JM Financial’s fundamental analysis – future plans and more
Fundamental analysis from JM Financial: On March 6, 2024, JM Financial’s stock price plunged 19% after the country’s central bank banned financial institutions from lending stocks and bonds. And just a few days later, SEBI banned JM from acting as lead manager on public debt matters. The news sent shares down another 8% in early trading on March 11.
There seems to be a lot going on in the company as both RBI and SEBI are waiving red flags. So, let’s find out what this company does and in which sectors it operates, and try to understand what exactly it is that regulators are not happy with about JM’s operations. This article explores the fundamental analysis of JM Financial through its future plans, financials, and key indicators.
Fundamental Analysis of JM Financial – Company Overview
Founded in 1973, JM Financial It is an integrated financial services group. Its primary business includes investment banking, serving the needs of institutional, corporate and ultra-high net worth clients. It also has research firms, private equity, fixed income and syndication.
The company is also involved in mortgage lending for housing and education loans. JM also has an asset management division that provides brokerage, portfolio management and other asset management services.
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FY24 was a significant year for the company as its investment banking division held a Qualified Institutional Placement (QIP). Bajaj Finance and indian bank. JM Financial also served as Book Running Lead Manager. Tata Technologies, cello worldand Hoscrew Consumer Goods. A block deal was also concluded. Japan Life Insurance India AMC It is worth Rs. 795Cr.
In addition to asset management and lending, the company is also investing in alternative and distressed credit markets in India. The company is currently pursuing an all-cash acquisition with financial investors and other strategic partners.
However, over the next few years, the company will transition to a co-investment model that offers a healthy mix of fee-based and fund-based revenue models. As of FY23, JM has earned a total of Rs. 73,508 Cr worth of outstanding dues out of a total consideration value of Rs. 21,680 Cr.
As of FY23, the company earned 39% of its revenue from mortgage lending, while investment banking earned 37% of its revenue. Wealth and asset management is the third largest segment, accounting for 19% of revenue. Investment banking is the company’s second-largest revenue segment, but brought in 65% of its after-tax profits in FY23.
Industry Overview
The Indian economy remained resilient throughout FY23 despite the global recession. macroeconomics The environment has presented challenges such as tight monetary policy, declining global demand, and rising raw material prices (especially crude oil).
India’s prudent fiscal planning helped it achieve its fiscal deficit target of 6.4% of GDP in FY23. India has set a fiscal deficit target of 5.9% of GDP for the coming fiscal 2024 and has also set capital expenditure at a record high of Rs. 10 lakh Cr.
India’s trade deficit stood at $29.3 billion in September 2022, compared to an average of $15.9 billion. This declined significantly during FY22 to the end of FY23 ($17.4 billion in February). The improvement in the trade balance was due to a sharp decline in imports relative to exports, lower oil prices, and resilient services exports that helped alleviate the current account deficit.
The Reserve Bank (RBI) maintained its hawkish stance, keeping interest rates above 6% throughout fiscal 2023. Despite the reduced pace of interest rate hikes in the last fiscal, the RBI continues to maintain a cautious stance to keep inflation within the acceptable range of 4% +/- 2%.
A total of 1,276 mergers and acquisitions (M&A) transactions were announced in FY23 compared to 1,312 in FY22. The total value of the announced transactions was worth Rs. 13.2 Lakh Cr, which is an increase from Rs. 9.4 Lakh Cr in FY22. 67% of transactions took place domestically, and 33% took place across borders.
In the private equity segment, the transaction amount was Rs. 2.4 lakh Cr was announced as compared to Rs. 5.6 Lakh in FY22, as per JM Financial estimates. Maximum interest was seen in IT/IT support services, consumer technology and financial services.
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Fundamental Analysis by JM Financial – Finance
Sales and Net Profit
JM Financial reported revenue of Rs. 3343 Cr in FY23, down 11% from Rs. 3,763 Cr in FY 2022. The decline in revenue was primarily due to lower nominal income due to fair value fluctuations, which decreased from Rs. 588 Cr in FY22 to Rs. 183 Cr in FY 2023. Commission and commission revenue and brokerage revenue also declined from FY22, leading to lower profits.
JM Financials’ topline degrowth had a multiplier effect on its bottom line as net profit declined 23% from Rs. 773 Cr in FY22 to Rs. 597 Cr in FY23. The significant decline in net profit was due to an increase in the company’s financing costs due to rising interest rates. Rising employee costs have also taken a toll on profitability.
The dismal performance of top line and bottom line continues over the long term, with revenue declining at a CAGR of 1.14% from FY21 onwards, while net income is only growing at a CAGR of 1.08%.
profit
The operating profit margin of the business remains fairly strong at 46.58% in FY23, down from 50.28% in FY22. These high margins are driven primarily by the investment banking segment, which accounts for 65% of after-tax profits despite only accounting for 37% of revenue.
Net profit margin fell from 26.37% in FY23 to 21.21% in FY22. The 516 basis point decline in NPM was due to higher borrowing costs and higher employee benefit costs due to margin compression.
rate of return
The company’s return on equity fell to a five-year low of 7.56% in FY23 due to lower earnings. The average return on equity is approximately 9.89%. Continued growth in net income relative to current equity will help the company achieve higher ROE.
Return on assets (ROE) also fell to 2.7%, the lowest in five years. While these are commendable ratios for a non-banking financial company, JM Financial is not a true NBFC reporting such a low ROA. Most of our income comes from commissions from our brokerage and investment banking business.
Fundamental Analysis by JM Financial – Key Indicators
key indicators JM Financial They are listed below.
Fundamental Analysis of JM Financial – Future Plans
- The company will continue to invest in its asset and asset management segment, Platform AWS, over the next two to three years.
- In the distressed asset acquisition segment, the company will seek all-cash acquisitions through a co-investment model with strategic partners.
- JM is currently working on a mobile application belonging to a private user group. It will be an all-in-one fintech platform that combines WealthTech, LendingTech, and InvestmentTech.
- On the wholesale mortgage lending side, the company will continue to grow its loan book by 18%-20% and continue to focus on slightly lower yields.
JM Financial’s recent stock price plunge
On March 6, the RBI had barred JM Financial from raising funds through equity and debentures after finding defects related to loan approval and loan disbursement for the IPO.
The RBI said JM Financial has repeatedly helped its clients bid for various IPOs and NCDs against loans directly funded by JM. The RBI also said that necessary due diligence was not followed and the loans were lent on thin margins. This directive from the RBI led to a 19% plunge in the stock during the day’s trading.
Following this order, JM Financial received another order from the country’s stock market regulator. Sebi. Regulators have banned JM Financial from acting as lead manager for public debt issues.
According to SEBI, in 2023, it conducted a routine survey on disclosure issues in NCDs. During this process, JM was seen to be managing its debt issues in a pre-determined manner to ensure allocation to some relevant entities. SEBI has asked JM to file a reply to these objections within 21 days.
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conclusion
JM Financial, an integrated financial services group, is under regulatory scrutiny by two of India’s largest financial regulators. JM Financial is a highly diversified financial group providing services across the capital markets, including brokerage, brokerage, and finance. asset managementLoan services and many other services.
We also focus on the lending sector, providing mortgage loans, education loans, and loans from other financial institutions. However, despite the diversification, the company’s financial performance was quite lackluster. Margins also declined last year.
This performance brought the hammer to JM’s head again from RBI and SEBI, which banned it from lending against securities and from being a commercial banker. Nevertheless, the current stock price has been adjusted to a price-to-earnings ratio of only 10.8 times. Do you think JM’s recession is over? Or will we see further declines? Let us know your thoughts in the comments below.
Written by Nasir Hussein
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