treasury income. This is essentially the money earned by investing the cash held on the balance sheet, particularly in liquid mutual funds and is not considered core business income. The company mentioned that this will slowly turn into interest income as they deploy this cash back into their business.
- Expect to syndicate at least 1 to 1.5 times the amount held on their own balance sheet. However, syndication is like equity markets and would have volatility and for the near future interest income will be higher proportion of their earnings than the fee incomes earned (including from syndication)
- A 260 crores single, wholesale asset bought in partnership with a corporate group in their ARC business helping with the recovery process.
- They believe that if the slowdown in real estate sales continues for another couple of quarters, then they would expect a surge in demand for construction financing
- HFC and MTF businesses will continue to grow and will operate with higher debt-to-equity ratios, typically between 3.5 to 4.5 time while 1:1 net debt-to-equity ratio for their NBFC part
- Expect a good turnaround in profitability for the ARC business the coming year and two. The business hasnāt seen profitability because they are doing provisioning against assets where they feel the chances of recovery are difficult,
- In legacy assets, they have resolved all except 3 assets and only major asset where they have no clear path to resolution is Unitech. The case is in Supreme court and had some positive development last quarter.
Disclaimer: Biased, Do your own Diligence
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The biggest Highlight
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@Dhruv_Galada do u have recording of this session ??
Here is a good analysis of the opportunity, citing undervaluation (even when future growth is ignored).
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