JM Financial

Did in depth analysis of JM Financials:
Spent the day.
I feel it can be a huge wealth creator going forward.
JM Financials- is it the next Nuvama n Motilal Oswal n Elelweiss Alts biz combined!?

Important points-
5000 Crores idle cash on books as of now. No use.
Current borrowings is equal to the loan books they are going to sell going forward.

Company is focusing very deeply on Investment and Wealth management business and in Investment banking business and in Affordable Housing NBFC, which they plan to demerge going forward. And on lending fronts they want to focus on Bespoke (loans to promoters of companies) & Loan against securities & Margin trading.

The lending biz which they are focusing on except affordable housing will get synergies from other lines of businesses.

Selling off the NBFC biz (wholesale lending) sold huge chunks till now, rest 3500 crs will be sold by FY28 as most of the loans to real estate is of longer maturity cycle. Also they are syndicating these RE loans to AIF products.
Also company have sold off the MSME books.

So in crux,
What needs to be tracked from here-

1. YoY growth in Investment Banking biz.

2. YoY growth in Asset n Wealth Management biz (increase in RMs) they are investing 200 cr per annum to grow this business. And as we saw in Nuvama costs are upfront in this biz n Operating Leverage plays going forward. Till FY 27 they will invest to grow this.
   Track YoY AUM growth.

3. Track the broking business.

4. Track AUM growth YoY of Bespoke financing & Margin against securities.

5. SEBI n RBI approval to increase stake in Wholesale lending book to increase stake from individual investors.

6. Overall run down of Wholesale credit books & ARC books.

7. Also they have done huge provisioning, increased provisioning to 70%. 600 crs cash lying here. It will also free up after few quarters.

8. In next 2 years, they will be sitting on an idle cash reserve of 6000 crores after settling all their debt. 0 borrowings.

9. Will company be able to sell specialised AIFs to investors (main thing to track, as they are converting all their products to alts) How their distribution pans out.

Listening to past 4 concalls, I felt management to be very very honest and shareholder friendly, they want to share profits plus the treasury income going forward. Will announce dividend policy by next FY.
Current mandate of RBI is that NBFCs can’t share more than 50% pat, promoters talking wd sebi to get exception.

Their Wholesale lending book mainly comprise of Land n Approval funding for which RBI has mandated huge provisioning going forward, basically 12x of current provisioning rate. Now, their majority of books are there in this part. They will syndicate their books into AIF products n sell off.

3 lines of biz-
Investment Banking, Asset n Wealth Management, Alts- AIF etc etc will have huge huge cross selling synergies going head.

Let’s see what management does with the surplus cash.

From NBFC to a pureplay IB n Wealth manager transition.
From Price to Book tracking metric to PE tracking metric.
From Interest based earnings to fee based earnings.

Its in complete transition stage, stock is v cheap right now.
PE is faulty metric right now to use, as still major business line item is NBFC as of now. PE would be good to look at 1 year forward. On P/B basis Its cheap.
And in the new lines of business, the company will continue to invest for next 2 years, keeping the Cost to Income ratio elevated as of now.
Major earnings will be seen from H2FY26 onwards.
Now earnings will constantly deaccelerate as they are selling off their loan books and investing hugely in developing new lines of businesses.

Q1Fy27, company will be fully debt free having 6500 crores of free cash. Plus an integrated wealth and asset management player generating fee income and a cash cow business which is Investment Banking. Plus the major play is on Alts, which company is highly bullish upon.

Its #1 player in IPO n #2 QIPs in India.
One of the best Investment Bankers.

Integrating all these 3 businesses will generate humongous synergies going forward. Will be a play on wealth management. This theme has made wealth globally.
I feel the JM has a huge brand equity in the market, leveraging their brand their can garnish good market share. Going forward, they will keep mix of manufactured product plus distribution.
I feel their experience as an NBFC and IB gives them a huge expertise in manufacturing proprietary AIFs n diversified products, generating good fees income.
It all depends upon the execution, whether they be able to sell their products or not.

I feel the management to be extremely honest and minority shareholder friendly plus having good forward vision.
Each segment of the business has its own vertical head. Plus now they are giving ESOPs to their heads to retain n make them more incentivise to work.

Story can play out in next 2-3 years.
Invested and Biased. Though major play will happen in H2FY26 I believe.