CRISIL maintains fundamental grade of 4/5 to JM Financial

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CRISIL maintains fundamental grade of 4/5 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 February 20, 2012 report.

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JM Financial BSE | NSE 30/05/12 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 February 20, 2012 report.

JM Financial Ltd's Q3FY12 earnings were in line with CRISIL Research's expectations as the investment banking (IB) and broking businesses continued to face challenging market conditions. However, with the market environment turning conducive since the start of Q4FY12, we remain positive on the financial services industry and JM Financial's strong positioning in the sector. Hence, we maintain the fundamental grade of 4/5.

Q3FY12 result analysis
• Consolidated revenues declined 11.4% q-o-q (down 31.0% y-o-y) to Rs 1.9 bn as intense competition, low retail participation and declining broking yields continued to impact the securities business. Also, its average daily turnover declined to ~Rs 13 bn vs. ~Rs 15 bn in Q2FY12. The company has a healthy deal pipeline but deal execution has been a challenge due to poor market conditions. The company managed to close two debt deals and one M&A transaction.

• Revenues of the securities funding and fund-based activities segment grew 9% q-o-q to Rs 1 bn primarily due to the healthy lending book, which grew 8% q-o-q to Rs 21 bn despite market turbulence. Segment PBT (after interest) grew 16% q-o-q as the company relied on treasury funds instead of resorting to high cost borrowings.

• The AMC business was again in the black due to lower bonus provisions in Q3FY12. Alternative asset management posted a loss because of exits in some of the portfolio.

• Despite 11.4% q-o-q decline in revenues, EBITDA fell 3.2% q-o-q to Rs 1.1 bn due to a sharper decline in costs. Staff costs fell 4% to Rs 433 mn due to a decline in bonus provision. Sub-brokerage, fees and commission fell 58.8% q-o-q to Rs 0.1 bn as brokerage pass-outs to distributors fell due to low-yielding IB debt deals executed during the quarter. Accordingly, EBITDA margin grew 499 bps to 58.8%.

• Despite muted EBITDA growth, adjusted PAT grew 5% q-o-q (down 51.8% y-o-y) to Rs 287 mn due to the decline in interest and finance charges and lower tax rate. The tax rate fell to 33% as against 38% in Q2FY12 (reversal of deferred tax asset in Q2FY12).

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 36 per share value implies P/E multiples of 23.7x FY12E and 17.2x FY13E earnings. The valuation grade is 5/5.

To read the full report click on the attachment

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.

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