Motilal OswalFinancial Services reports Q1FY20 PAT of Rs 129 crore, +25% YoY.

Mumbai,July 31, 2019: Motilal OswalFinancial Services Ltd. announced its results for the quarter ended June 30,2019 post approval by the Board of Directors at a meeting held in Mumbai on July31, 2019.

Performance for the quarter endedJune 30, 2019

• Consolidated revenues stood at Rs 655 cr in Q1FY20. Consolidated PAT was at Rs 129 crore, +25% YoY in Q1FY20. Asset & Wealth management business contributed to 32% of the profit for the quarter, followed by Capital market business at 28%, fund based investment 27% and Housing finance at 13%.
• Some of the key highlights for the quarter include 25% YoY growth in PE AUM, 18% YoY growth in Wealth AUM, 17% YoY growth in Distribution business AUM, 3% YoY growth in AMC AUM, name change of home finance business to “Motilal Oswal Home Finance” (MOHFL) with improvement in profitability and ROE along with minimal credit costs. CRISIL has also upgraded long term rating of MOHFL to AA- (Stable) from A+ earlier.
• Consolidated net worth stood at Rs 3,232 crore, gross borrowing was Rs 4,783 crore and net borrowing was Rs 4,089 crore (including MOHFL). Excluding MOHFL, gross and net borrowings were Rs 1,415 crore and Rs 796 crore respectively and this is less than the market value of quoted investments at ~Rs 1,600 crore. Overall gearing remains conservative at 1.5x; ex-MOHFL it is at 0.43x and considering market value quoted investments, we are effectively net cash balance sheet.
• Asset and wealth business was highest contributor to profit, ahead of capital market business.
• Besides financial performance, the last quarter has been very eventful in terms of our successes in brand building, advertising and several other fronts. In Q1FY20, MOFSL gets inducted in “Hall of Fame” at 10^th Financial Advisory Awards 2019. MOFSL wins “Broking House of the year” at MCX awards 2019. MOFSL wins “Best 360 Degree Marketing Campaign” at Masters of Modern Marketing Conference and Awards. These, and several other awards, are recognition of Motilal Oswal as a preferred consumer and employee brand in the financial services space.

Speaking on the performance of the company, Mr. Motilal Oswal, CMD said “Ourstrategy to diversify our business model towards linear sources of earningscontinues to show results, with bulk of the revenue pie now coming from thesenew businesses. Asset & Wealth businesses are now the largest contributorto profits and ahead of the Capital market businesses. Our Housing financebusiness also started contributing to consolidated profits and likely to scaleup further in near future under the new leadership team. Each of our 7 businessesoffers significant headroom for growth and operating leverage as they scale up.Prestigious awards like “Hall of fame”, Broking Houseof the year and several others have made all associated with the groupimmensely proud”.

Performance ofBusiness Segments for the quarterended June 30, 2019

·      Asset Management businesses

ØAssetManagement business across MF, PMS& AIF stood at Rs 38,809 crores AUM, +3% YoY. Our AMC ranks 12 by totalequity assets, PMS ranks #1 while AIF assets are growing rapidly. Revenues andPAT for the quarter stood at Rs 144 crore and Rs 36 crore, respectively. Assetmanagement business offers highest scalability and operating leverage among allbusinesses.

ØOur Equity MF AUM of Rs 19,855 crore is just1.9% of the Industry Equity AUM of Rs 10.4 lakh crore.

ØOur share of Alternate assets, comprising ofPMS & AIF, is the highest among AMC’s at ~49% and continues to rise. Yieldsand profitability of Alternates is higher. As of June 2019, ~19% ofAlternates AUM is performance-fee linked and our endeavor is to increase thisfurther. We have been able to maintain our net yields despite challengingregulatory environment.

ØPrivateEquity manages an AUM of Rs 6,370crore (+25% YoY) across 3 growth capital PE funds and 4 real estate funds. Thisbusiness has delivered on profitability and scalability fronts. In Q1FY20, revenuesgrew by 24% YoY at Rs 24 crore and PAT grew by 10% YoY at Rs 4.9 crore. The 1^stgrowth fund (IBEF 1) has delivered an XIRR of 27%, and alpha of 10% and isexpected to return nearly 6x MoC (Multiple of Cost). Strong performance andpositioning has also aided new fund raise. We have launched IREF IV inFY19 with a target size of Rs. 1200 crore has achieved 2^nd close at~Rs. 850 crore.

ØWealthManagement business AUM grewby 18% YoY at Rs 18,008 crore in Q1FY20 with net sales of Rs 455 crore. RMcount of this business has reached 130 with average RM addition up +5% YoY inQ1FY20. Our trail revenues predominantly cover our fixed costs. As ratio of new adds to opening RM falls andthe vintage of RM improves, both productivity and profitability of the businesswill scale up.  

ØOverall Asset and Wealth Management revenueswere Rs 190 crore in Q1FY20 and contributed 29% of consolidated revenues. Profitswere Rs 40 crore and contribute 32% of consolidated profits, with highestscalability and with least capital employed among our portfolio of businesses.

·   Capital markets Businesses (Broking& Investment banking)

ØCapital markets comprises of Retail Broking,Institutional Equities and Investment Banking business. Revenues for thissegment were Rs 278 crore in Q1FY20 and contributed ~42% of consolidatedrevenues. Profits were Rs 35 crore in Q1FY20 and contributed ~28% of consolidatedPAT. Broking and distribution business profit stood at Rs 39 crore in Q1FY20led by strong margins on account of better operating leverage on the higher andlinear revenues.

ØIn Retail Broking & Distribution, ourMarket share in high-yield cash segment has been improved. Overall market sharestood at 2.2% (ex-prop) in Q1FY20 in rising F&O volumes in market.

ØOurstrategy to bring in linearity through the trail-based distribution business isshowing results. Distribution AUM was Rs 9,717 crore, +17% YoY in Q1FY20. Withonly 16% of the near million client base tapped, we expect a continued increasein AUM and fee income as number of clients to whom we have cross sold andnumber of products per client cross sold rises.

ØIn Institutional Broking, there wasimprovement in rankings with encouraging domestic institutions’ contributionand new client additions. Every aspect of the business, research, sales, salestrading and corporate access is being strengthened.

ØInvestmentBanking business has continued toengage some market transactions in this period. Overall transaction pipelineremains encouraging. 

·      Housing finance business

ØMotilal Oswal Home Finance (MOHFL) profitgrowth (+257% YoY) for the quarter was led by lower credit cost, lowersoperating cost and improvement in yields during the quarter.

ØName change to “Motilal Oswal Home Finance” to yield multiple benefitslike reduction in cost of funds, leveraging on brand, group level synergyacross functions, locations and business associates.

ØMOHFL hasreceived credit rating upgrade amid challenging environment based on severalpositive changes undertaken including name change. CRISIL has upgraded MOHFL’srating to AA- (stable outlook) from earlier A+ (stable). This will furtherbenefit MOHFL in bringing down cost of funds and improve spreads.

ØLoan book stood at Rs 4,270 crore as of Q1FY20. Disbursements in Q1FY20were Rs 33 crore.

ØNew book sourced from April’18 has encouraging performance,with only 3 cases in NPA out of 3,000 loan cases.

ØMarginsimproved by 60 bps YoY at 5.2% in Q1FY20, on account of improvement in yieldcoupled with recent equity infusion. Our spreads have remained stable in anenvironment of higher cost of funds.

ØAnnualised credit cost in Q1FY20 was at 1%, lowerthan last 4 quarters. This was on account of comparatively lower slippages andno write offs during the quarter. Further, provision coverage remained robustat 68% including write-offs in Q1FY20.

ØStrong traction in legal recourse coupled withimprovement in collection efficiency will result into faster resolution ofdelinquent cases.

ØLegacyloan book is now seasoned for over 27 months. Moreover, proactive clean-up ofthe legacy book, expected positive trends in disbursements in coming quartersalong with improvement in collection efficiency, augur well for future assetquality and profitability outlook.

ØStrong support from parent continueswith capital infusion of Rs 200 crore in FY19 taking total capital infusion toRs 850 crore.  Gearing remainsconservative at 4.0x.

ØLimitedborrowing repayments till March 2020, strong undrawn borrowing lines and ALMplace us in comfortable liquiditysituation.

·      Fund based investments includes sponsor commitmentsto our AMC & PE funds and strategic equity investments.

ØFundbased investments likecommitments to our asset management products, not only helped seed these newbusinesses by investing in highly scalable opportunities, but they alsorepresent liquid resources for future opportunities.

ØCompany continues to invest its free cashflow for the quarter, during the quarter we have invested Rs 1100 crore inquoted equity investments.

ØTotal quoted equity investment including MTMgains was ~Rs 1,600 crore as of Q1FY20. MTM on these gains are now part ofreported earnings under Ind-AS reporting. Cumulative XIRR of these investmentsis ~18.5%, which is the see-through RoE.

About Motilal Oswal Financial Services Limited

Motilal Oswal Financial Services Ltd. is a financial services company.Its offerings include capital markets businesses (Retail broking, Institutionalbroking & Investment banking), Asset & Wealth Management (Asset Management,Private Equity & Wealth Management), Housing Finance & Equity basedtreasury investments.

MOFSL’s core purpose is to be well respected and preferred globalfinancial services organization enabling wealth creation for customers.Research is the solid foundation and the investment advisory at Motilal OswalFinancial Services is based on the research. MOFSL’s research has received widemedia coverage and consistently won awards, showcasing company''s strongresearch capabilities. This includes being awarded ''Best Performing NationalFinancial Advisor - Equity Broker'' for six years at the UTI-CNBC TV18 FinancialAdvisor Awards, Moneycontrol Wealth Creator Award – Best Broking Business OfThe Year -2018. MOFSL won “Broking House of the year” at MCXawards 2019.

The company has adiversified client base of ~1.3 million. MOFSL’s core purpose is to be arespected and preferred global financial services organization enabling wealthcreation for its customers.

Web: www.motilaloswal.com  | twitter: @MotilalOswalLtd |

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