Maintain ADD on Motilal Oswal Financial Services - In-line performance - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities.

(TP Rs 715, CMP Rs 671, MCap Rs 99bn)

A strong spurt in cash volumes (88.2% YoY) bolstered capital markets APAT 63.5% YoY (-5.9% vs. estimates), while a steep decline of 16.2% YoY in QAAUMs meant that AMC's APAT declined 33.3% YoY (-8.8% vs. estimates). Management enhanced provisions to 27.8% (+556bps QoQ) of GNPLs due to the potential COVID-19 impact, which resulted in MOHL reporting a 35.1% YoY lower APAT. Significant MTM gain (Rs 1.3bn, +272.3% YoY) on treasury resulted in MOFS (ex. MOHFL) APAT growth of 98.1%. We have mildly tweaked our estimates and retain ADD with an unchanged TP of Rs 715.

1QFY21 highlights: AMC (ex WM): Revenue/EBITDA/PAT were at Rs 1,255/410/292mn (-25.4/-38.2/-28.6% YoY). A recovery in markets, better performance by MOFS' funds and launch of passive funds resulted in a healthy inflow of Rs 3.2bn. Lockdown impacted new account openings for the PMS business. Capital Markets (in. WM) reported revenue/EBITDA/PAT of Rs 3,659/1,168/574mn (+21.9/26.4/61.2% YoY). Broking ADTVs grew 50.8/3.6% YoY/QoQ with cash share improving 223/224bps YoY/QoQ to 11.2%; cash volumes increased 88.2% YoY. It also resulted in blended yields improving 0.2/0.3bps YoY/QoQ to 1.1bps. Distribution AUM improved 13.3% QoQ to Rs 102bn as equity markets recovered. Management has provided ~Rs 0.7bn (post-tax) on account of negative price settlement of customers' crude oil derivative positions. Regulatory changes requiring the upfront collection of margins may result in lower volumes, and this remains a risk for the industry. Treasury reported MTM gain on investments (mainly equity MFs) of Rs 1.3bn. At MOHFL the loan book declined to Rs 36.9bn (8th consecutive quarter decline) as disbursements remained muted at just Rs 0.24bn/quarter. NNPA was at Rs 1.3% (-10bps QoQ) as management provided additional coverage in light of COVID-19. Management explained that ~26% of borrowers had opted for a moratorium, but collection efficiency had improved in Jun/July-20.

Outlook: The AMC business is showing traction despite a challenging environment. The broking business is expected to do well over FY21E as volumes continue to show strong traction; however, regulatory changes on an upfront collection of client margins pose as key risks.

Shares of MOTILAL OSWAL FINANCIAL SERVICES LTD. was last trading in BSE at Rs.665.3 as compared to the previous close of Rs. 671.15. The total number of shares traded during the day was 2545 in over 411 trades.

The stock hit an intraday high of Rs. 674.95 and intraday low of 663.1. The net turnover during the day was Rs. 1699232.

Source : Equity Bulls

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