CRISIL assigns fair value of Rs 42 to JM Financial

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CRISIL assigns fair value of Rs 42 to JM Financial

CRISIL Research has come out with its report on JM Financial. The research firm has maintained the fundamental grade of 4/5 to the company in its October 24, 2011 report.

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JM Financial BSE | NSE 31/05/12 Are Mutual Funds betting on JM Financial?

CRISIL Research has come out with its report on JM Financial . The research firm has maintained the fundamental grade of 4/5 to the company in its October 24, 2011 report.

JM Financial Ltd's Q2FY12 earnings were below CRISIL Research's expectations as the investment banking and broking businesses continued to face lowerthan- expected challenging market conditions. The securities funding business reported a dismal performance primarily on account of the decline in the lending book. The AMC business continued to report losses on account of regulatory headwinds and softening equity markets. Given the challenging scenario in the capital markets industry, JM Financial's earnings estimates are likely to be revised downwards. Any significant downward revision is likely to impact JM Financial's fundamental grade of 4/5.

Q2FY12 result analysis
• Consolidated revenues increased only 3.4% q-o-q (declined 7.6% y-o-y) to Rs 2.2 bn as intense competition, low retail participation and falling broking yields (increasing share of options segment in the market volumes) contined to impact the securities business. The company has a healthy deal pipeline but deal execution has been a challenge on account of dismal market conditions. The company, however, managed to close two IPO deals viz. L&T Finance and Tree House Education with an issue size of Rs 12 bn and 1 bn, respectively. Securities funding and fund-based activities declined by 4% q-o-q to Rs 939 mn largely as the lending book declined by 7% q-o-q to Rs 19.7 bn.

• In line with the muted revenue growth, EBITDA growth was also subdued at 0.8% q-o-q (declined 7.6% y-o-y), and marginally grew to Rs 1.1 bn. Further, the EBITDA growth was arrested as the operating expenses  and other expenses grew 12% q-o-q to Rs 262 mn. Accordingly, EBITDA margin declined 137 bps to 53.8%.

• Despite muted EBITDA growth, adjusted PAT grew 11.7% q-o-q (down 52.5% y-o-y) to Rs 273 mn as interest and finance charges fell due to the decline in the lending book. The tax rate increased to 38% in Q2FY12 compared to 33% in Q1FY12. The company reported EPS of Rs 0.36 in Q2FY12 as against Rs 0.33 in Q1FY12.

Valuations: Current market price has strong upside
We continue to value JM Financial based on the sum-of-the-parts method. Our fair value of Rs 42 per share value implies P/E multiples of 19.0x FY12E and 15.8x FY13E earnings. Given the expected downward revision in earnings estimate, our fair value is under review.

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"

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