JM Financial - Pick Up In Lending Business; Non-Lending To Act As Catalyst Driving Valuation: ICICI Direct

Continued focus on ARC business coupled with diversification bodes well.

<div class="paragraphs"><p>Close view of Indian bank notes, rupee arranged for photograph. (Photo: Vijay Sartape/ BQ Prime)</p></div>
Close view of Indian bank notes, rupee arranged for photograph. (Photo: Vijay Sartape/ BQ Prime)

BQ Prime’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy.

ICICI Direct Report

Investment Rationale

Despite challenges during Covid, JM Financial Ltd. delivered a gradual recovery in performance with improvement in both business growth and asset quality. Though some business segments continue to remain cyclical, the performance excluding one-offs (provision in asset reconstruction company business, investment in asset management, wealth management, and securities business) remains encouraging.

Further, we believe the overall performance will improve given-

  1. pick-up in lending business with assets under management growth expected in the 15-18% range;

  2. improvement in recoveries in ARC business with minimum probability of substantial provisioning ahead;

  3. recovery in investment banking revenue with focus continuing on wealth and asset management pie.

Thus, we expect revenue to grow at ~14% compound annual growth rate in FY24-25E to Rs 4327 crore while the earnings trajectory is seen staying healthy at 18.3% CAGR to Rs 837 crore in the same period.

Demerger of the business after it attains adequate scale stays a catalyst for unlocking value. However, we have not factored this in our valuation.

Key triggers

  • With a pick-up in retail sales coupled with a gradual increase in property prices, a recovery is seen in the wholesale book with 6% QoQ reported in Q4 FY23. Going ahead, a strong sales cycle could impact the growth momentum but an uptick in construction activity is expected to result in a healthy uptick of 15-20% YoY growth in the wholesale book.

  • Focus on building the retail segment (affordable home loans, loan against property) with technology driven service and delivery coupled with investment in building physical distribution capabilities is expected to enable robust momentum ahead (93% QoQ, 55% YoY).

  • JM’s ARC strategy is expected to continue focusing on acquisition and resolution of stressed assets with higher proportion of incremental business based on fee income. With one time provision and anticipated recovery of ~Rs 1200-1300 crore in FY24E, the probability of elevated provisioning seems bleak. In addition, JM ARC is also focused on diversification with the acquisition of a substantial proportion of retail asset with internal rate of return of 16-18%.

About the stock:

JM Financial is a diversified financial group engaged in various businesses providing a host of services including mortgage lending (wholesale and retail), distress asset management, investment banking, wealth management and securities and asset management company. On a consolidated basis, JM reported revenue at Rs 3343 crore and profit after tax at Rs 597 crore. The outstanding advance book was at Rs 15653 crore while ARC AUM was at Rs 13558 crore.

Click on the attachment to read the full report:

ICICI Direct JM Financial Stock Tales.pdf
PhonePe, Flipkart Could Be $100 Billion Businesses, Says Walmart


This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.