Brokers recommend buy rating on JM Financial

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Brokers recommend buy rating on JM Financial

Broking houses are bullish on JM Financial. SSKI has recommended a 'buy rating' on the company.

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Broking houses are bullish on JM Financial . SSKI has recommended a 'buy rating' on the company.

The report lists out several investment points, these are below: -

"JMFL's major investments are in the entities that have high reliance on Indian stock markets. In the last two years the foreign liquidity has been the primary driver of the impressive performance of the Indian stock market. The FIIs have pumped in around US$22 billion in the domestic stock market since April FY2003. During the same period the BSE-Sensex has appreciated by over 154%, outperforming most other indices worldwide. We believe the FII inflows would remain buoyant going forward. The increasing participation of the FIIs would provide ample liquidity to the stock market. This will in turn result in increased trading/broking activities in India. JMFL, whose major investment is in its joint venture JMMSSL, is likely to be one of the biggest beneficiary of the same."

"India is already the 16th largest country in terms of market capitalisation. Currently India's market capitalisation to gross domestic product, GDP and turnover to market capitalisation ratios stand at 0.6 and 107 respectively; the same are lower as compared to that of the other Asian countries. We expect India's gross turnover to triple in the next five years to $1.36 trillion on the back of a strong GDP growth (leading to an increase in the market capitalisation) and increased FII inflows. We believe that JMFL is well positioned in the stock broking market to benefit from this $1.36 trillion golden opportunity."

"JMFL is the only other listed foreign broking firm in India (the other being DSP Merrill Lynch, which is a low liquidity stock). However there are a good number of other foreign broking firms like ABN Amro Securities, Deutsche Bank, UBS, CLSA, JP Morgan etc operating in India. Despite a tough competition from these foreign broking firms and even from the domestic institutional broking firms (like Kotak Securities, Enam Securities, SSKI Securities Pvt Ltd etc), JMFL's market share has been increasing constantly. Currently JMFL's share of the broking market is estimated to be around 12% of the total institutional business and the company is ranked among the top five institutional brokers in the country."

"JMFL's joint venture with MSDW provides it a strong brand name. MSDW is one of the world's leading financial service firms, with approximately 55,000 employees in 600 offices in 28 countries worldwide. With total assets of approximately US$565 billion, equity capital of $12.0 billion and a total market capitalisation of $53 billion MSDW has a presence in virtually every financial market. MSDW has a proven investment banking track record. JMFL also carries a strong brand name in the domestic market. Even before its association with MSDW, JMFL had been honoured with the best "Domestic Investment Bank" award by Asia Money magazine in April 1997. We believe JMFL shall benefit from the strong brand, while increasing both its business and the number of its empanelments with the financial institutions."

"Realising the potential of the commodities market, which is at a nascent stage in India, JMFL is planning to invest Rs 0.2 crore (Rs 2 million) in the equity of the newly incorporated company JM Commtrade. Following this JM Commtrade will become a subsidiary of the company. Since the financial details of JM Commtrade are not yet available, we have not included the earnings of JM Commtrade in our estimates for JMFL."

The report also lists out some investment concerns, these are below: -

"JMFL holds only a 49% stake in its most valuable asset and thus may not have control over the decisions related to JMMSSL."

"There is a lack of transparency since JMMSSL's financials are not reported."

"JMFL's business depends heavily on the performance of the Indian stock market. Any event that may hamper the liquidity of the stock market will adversely affect the profitability of the company. A sustained rise in the interest rates, a slow down in the economic growth and government policies discouraging foreign investors are some of key concerns that could affect the liquidity of the market."

About the company's valuations, the report says, " At the current market price of Rs 214 the stock is discounting its FY2007E earnings per share (EPS) by 11.4 times and its FY2007E book value by 4.2 times on a standalone basis. Our valuation model estimates JMFL's fair value at Rs 516, which implies an upside of 141% from the current levels. We recommend a Buy on the stock."

About the company's itself, the report says,

"Established in 1973, JM Financial (formerly known as JM Share & Stock Brokers) is one of India's fully integrated securities firms (equities brokers) and investment banks. It operates through its various entities. In the year 1999 JMFL joined hands with the world's leading financial service firm Morgan Stanley Dean Witter to create a preeminent full service investment bank in India, serving the capital raising needs of Indian companies and the investment needs of both Indian and international institutions. JMFL and MSDW named the 49:51 joint venture JMMSSL. JMMSSL is completely an institutional securities firm. Prior to its collaboration with Morgan Stanley Dean Witter the company was itself engaged in the business of stock broking. Besides this JMFL holds a 10% stake in JM Asset Management Company (JMAMC) that manages assets of over Rs 4,000 crore (Rs 40 billion)."