JM Financial Limited (523405) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to JM Financial Limited Q3 FY '25 Earnings Conference Call. [Operator Instructions]. Kindly note that any forward-looking statements made on this call are based on the management's current expectations, however, the actual results may vary significantly. And therefore, the accuracy and completeness of these expectations cannot be guaranteed. Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Kampani. Thank you, and over to you, Mr. Kampani.

Thank you. On behalf of JM Financial, we extend a very warm welcome to all of you to our earnings conference call to discuss results for our third quarter and 9 months ended December 24. Our results have been uploaded, presentation and press release, all of it on the website and stock exchanges. I hope you have had a chance to go through the same. On the call, we also have Mr. Chirag Negandhi, Managing Director, JM Financial Limited; Ms. Sonia Dasgupta, Managing Director and CEO of Investment Banking, JM Financial Limited; Manish Sheth, MD and CEO of our Home Finance business; Dimplekumar Shah, MD and Co-Head of Investment Advisory and Distribution and Retail Broking; Amitabh Mohanty, CEO of our Mutual Fund and Asset Management Business; Anuj Kapoor, Head of the entire Private Wealth Business; and Nishit Shah, our group CFO. I will give the key updates and hand over the call to Nishit and the management team to take you through the numbers. As discussed in the earlier calls, we have taken a strategic decision to refocus our expertise in the wholesale credit business by pivoting from an on-balance sheet business model to syndicating transactions to investors. By way of an update, the loan book across wholesale real estate, financial institutions and MSME has run down from INR 7,500 crores as of March 31, 2024, to approximately INR 4,200 crores as of December 31, '24. This represents a decline of 45% over the last 9 months. The loan book of INR 4,200 crores carries a provision of approximately INR 800 crores, which represents 19% of the loan book. The provision coverage ratio on the real estate loan book has increased from 54% as of March 31, 2024 to 93% as of December 31, 2024. Gross NPA numbers for the wholesale real estate loan book has remained stable at INR 685 crores as of December 31, 2024. Cash and cash equivalents have increased from INR 4,769 crores as of March 31, 2024, to INR 5,840 crores as of December 31, '24, and group borrowing has reduced from approximately INR 16,145 crores as of March 31, '24 to INR 12,143 crores as of December 31, '24. Now coming to an update on our focused businesses that include corporate advisory and capital markets. This includes the investment banking and equities business. The pipeline of transaction continues to remain very strong, and we are happy to report that we stood at #1 in QIP deals done in calendar year '24. On Wealth and Asset Management, the AUM of our wealth business stood at INR 1,10,000 crores, an increase of 17% Y-o-Y. Our SEBI margin finance book saw an increase of 38% Y-o-Y with approximately INR 2,100 crores, and our mutual fund AUM grew 3x and is now approximately INR 13,800 crores. The closing AUM of equity mutual funds has crossed an important milestone of INR 10,000 crores. Private credit syndication, the business is in a transient phase and with our on-balance sheet loan book reducing, but happy to report the pipeline for syndication transactions is building up well. On affordable home loans, we have expanded to 128 branches. We have an AUM of INR 2,600 crores, with 33% increase Y-o-Y. The net worth in the business now is at approximately INR 780 crores. In addition to the above, the treasury/surplus assets as of December 31 are at INR 6,618 crores. With that, thank you, and I'll ask Nishit to take you through a few of the numbers and then we up for questions.

Thank you, Vishal. During the quarter ended December 24, our revenue stood at INR 1,121 crores. Profit after tax and after noncontrolling interest for quarter 3 FY '25 stood at INR 209 crores. For the 9 months ended December 2024, our revenue and PAT stood at INR 3,426 crores and INR 612 crores, respectively. The gross NPA on the overall loan book for the quarter ended December 2024 stood at INR 838 crores, which is flat as compared to INR 835 crores as of quarter ended September 2024. The provision on gross NPA has increased to INR 701 crores as compared to INR 588 crores for quarter ended September '24. The incremental provision of INR 113 crores has resulted in the provision coverage ratio on the overall gross NPA to increase from 70% to 84% as of December '24. These provisions have had an impact of approximately INR 43 crores on profit after tax and after noncontrolling interest for the quarter ended December '24. The consolidated net worth, excluding noncontrolling interest stood at INR 8,874 crores, which translates to a book value of INR 92.8 per share. On a consolidated basis, gross debt to equity stood at 1.1x and cash and cash equivalents stood at INR 5,840 crores. With this brief update, I would like to hand over the call to the moderator for further questions.

[Operator Instructions] The first question comes from the line of Digant Haria with GreenEdge Wealth.

My first question is because we've started reporting 2 formats, one, is the focus business and one is a regular, old format. I just wanted to check that the investment banking revenue, it looks like we have declined Y-o-Y. Is it largely because of our loan books running down, especially on the capital market financing, FI financing? Is that impact there? And if you can just say that you said that in QIP, we have been the #1 bank. But, like, did we lose out on some IPOs or some deals because we had some regulatory action or restrictions which happened in March last year? If you can just quantify in terms of market share and where have we been? And was there any handicap because of that? And like do we do better in the coming years? That's my first question?

Yes. Let me just start, then I'll hand over to Sonia on the specifics of investment banking. So the format -- the reason we have 2 formats is because we will be moving to the new format, Digant, from next year in June quarter, but we want investors to have a comparable number available to them next June, and therefore, we're reporting the new format right now. And also, we want to continue with the old format, so people can compare from last year to this year how the businesses have moved. So it's just being more transparent and giving more disclosure. In the new format, there is no earnings from any loan business in the Corporate Advisory and Capital Markets segment. So it's purely the investment banking segment, which is reported, and the institutional equity segment, which is being reported. On the specific question of investment banking, Sonia will take the question.

In terms of investment banking, our market share will any -- any given year will be anywhere 15% to 20% on the capital market side. M&A deals are lumpy. So this year, we would be among the Indian banks the #2 in M&A and [ PE ] advisory. Regarding the impact of the SEBI order, which came specifically for managing debt, public issue of debt, but there was a lot of misunderstanding among the client. And therefore, you are right, it did impact our equity business and we may have lost out on some large deals. But subsequently, SEBI, in a subsequent clarification made it very clear in writing that this was only applicable to debt IPOs. And thereafter, having been clarified, I think we are now -- there is no ambiguity about any negativity on our equity capital markets business.

Digant, to simply put. The order came sometime in the first week of March. So March, April, if we lost a couple of transactions, those transactions would have showed up in terms of execution in October, November, December. The execution time line for a transaction is 6 months. But having said that, the market share is still very good. It's very rich. The pipeline is very, very strong. And in this business, you'll win a few, you'll lose a few. As long as the growth is there on an annual basis, that's more important to track. Third (sic) [ second ] in investment banking, it's very difficult, as you know, to predict quarter-on-quarter growth because sometimes your deals slip. So sometimes a deal which is supposed to happen in December, 2 or 3 deals can slip to January, February. Third, just seasonally, it's been challenging to push all transactions through in Q3 because there has been softness in the markets and also softness in terms of what valuations investors are willing to take for issuers.

Having said that, we know we have a very strong pipeline on DRHPs that are already filed which is the public domain. We have close to 2 dozen DRHPs filed. Subject to market conditions, we should be able to launch them, and we are also in the process of filing an equal amount of DRHPs.

My second question is now on this mortgage finance or the JM Credit Solutions, NBFC, our NPAs have been steady at that INR 650 crores or INR 650 crores to INR 700 crores kind of a range. But we have been making provisions almost at INR 80 crores to INR 90 crores a quarter run rate for the last 6 quarters, and our PCR has gone up to 90%, 95%. So Vishal, if you can just give some color, like are we preparing for some write-offs here or if we think that some assets may not reach resolution or...

No, I think, Digant, we've already -- as I clarified even earlier that whatever write-off we needed to take on these assets has already been taken. Large amount of the write-off has been taken last year. So this is the net value. The cover on these assets stands well in excess of 1.3x to 1.4x post the write-off. The provision is being done because the loan book is coming down so fast, right? And therefore, the number, the net NPA numbers look very large. So instead of -- if the loan book keeps coming down and the estimated time to resolve these assets, say, is 4 to 5 quarters more, right? Then what happens, we don't want to take any provisions next year when we are -- from June onwards, when we're going through this new sort of 4 segments of business, where we don't have wholesale credit as a business to report, right? So therefore, it's very important that we take all of the provisions upfront. And to add to that, it's also a very strong countercyclical measure. So it's good to have complete provision. I mean we can't even provide more, right, because we're almost now at 90%, 95% on the real estate -- wholesale real estate book. At max, we can do is the balance 7% in March, which is not a big number again. So I think it's just good to clean it up, have a 100% provision, have a very conservative sort of balance sheet, and we are good to grow on the syndication side very shortly. And those numbers will look even more exciting for the next 2 years once the growth comes in the syndication side.

Vishal, if I understand, the IB business now has absolutely no handicaps because last year there was a handicap of that regulatory overhang. And this entire credit solutions piece can actually start giving us write-back because, at 100% provision cover the only thing that can happen is write-backs, right, if things go well. So both those businesses should do well.

That's exactly the point. Also, the right -- the provision is happening when our ownership in the business is 46%. We are waiting for the RBI orders to come through. We already have the RBI approval to buy the ARC in the credit solution. And we are hoping that this quarter, RBI will give us the approvals to take control of credit solutions. So the write-back will happen when we have 90% ownership.

And then the last question is just on this entire platform, AWS business. So -- because the markets have been volatile and probably they may be slow for another 3, 6 months or whatever, we have not reduced or not going slow on any of our investments in digital or team building in the wealth /IB side. We have been doing -- like we've not just stopped the pedal on any of these, right, or...

No, we haven't. But I'll have Chirag and team take that question.

So actually, Digant, Chirag here. We've actually being a little bit more aggressive. We've actually found that as an opportunity where some of the competitors have been disrupted, whether it is on the equity side or on the wealth side, and we've actually used this opportunity to go and get some top quality talent. And that you will see going forward helps all aspects of the business, even on the equity side, besides the secondary markets business. It will also help the procurement in the equity capital market business, which will -- which you can start seeing subsequent improvement in the market share as well. So, no, to clearly answer your question, we've actually gone more aggressive. We've seen opportunities. We've seen this as a time when we're getting good quality people, and we've actually used this as a time to boost our talent.

[Operator Instructions] Next question comes from the line of Himanshu Upadhyay from BugleRock PMS.

It's somewhat follow-up on what Digant asked. See, in the investment banking and let us break it into some segments where we have done well and where the revenue is lacking, okay? So can you give some thoughts on that? Because when we look at investment advisory, it seems it has been good or corporate advisory part revenue. But again, we don't have any Y-o-Y part. So some color on which segments have lagged and which segments have done well on the investment banking side because overall, it seems degrowth of 11% Y-o-Y and again, Q-on-Q also similar for much bigger fall, okay? So how should we understand where we are -- where we lagged in this year or in the quarter?

Yes. I think you're looking at the old segment in which....

It is Slide 32.

Yes. Go there. That is old segment. So in the old segment, we had financing revenues also as part of the investment bank. And that financing book has decreased a lot. As you have seen, the financing book has gone down by almost from 33% to 34% in the last 1 year. And therefore, there is a decline in the Investment Banking segment. So I think the right way to look at it is this quarter and how we'll perform next quarter. And Sonia, you want to add on segments within investment banking, how we're looking at them in terms of growth and in terms of market share.

Yes, sure. So the pure investment banking, which is the advisory -- the capital markets and the advisory across M&A and PE. There has -- we have grown year-on-year. The booking of the revenues is always a function of which deals closed in a particular quarter and how we book the revenue. But otherwise, there has been a secular growth quarter-on-quarter. Depending upon -- because a lot of it is dependent on the segments. For example, there are -- some of the transactions which we have in specifically financial services, which we can't launch because microfinance is under stress. So those deals while we are mandated, we have DRHPs which are -- we have not been able to launch them. But certain other segments, for example, in health care or real estate, which we have -- we have launched them, and we will see the revenues in book. Having said that, I think we will be -- have a team which will cover all segments, whether it's industrial, consumer, health care, financials. We will be a team that will be focused on every segment. Our enhanced focus will be on cross-sell to make sure our clients get the benefit of our entire wealth franchise also and the wealth clients get the benefit of our investment bank and also our entire syndication. So we are [indiscernible] to make sure that the investment banking team remains the fulcrum through which we are able to deliver every product of the integrated investment bank be it debt capital market in terms of syndication as well as our whole wealth franchise.

Okay. And I had a question on affordable housing. In Q2, we stated that we had INR 150 crores of BT, okay? It's a basic question. How much was this quarter? And secondly, we were planning to sell down opportunistically every quarter-on-quarter. In case a person comes down for renegotiating a REIT or BT in sell-down book, can we renegotiate on the REITs or not? If yes, then who takes the NPV loss of lower yield. Does it get shared or some thoughts on that, how it happens?

Yes. So BT rate continues to be 1% a month. It was last year, 1.5% a month, meaning 18% a year was a BT out. That has come down a bit. It is like 1% a month. To answer your second question, when you sell down, actually, risk and return goes to the extent of sell-down, for example, under a 90-10 deal, 90% of the risk and return goes to the person who buy this portfolio. And in those cases, you cannot change the rate unless you take the approval of the buyer. And if you change the rate with the approval, obviously, this benefit or -- that goes in the same ratio of to 10:90 which is a true sale concept.

Okay. And one thing, Vishal, on the real estate segment, okay, what -- how is the demand from -- for credit by builders? Because what we are seeing is the launches are -- the launched inventory is now becoming more than the absorption, which is happening, okay, in markets. And unsold inventory for many of the players is unsold, under construction inventory starting to increase for many players. So what is the scenario? And secondly, how -- till the time approvals come and we start our AIF funding, how to maintain our relationship with the builders with which we have past done business and keep our teams also gainfully involved and motivated? Some thoughts on that business because at the end it has -- it will restart at some time and what we are doing there.

Yes. So I'll start with the last question first. Part of the team has already moved from our NBFC business to the asset management side. They've already full-fledged working on the application for the AIF, which should happen hopefully by next quarter. On the real estate side, we have an extremely strong equity and debt franchise. So many of the players are anyway engaged with us on the equity side to raise some form of capital. On the debt side, we still have a book that is running down. And these are very old relations. Everybody has been spoken to and we've told them that we actually want to focus on land and approval finance through an AIF structure and people who we are speaking to -- clients who we're speaking to are very excited. In fact, they're keen that it's set up fast sometime in this year and that we are able to move ahead with financing them. So I'm not concerned at all about those relationships. I think they've been there for more than almost 2 decades. And once the AIF is up and ready, I think we'll start doing business very soon. So not much of a concern there. On your first point, yes, there is definitely some concern coming up in terms of inventory levels rising. We hear from some of the unlisted midsized players that sales also have gone down in the last quarter. Even the season, the Diwali season, was not great in terms of sales. Having said that, there is a market share shift, which we've talked about in the last 3, 4 years, even longer 5 years, that the larger players will get more market share. So that kind of slowdown in terms of sales is not visible with the larger players. But one has to check how much of inventory booking is actually happening with brokers versus real sales in some parts of India. People could report very strong numbers, but we have to understand whether they are real sales or right now it's inventory booking like auto companies do with their dealers and sales will happen onwards over the next 3, 4 quarters. That will give you a better sign on how listed companies are doing. But having said that, I think the demand for real estate still remains strong. A lot of the inventory that comes as total inventory in terms of calculation is not ready inventory, it's new launches. So as long as the economy is growing and we are at a healthy 7%, 8% growth, it will flatline prices and sales will take maybe a few quarters delay to pick up. But anyway, I don't think it's an alarming level. It's not something where you will see ILFS or pre-ILFS kind of prices where sales were very, very slow and it really impacted the sector. Yes, Chirag, do you want to add anything on the real estate besides this?

You've covered it all.

Yes. Okay. That's it.

So had the yields increased? And are we seeing increased demand from the builders now on the wholesale side?

See, builders will always have demand. The challenge is that as per the new regulations last couple of years, we can't cater to the demand as NBFC. But I always maintain that real estate is one sector which always needs money, whether it's debt, whether it's equity, whether it's structured credit, they always need money. So demand is always there. It's just what kind of demand. So construction finance, particularly the drawdowns have been slow and the drawdowns are always slow when sales are very strong. Another reason why our loan book has run down so fast is just because sales is very strong. And once you -- once the project matures and it's roughly 30% or 40% sold, that's when banks come and take over the project at very, very low yields. So we've seen that happen. Bulk of the rundown and we faced in the book is also because sales have been strong and banks have taken over most of those loans which were originally made for land and approval and then into construction. So the cycle has been tremendous last 2, 3 years. And because of that, even the lending rates, frankly, were very low. I mean the risk-adjusted rates to lend to real estate in the last 2, 3 years have not been very attractive. So having said that, there is a big gap today in the market for land and approval because there is no bank, there is no NBFC, who is funding it. And these were the largest players giving money for land and approval. So there is a huge opportunity for the AIF. We're just looking forward this year to set it up and be sort of ready by the end of the year to start deploying money.

And see, the NPAs, which are there on this book, wholesale book, okay? And some of these have been with us for more than 6 months, 9 months, okay? And the times are good, okay, whatever we give and say, you also stated. How -- what can we do to hasten our resolutions, okay? And what are the pain points still there even in good markets to resolve these assets? Some of your thoughts will be helpful.

Yes. See bulk of the challenges are where we are working with the land owners or the project owners to find a solution which works for them and works for the new buyers to come in. I think in almost 50% of the portfolio, we are pretty much in advanced stage. So when I say advanced stages, we should see resolution this calendar year. And in the balance, 50%, we should see it in the following calendar year. So one of the reasons -- if you go back to one of my earlier calls, one of the reasons we also feel that, in real estate the risk-adjusted return needs to be calculated properly is because the resolution time lines in distressed assets in India are far longer than what most people estimate. So what happens is when an asset goes bad, you have a liability in your balance sheet, but your asset is not paying off and your asset has a delayed resolution time line, which eats into your returns. And if that is not appropriately priced in to the risk when you make the loan, then you have lower risk-adjusted returns. So that is what you are seeing that most of the 6 to 9 months old NPAs will take between 2 years to 3 years to resolve. But we are fairly confident that this provided amount, I mean most of it, I would imagine between 80% and 90% of it, should be back within the next 2 years because there are some cases where we tried to do a resolution with the developer with the best effort. And if that is failing, then we are going to NCLT. But once you go to NCLT, you start the IBC process, you know how it is. It's a minimum 18-month process till you get your money back. But to us, it's fine, right? Because we've had enough of profit in our capital markets business. We've used that to take provisions up to almost 93%. And if required in the real estate book, we'll take it to 100% in March. So it's completely cleaned up. And whenever the write-backs come, which they will come in the next 2 years to 3 years, we will be happy to receive that. For example, there has been such a phenomenally positive development for us in our largest asset in our ARC, which is Unitech, which happened last week, where after almost a 3.5 year time frame, the Supreme Court has said that the management of Unitech and the lender should sort of sit down and agree to a onetime settlement, right? So that is -- that's an excellent development. So these things take time. Now in Unitech's case, our most conservative estimate is that the value of the underlying assets that we have are probably in excess of INR 2,000 crores because all of those lands have appreciated, the loan was made 6, 7 years ago. The accrued value to us is in excess of INR 1,000 crores. And so -- and we have security of INR 2,000 crores. And none of this is even accounted in our books because we've just been providing and we've taken the carry value to below INR 500 crores. So I think you just have to be patient and work with some of these assets. As long as you've underwritten it very well, you have your mortgages in place and you have those lands or those projects complete control, I think you will recover your money. It's just about playing that patience game in India.

Next question comes from the line of Chintan Shah with ICICI Securities.

So firstly, on this ARC business. So I think we had some good recovery from the ARC business for this quarter of around INR 1,129 crores recoveries were there. So what would be this recovery largely from? And secondly, I believe the ARC is now a defocused business. So incrementally, we won't be adding much assets to this pool right? Is that the right assumption?

Yes. So ARC, as I told you earlier also, the ARC recoveries are lumpy in nature. So we will have -- you may have 1 quarter or 2 quarters where you don't have a lot of recovery and then you may have a quarter which is very, very good because -- and you have tons of assets coming through and cash flow coming through. So what we have said in the past as well is that we are not going to be taking turnaround risk in corporate assets as an ARC. The intent of an ARC when RBI gave the license was that banks can sell their NPAs and ARCs along with their own collection networks can collect on those NPAs. And third is ARC is a very good vehicle to get foreign investors to partner along with you and purchase many of the corporate assets and then work around a turnaround and sale. Earlier -- and the third option was ARC puts their own balance sheet to work and works on turnaround. So we're going to stop the financing of projects or takeover of assets where we have to be responsible for the turnaround. So the only 2 businesses we will do in the ARC will be the syndicated business where we will partner with corporates or we will partner with foreign funds who want to take over assets where our commitment will not be more than 15%, and we can go down to as low as 2.5%. So it will be between 2.5% to around 15%. And we will do a syndicated business, where we will bring these corporates and these funds and buy assets, and we'll make fees on it. And the second business we will do is we'll buy retail assets where we will partner with collection agencies or, in some cases, even the issuing company, the selling company to resolve the retail NPAs. So that's the strategy. So we have added an asset on the syndicated side this quarter. And -- but we don't have any responsibility for turning it around or operating it. We are very, very clear that we will not take that responsibility like we have in the past.

Sure. So just -- how do we go -- how much could be the -- so for example, when you told that Unitech we have a security of around INR 2,000 crores and INR 1,000 crores odd probably we could recover, just a guess estimate on that. So how much will that turn into profitability since even after recovering around INR 1,100 crores, it doesn't seem to flow on the bottom line. So how do we read that, yes? Is that a part of wholesale business? Or how is it?

Yes. So what happens is, in Unitech also, for example, we have -- we bought the [ SR ] from HDFC Limited. So all these recoveries INR 1,100 that you see is all with the partner banks. So the INR 1,100 recovery is not our balance sheet recovery. Our hold generally in these assets will be between 2.5% to 15%; 5% to 15% actually in the older assets. So our recovery is usually in the 5% to 15% share of the same. In Unitech specific case, because we had given priority loans, the recovery amounts will be higher. It's very hard to estimate what that will be, and that is exactly the exercise we will carry out with the management of Unitech depending on what their strategy is for liquidity for financing some of their projects. But the overall amount due to us is over INR 1,000 crores. There will be a share between us and HDFC. But the value of the security today in that portfolio is above INR 2,000 crores is our view.

Sure, sure. And sir, on the cash pool, which we currently have, we have a cash pool of roughly around INR 5,840 crores as of now. And considering that we are probably done with the transaction of payment, which is pending to the credit solutions shareholders and ARC transactions, both these are done with. So where do we think we end up on the cash balance by March '24, assuming that those transactions are over by that time?

Yes. So I -- the net impact of that will be around INR 600-odd crores. And -- but the gross sort of outflow from the group will be around INR 1,300-odd crores -- INR 1,400-odd crores, yes. So the cash will go down on INR 1,400 crores from sort of the group, but the consolidation increases because our ownership goes from 45% to 90-plus percent in Credit Solutions. But the net impact on the holding company will be lower in terms of its cash going out because the purchase of the ARC will happen with the use of Credit Solutions cash. So from your perspective, on a gross level, it will be a reduction of approximately INR 1,400 crores, which will take us to between 90% and 95% ownership.

Sure. So once both these transactions are done with, then probably we are not left with any transaction, right? So then anything on the cash distribution part or dividend or buyback? Anything we are looking to do or would we keep on holding the cash with us on a treasury book?

Yes. So as I said that the cash from treasury is going to be used for investing and expanding the businesses of the group. It also will be used to build a bigger syndication business. So we will use treasury and drive it to bolster our business. But the returns from the cash that we make every year, we will use that as per regulations allow us from RBI to pay dividends. But to do all of that, first, we need to purchase Credit Solutions because a significant amount of our cash, almost INR 3,000 crores, plus sits in that entity.

Next question comes from the line of Kshitij Saraf from Tusk Investments.

Just wanted to know on the private wealth side, our [ ARR ] AUM is up 33% Y-o-Y. This kind of slightly lower than industry, if you will, it's been on a low base. So I just wanted to understand because we've increased our RM count from 36 to 54 Y-o-Y. So is there some impact of weaker IB sort of disrupting the flywheel here?

Chirag and Anuj, you all can take this.

Sure. So I think especially in the quarter that's gone by, the mark-to-market impact has actually been slightly overwhelming. We have actually added net new money of about INR 6,000 crores in assets. Our entire -- but the mark-to-market impact has negated pretty much 90%, 95% of that. Our entire focus is to really, as we are scaling up this business bottoms up, focus on the recurring asset book. And as you see, that is growing at a fast clip. In terms of the RM count as well, we've added about 8 or 9 RMs this quarter, but you'll see that scaling up in the coming quarters as well. So yes, going forward, with the addition of RMs, both in the mass affluent as well as the ultra-high-net-worth and family office businesses. We do expect the asset ramp-up to happen quicker.

Understood. And on the investment banking side, we haven't had large deals this quarter and they don't seem to be any -- very large deals in the pipeline. So any sort of outlook you want to share there and sort of with the RBI overhang now behind, are we pushing more on the larger deals which come through?

Sonia?

Sorry, I don't know why you say that we're not the large because we have filed HDB which is a INR 12,500 crore IPO, as you know, one of the largest deals in that sector. We closed one of the largest M&A transactions from -- on the [ PE ] side where Shriram sold their housing finance asset, which is the largest deal by Warburg in the history of their investments over the last 20 years. So, like, Vishal explained, there will always be deals which will be captured and will be missed because there are just so many transactions. As you know, there have been 91 IPOs that happened last year, and our market share will consistently remain in the 15% to 20%. So I think, like I said, we have filed DRHP, which are in the public domain, which around 2 dozen, and we have an equal number which we have mandated and hope to file. So the momentum remains strong. The sectors -- which deals we launch will be a function of which sectors are favored by the market. And our focus continues to remain on both ECM, M&A as well as cross-sell of our entire platform of every product on our platform.

Next question comes from the line of Ashwini Damani with Modify.

So the bulk of our future business now depends on the investment banking mix. That is the bulk of our revenue is also coming into profitability. Could you give us on a going forward basis, some insights into how the deal pipeline looks like? And -- so today, there might be views that we are on the top of the [ cycle ]. But probably from your end, you all are better aware of the number of IPOs and QIPs that are about to be launched in the next 3, 6 months, 1 year basis. So if you could give that going forward, that would help us in understanding where our future lies. And maybe some comments...

I'll pass it to pass it to Sonia and Chirag both to separately take that question. But I don't think our business will be concentrated as much in investment banking. I think investment banking, obviously is doing very well because of the issuance activity. There are a lot of investments being made in other parts of the business, which Sonia and Chirag will talk you through. I think it will be pretty much well-diversified sort of earnings stream that you will see. But if there is a deal activity in investment banking, which happens, obviously, it increases the profitability. But as I said, it will be more diversified.

And one more last question, sir. I think the credit...

Let us answer it properly and then you can go to your next question.

Just to add to what Vishal said, I think your -- the focus really is also on the flywheel here. There is a big build-out happening both on the private wealth, in the retail protein and as well as in the equities part. And the impact and the upside of all of this, we will start seeing in the coming quarters. So while the leadership in investment banking is maintained and built on, he impact of the investments in some of these businesses, you will start seeing the positive impact of these investments.

Sure. Sir, you mentioned that we will -- on the question by the previous speaker on distribution of cash, you mentioned that you'll redeploy it in new businesses. So would the loan syndication business, et cetera, require that large an amount of infusion, INR 5,000 crore, INR 6,000 crores?

Yes. So we've given the approximate breakup, I think, last quarter or the quarter before that. I think we'll need approximately INR 3,000 crores of book that we will maintain on the corporate syndication side, which is a bespoke finance business. And I think we will -- our loan against shares book will scale back to an equal number of around INR 3,000 crores. And I think our margin trade finance business, again, will be approximately INR 3,000 crores. So I think we'll easily be able to manage with the current debt equity we have, so -- which is approximately 1x. So we don't want gearing to go beyond that. And we don't need gearing to go beyond that because of the cash surplus that we have. But today, a significant portion of that cash surplus, while we are changing the strategy is just sitting in mutual funds. So to give you an example, we have probably INR 3,500 crores to INR 4,000 crores in mutual funds, which is earning a lower yield and it should be a much higher yield once we start deploying that cash into the syndication side.

Next question comes from the line of Digant Haria with GreenEdge Wealth.

I've just one follow-up that with this specific fall in small caps, it's been quite large compared to other large caps. On our retail broking side, do we see any like system-level risk or at our company level also, especially on the margin trade funding book and the F&O part? Just the general comments, nothing much. So that's it.

No, no. But like our margin funding book is just 2.5 percentage of the industry book, and it is very well diversified, and we are in more than 7,000-plus clients. So average per client book is only INR 30 lakhs. And our exposure is mostly on BSE 500 stocks, which is almost now 80%.

The next question comes from the line of Chintan Shah with ICICI Securities.

Sir, just to understand more on the provisioning part. So probably we have seen in the last -- over the last few quarters, we have PBT -- we have kept on doing excess provisioning just to keep, as you told, the net NPA down on the wholesale part. So now it seems to be more done and dusted on the -- with regard to the provisions from the wholesale. But for the -- on the ARC front, we have a portfolio of around INR 12,842 crores assuming if there is a slowdown in the recoveries, so do we anticipate any further provisioning further here on as well, which would hamper the profitability? So I just want to understand, are there any negatives or probably pullovers which could drag the profitability [Technical Difficulty].

We lost you. Will you repeat the question? We couldn't hear you in the middle.

Sure, sir, sure. Sir, on the provisioning front, so probably what we have seen in FY '24, we had some bouts of excess provisioning, one-off provisioning towards some of the other businesses, largely ARC or the wholesale portfolio. The wholesale portfolio is more or less provided to the extent of 93%. But on the ARC pool, we have a book of INR 12,842 crores. And just in case, if there is a delayed recovery cycle there as well, then could we anticipate any further provisioning or leakages from there, which would hamper the overall profitability? Yes, I just wanted to get some sense on that.

I think in the past, we've guided ARC only has provisions on a 6-monthly basis that happen when the assets are reviewed, September and March. We don't have significant assets that require more provision because we have taken a lot of the upfront provision where we felt there will be weakness in the recovery in the March quarter of last year itself. So these will be standard provisions as required by the business when assets reach a certain time line of resolution. There's nothing more than that.

Next question comes from the line of Rishikesh with RoboCapital.

Sir, my first question is, if you could share going ahead [indiscernible] what sort of revenue and profitability do we see for AMC business, wealth management and private syndication business as well.

Sorry, can you repeat the question? It's not very clear.

Yes. Am I audible to you now?

Yes. You said you want to have what?

Could you please share how we see the revenue and profitability going ahead for next 2 to 3 years for AMC, wealth management and private indications business?

Yes. So Amitabh, do you want to take the question on AMC profitability next and revenues next couple of quarters. Anuj followed by that on wealth.

So we are still in the buildup phase in the asset management company, but our burn rates are significantly lower than what we had projected in the -- at the start of the year because of the buildup -- higher buildup of equity assets. And the good thing is that we are able to build up equity assets with a reasonable margin. The way we look at it is this burn phase will continue for the next 2, 2.5 years. And once we cross around INR 20,000 crores to INR 25,000 crores of equity, we should reach breakeven and build out from that. For the next couple of years, we will be looking to use capital. But at the same time, we will be using capital to build up our investment team our branches, et cetera, because next couple of years, there's a lot of work we have to do on scaling the business.

As far as the Wealth business is concerned, clearly, we're in an investment phase. However, I must point out that it's already a profitable business. And while we are scaling up quite fast, and we will hire quality talent and spread our footprint as far as cities in India and our overseas footprint is concerned, we will be investing in talent. The pace at which we hire is also increasing. And hence, we will be investing. Having said that, we don't expect the profitability to scale up in the first couple of years at the same pace at which the revenues will scale up because there will be investment in talent and other infrastructure costs and technology. But we don't expect -- we expect the business to remain profitable in the coming quarters as well.

And needless to say, you should expect above industry average growth for us in the years coming.

And sir, private credit syndication business, what would be the revenue [indiscernible] and you shared that you will be having around INR 3,000 crores book in syndication business?

Yes. So I think it's fairly simple, you should model -- as I've maintained before that you should model anywhere between a 400 to 500 basis points spread on the capital that we should be able to deploy, including fees. So if we are looking at INR 3,000 crores of steady-state book that we are able to achieve, then that is the kind of spread we will make on it. . So in this case, it will be full spread on the book. So it should be at least 13% to 14%, which will be the earnings and then we try and makes fees over and above that. And this will be unlevered. So we will use our balance sheet capital and build this business. We don't need to take any leverage. The leverage will be taken for the margin trade finance business as well as the affordable housing Loans business. The important thing here is how effectively we're able to churn the capital, the more you're able to churn the capital, the more fees you are able to make. Instead of just holding assets for a period of 4 to 5 years and earning yields on them, the idea is use active distribution to churn the assets you get on balance sheet.

Next question comes from the line of Dhruvesh Sanghvi with Prospero Tree.

I missed the first half, so [indiscernible] the RBI side, on the capital market finance?

RBI side on capital market finance as [Technical Difficulty ] prohibition with respect to financing loan against shares. So this order had come in the month of October itself.

Sorry, there was a disturbance, can you repeat?

No, I think the loan against share order has been revoked and we've started loan against share business from last quarter, which is about INR 600 crores of loan against shares last quarter.

So we will completely rebuild, right, in terms of...

There's nothing to be rebuild. The entire team was always in place. It's just about starting business with the clients, which has already started last quarter.

Okay. Fine. And in terms of the pending credit book that we have, this -- do we see another INR 300 crores, INR 400 crores of NPAs adding up in the GNPA levels or no? I mean, now there is absolute...

We only have 1 SMA 2 asset where also we have a lot of security cover of roughly INR 150 crores. Rest of the book is completely post-COVID book. It's been performing exceedingly well. In fact, the same question was asked even a year ago and people were concerned how will the book run down. I mean the book has run down in front of everybody and has run down quite substantially and run down extremely well. So on the remaining book, there is absolutely 0 concern. In fact, we think it will run down even faster. So the earlier estimate was a total period of 4 years to run down. I think the whole rundown may happen in the next 12 to 15 months, so a lot faster compared to what we had thought.

And sir, last part. Over the next 2 to 3 years, do we see the IB business now, which is probably doing INR 150 crores to INR 200 crores profits per quarter, considering the markets don't tank too much and some side -- some kind of volatility is fine. But do we see that now we achieve a potential number of INR 1,000 crores just out of IB in profits per year?

Well, INR 1,000 crores of profits is hard to say. I mean we are very bullish on the IB business. I mean we are very bullish on the IB business. I mean we've never seen a sort of market that we are seeing for capital raising in most of our career sitting around this table here. But -- it is extremely exciting to be winning large deals, which we are and some very, very large left leads, even the private equity capital that is looking to invest in India is so significant that even if ECM sees a bit of a slowdown because of corrections, there will be a massive uptick in the way private equity will invest in the country. So I think the capital raising environment is looking phenomenal for the next 5 years. So very hard to say -- put a number on it, but I can definitely tell you that there will be a ridiculous amount of growth that we will see in capital raising, and we as a leading IB will benefit heavily from it.

Sure. And I'll just add to this to what Vishal said, what you're seeing is a trend where the deals are getting larger and the fees being paid out are higher as well. So for a firm that has a market leadership like we do and for the investments that we are making in the business, there is no reason to believe that the 5 years that Vishal spoke about, we continue to grow and become stronger both in absolute and relative terms.

And last one. There was Economic Times side note without names where there were certain wars on talent acquisition between a company and 2, and I believe it was JM versus Axis. I mean always this keeps happening in the industry. But the key raw material to IB is the talent. And what kind of things do we foresee here considering that each investment bank is completely full in terms of better time and they are now picking and choosing on deals? And how do we manage the talent piece here correctly and internally? And what has the impact been on -- due to this kind of an event where senior leadership got involved probably? So if you can highlight some thoughts around the overall management talent pool within the company.

That is a great question. And frankly, that is a question we are actually discussing a lot these days. So a few things have happened. I think the investment banking business has exploded, for lack of a better word, but the talent in this space has not exploded as much. Luckily for us, we saw that coming at least 2 to 3 years earlier. And if you guys have been tracking my calls, I've been speaking about it for the last 3 to 4 years that there will be a decadal shift in the amount of investment banking activity that we will see. So we've prepared ourselves in terms of pushing ahead on recruitment a lot in advance in anticipation of the business that we'll be able to underwrite. You're completely right in saying that even after the advancements of recruitment, our teams are still completely busy with literally no free time, sometimes to even take on new business. But having said that, we have more recruitments in place. And around May, June this year, we have more people joining us on the IB side. Third, we've actually strengthened our bench with the analysts and associate levels quite significantly. We've run massive recruitment programs at some of the best universities and MBA schools in the country. So we are increasing our bench dramatically. On the institutional equity side, we have significant hires made with, I would say, some of the best talent in the industry, which is going to lead the business, building a strong derivatives platform, which we did not have. We were a more cash equities focused business. We've made significant resource hiring on the research side. I think on wealth, you've already seen the numbers and there are even -- there is even more recruitment happening over the next 6 months. So just the size of our teams and the depth and breadth of coverage every 6 months will be growing at a very, very rapid way.

The last question comes from the line of Himanshu Upadhyay with BugleRock PMS.

See, just one observation was there. AUM for PMS business, there is a sharp fall from INR 2,400 crores to INR 200 crores in the last quarter. Any specific reason for it because the market has not fallen [Technical Difficulty]

[indiscernible] the number. I think the fall may be by INR 200 crores. The fall is not to INR 200 crores. That is a mark-to-market.

No, INR 2,400 crores to INR 2,000 crores.

Yes, INR 2,400 crores [indiscernible].

And in the last quarter, the market had not fallen by that much. So any specific reason for that?

No. I think, look, there is some mark-to-market in that and there is -- I mean, there are some on the nondiscretionary side where there were low paying fees on certain accounts. We've let go off those funds so that we continue to focus on our yield while growing assets under management. And you'll see going forward that the improvement in the uptick in the yields comes in as well. So the profitability of the business gets better going forward. We were -- there is a particular 2 accounts that were low yield, and we've actually walked away from those. And those were actually -- about INR 275 crores of this was about the low fees account and INR 125-odd crores of the -- of this impact is on mark-to-market.

Okay. Finally, in last quarter, we said we continue to invest in AWS and are seeing breakeven of newer branches in less than 12 months, okay. What percentage of this breakeven will be related to equity market transactions what we are doing there? And what could be the overall RM-related revenue generation, which helps the breakeven of newer branches. Some thoughts on that?

We've opened -- you must have observed that this Tier 2 and Tier 3 cities are attracting so many new clients now. So all our new branches from April 2022 onwards are happening. We opened more than 29 branches, only Tier 2 and Tier 3 cities. So out of 29 branches, 9 branches we opened in current year. So this 20 branches is almost doing a breakeven for us. Like our main cost is only manpower cost. Otherwise, it's all rented offices. And you see last year, like Q2 was excellent for us. So Q1, Q2 was excellent. Q2 there's -- volume, degrowth is only 18%. So by and large all branches and earlier, local brokers were having offering any leverage. Now as per the new regulation, everybody is on the same page. So that is advantage for us. And JM is having so many product basket. So there would be, again, an advantage for us. So almost out of 29 branches, new branches we opened this current year, almost all are doing at breakeven for us. And in fact, a few branches are doing with decent revenue. So in our top line, these 29 branches are contributing more than 15% of the revenue.

Also, the equity brokerage business, where we are building many of these branches, they've built a very strong [ TPP ] which is a third-party product distribution pipeline. And this business started getting built almost 3 years ago and specifically built to counter cyclicality of the equity markets. We haven't seen the cyclicality as yet, but many of our branches, all of the salespeople have been fully trained to distribute mutual funds, to distribute other products. So even if you see some sort of a correction or a slowdown, the TPP volumes pick up quite dramatically and the sales teams are very engaged with their customers all the time. So what is happening is the broking branches, which were really created from a perspective of an equity brokerage product are sort of becoming wealth management branches because they're catering to the HNI, the smaller HNI customers in all of those cities, they take many of the other products, like, mutual funds, insurance IPOs, OFS', many of them managed by our investment bank to these customers. And they're kind of redesigning their entire relationship to an overall wealth relationship and not a concentrated equity relationship alone. And this is quite game-changing and this continues at this, rate then we definitely see a lot lower cyclicality on the equity broking side.

And one last question to Amitabh. Amitabh, have we seen banking and large wealth counters now opening for our AMC business to sell our products on equity side? And what is the progress there means on banking channel and large wealth [Technical Difficulty].

So some of the midsized banks have started. Some of the larger banks have yet to start, but the engagement is quite intense and we expect in the next couple of quarters them to start. A lot of national distributors and wealth counters have started doing business. In fact, a lot of wealth counters, which we would say around 15 to 20 wealth counters have started onboarding. Some of them have even put up funds on their focus list. So that is one area of growth that we see this year because a lot of these engagements have fructified in the last 1 or 2 quarters. And in the next financial year, these are the banks which will -- banks and wealth counters which will help us grow our business other than our existing AIF and digital businesses as well.

Ladies and gentlemen, due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. Vishal Kampani for closing comments.

Yes. Thank you. Thank you very much for participating in our third quarter call. And I reiterate that we are extremely excited about the prospects of all our businesses and the capital markets, the wealth management, the broking, what we are doing on the syndication side as well as our affordable home loans business and look forward to more interactions, and thank you very much.

Thank you. On behalf of JM Financial Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.