ADD on Motilal Oswal Financial Services - Strong show but headwinds ahead - HDFC Securities

Mr. Madhukar Ladha, Institutional Research Analyst, HDFC Securities

Strong growth in derivative ADTVs (39.5% QoQ) bolstered capital markets APAT 52.1/53.1% YoY/QoQ. An improvement of 0.3/9.7% YoY/QoQ in QAAUM meant that AMC's APAT recovered 20.9% QoQ. Management continues to increase provisioning (+52.0% QoQ), resulting in a 30.7% QoQ decline in MOHL's PBT. Significant MTM gain (Rs 1.73bn, +249.1% YoY) on treasury resulted in MOFS (ex. MOHFL) APAT growth of 74.3% YoY. We have increased our FY21E APAT estimate by 23.9% to factor in the higher treasury and broking profits, while mildly changing FY22/23E. We retain an ADD with a lower TP of Rs 700 (15/25x Broking/AMC, + 0.7/0.5x for treasury/ MOHL).

2QFY21 highlights: AMC (ex WM): Revenue/EBITDA/PAT were at Rs1,430/521/358mn (-11.7/-13.9/-33.0% YoY). A recovery in markets resulted in an improvement in QAAUM. MOAMC continued to witness net outflows to the tune of Rs (3.0) bn as investors took advantage of the recovery and redeemed investments. No upfront commissions on PMSs also meant reduced sales by distributors. Capital Markets (in. WM) reported stellar PAT of Rs 879mn (+52.1/53.1% YoY/QoQ). Led by 70.2/39.5% growth in derivative volumes, Broking ADTVs grew 70.8/33.3% YoY/QoQ, resulting in 110.5/29.6% YoY/QoQ growth in broking revenues. Distribution AUM recovered 12.1% QoQ to Rs 111bn as equity markets further recovered. Regulatory changes requiring an upfront collection of margins may result in lower volumes; this remains a key risk in 2H. Treasury reported MTM gain on investments of Rs 1.7bn. This was much higher than expectations and was also the result of the half-yearly revaluation of PE investments. MOHFL loan book declined to Rs 36.5bn (11th consecutive quarter decline) despite disbursements increasing (+14.8/150.8% YoY/QoQ) to Rs 0.6bn/qtr. NNPA was at Rs 1.2% (-10bps QoQ). Collection efficiency saw improving trend from 80-103% over Jul - Sep-20.

Outlook: The AMC business is expected to consolidate over FY21 as new sales would most likely reset as a result of changing regulations. The capital markets business is expected to do well over FY21E as volumes continue to show strong traction. Regulatory changes requiring the upfront collection of margin remains a key risk.

Shares of MOTILAL OSWAL FINANCIAL SERVICES LTD. was last trading in BSE at Rs.556 as compared to the previous close of Rs. 558.8. The total number of shares traded during the day was 4692 in over 564 trades.

The stock hit an intraday high of Rs. 570.55 and intraday low of 552.45. The net turnover during the day was Rs. 2634538.

Source : Equity Bulls

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