JM Financial Limited (523405) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the earnings call of JM Financial Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. 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 this expectation cannot be guaranteed. I now hand the conference over to Mr. Vishal Kampani. Thank you, and over to you, sir.

Thank you. On behalf of JM Financial, we extend a very warm welcome to all of you to our earnings conference call to discuss the financial results for the quarter and half year ended September '25. We have updated our results, presentation and press release on the website and exchanges. I hope you've had a chance to go through the same. On the call, we also have Chirag, our MD; Sonia, MD and CEO of Investment Banking; Manish Sheth, who runs our Home Finance Business; Amitabh, who runs our Asset Management business; and Nishit, who runs -- who is our Group CFO. I will just give you the key updates, and I'll hand over the call to Nishit to take you through the quarterly commentary and the numbers. During this quarter, we are happy to report another strong set of numbers with an operating profit, PAT, of INR 270 crores. We have declared an interim dividend of INR 1.5 per share, which is in line with our strategy of increasing the distribution to shareholders. Fees and commission income has been the highest ever for any quarter at INR 341 crores. It continues to show a healthy growth of 20% Y-o-Y for 2 straight quarters. The pipeline of transactions is extremely strong. Further, only on the IPO front, we have deals of almost INR 120,000 crores, for which the documents have been filed with SEBI and hopefully will be executed over the next 6 months to 12 months. We have also crossed a very important milestone of 1,000 salespeople across our Wealth Management business and our focus on scaling up Wealth and Asset Management business continues. On our Affordable Housing business, we have crossed an AUM of INR 3,000 crores. With that, I'll pass the call on to Nishit.

Thank you, Vishal. I will first take the key updates on the respective segments and then move to numbers. Corporate Advisory and Capital Markets includes the Investment Banking and Institutional Equities business. We are ranked #1 in IPOs for the quarter in terms of value, and we have closed 15 capital market transactions amounting to INR 28,000 crores in the September quarter. In addition, we have filed documents for 56 IPOs aggregating to an issue size in the region of approximately INR 120,000 crores, and the pipeline of transactions is increasing. This does not include the M&A and the Corporate Advisory pipeline of transactions that we have. On Wealth and Asset Management includes the Wealth Management business, broking, PMS, equity and debt AIFs and Mutual Fund business. In line with our earlier guidance, we are rapidly expanding the Wealth Management business and the Asset Management business. On the recruitment side, our sales and relationship managers strength has increased by 43% YoY in our Wealth Management business. On physical expansion on a year-on-year basis, branches have increased by 11 to now 70 branches and franchisees have increased by 38 to almost 900. The recurring AUM of all our Wealth business grew by 26% year-on-year to INR 32,000 crores. The proportion of recurring AUM to total AUM has increased to 28%. In the mutual fund stage, the SIP book has increased 59% year-on-year to INR 115 crores per month and the average AUM from nonliquid assets has increased by 36% year-on-year to approximately INR 12,100 crores. The employee strength in the Asset Management business has increased 18% year-on-year to 211 employees. We are also in the process of adding more strategies under our AIF umbrella. Private markets. This business comprises of private credit across corporate bespoke, real estate and distressed strategies and investments. Private market is a very differentiated platform with a focus on providing solutions to our clients. Our focus is on the big opportunities in the private market business comprising of private credit as well as the private investments. This includes investments on the equity right through a growth focused private equity fund and investments in REIT and other products. There is a strong buildup of pipeline of syndication transactions in the private credit space. During the quarter, we have seen good traction on recoveries and further efforts continue on the recoveries. Over the last 1 year, we have recovered approximately INR 1,275 crores in JM Financial ARC, and the borrowing to that extent has reduced 27% year-on-year to approximately INR 1,589 crores. Affordable home loans. This business includes our home loan business catering to the affordable segment. We have reached a branch network of 134 and the AUM has increased by 28% year-on-year to INR 3,031 crores. Coming on to the numbers. During the quarter, fees and commission income has increased by 20% year-on-year to INR 341 crores. For the half year, the same has increased by 21% year-on-year to INR 573 crores. Profit before tax and profit after tax after minority interest has increased by 1.2x and 16% year-on-year, respectively, and stood at INR 344 crores and INR 270 crores. In quarter 2, there was a onetime tax credit of INR 39 crores due to change in the tax rate and the PAT adjusted for the such credit stood at INR 193 crores. Therefore, the adjusted Y-o-Y increase for quarter 2 FY '26 would be 40%. For the half year profit before tax and profit after tax after minority interest increased by 1.4x and 80% year-on-year, respectively, to INR 937 crores and INR 724 crores. Annualized ROE based on half year numbers stood at 14.4%. The consolidated net worth, excluding minority interest has increased to INR 10,241 crores translating to a book value per share of INR 107. On the segment performance on Corporate Advisory and Capital Markets, profit before tax stood at INR 187 crores and profit after tax stood at INR 142 crores, showcasing an increase of 42% and 41%, respectively. For first half FY '26, profit after tax increased by 54% to INR 219 crores. On Wealth Management, profit before tax stood at INR 37 crores as compared to INR 45 crores for quarter 2 last year, and profit after tax stood at INR 30 crores as compared to INR 35 crores for the same period last year. For first half FY '26, profit before tax increased by 8% to INR 89 crores and profit after tax increased by 16% to INR 73 crores. On Asset Management, the loss for the quarter stood at INR 10 crores, largely on account of investments being made in the mutual fund and the AIF businesses. Our share of the loss is about 60%. For private market business, profit before tax stood at INR 101 crores as compared to a loss of INR 68 crores for the same period last year. Profit after tax and minority interest stood at INR 77 crores compared to INR 11 crores for the same period last year. On a first half FY '26 basis, the profit after tax grew over 4x -- 5x to INR 355 crores. For affordable home loans business, revenue for quarter increased 41% year-on-year to INR 109 crores, and profit after tax is almost double, INR 213 crores. For first half FY '26, revenue increased by 23% year-on-year to INR 210 crores, and profit after tax increased by 19% year-on-year to INR 27 crores. With this brief update, I would like to hand over the call to the moderator for questions.

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

Yes. Firstly, congratulations on this capital market and advisory division, you've done strongly well and good to see the pipeline also growing. And secondly, even this interim dividend is a very welcome change. Now I have 3 questions. So first question, Vishal, is on the Wealth Management side. Like how do we track the Wealth Management business going ahead in the sense, have we made most of the OpEx, like most of the OpEx flowing through the P&L or we have more OpEx to come? And then can we see this recurring AUM growing at a much faster clip than what it was in the past? And then 1 more thing is that our profits in this entire division is say INR 80 crores to INR 100 crores, which is much below the potential of this business, right? So when can this start scaling up? Like will it be FY '27, '28? Any thoughts here? That's my first question.

Yes. Let me just start and then I'll give it Chirag also to answer in more detail. So I think in terms of investments, we will continue. Profits are partly down because of lesser income in some of the transactional and pre-IPO deals, which were more in number in the first quarter compared to second quarter of this financial year. But investments will continue. I mean we've already broken even in the business, we're already making money. If you see in our presentation on the capital employed, we're almost at 15% ROE in the business anyway. Another reason for a little bit of less revenue in the second quarter was broking volumes were lower Y-o-Y and Q-on-Q. That's an industry phenomenon, not a JM phenomenon. Most brokers you would have seen, and broking is, of course, a subsegment of Wealth Management. Chirag, you wanted to talk on strategy?

So we've been saying this across calls that this is a core business for us. This is very critical to how we see -- this is one of the growth businesses for us. And we will continue to invest. There's no reason for us to believe that there isn't space for us to keep growing and growing at a faster clip on a year-on-year basis. And to that extent, we will keep investing. So yes, on your question on the AUM also, yes, you should expect that it will keep growing. And whenever we get good talent, we're happy to look at that as well. And whenever we get the opportunity in the markets we feel are right, we'll use that to even grow at a faster clip.

All right. Chirag, so just on this recurring AUM a bit like if you can just highlight us like what are the plans in terms of launching, say, new AIF or the private equity-based funds? Or how does this recurring AUM grow? Like we have to do certain things to make it grow. So what -- if you can just highlight that strategy?

Yes, sure. I can tell you things that we have already filed because that's out there in the public domain. To start with, there is a pre-IPO fund. That's again part of the -- given the fact that we are the #1 ECM house given the number of deals that we have done over the years, we believe that our right to win in the pre-IPO fund management segment was the highest. And therefore, we have already filed this. We have a team on board. We are awaiting regulatory compliance. We are awaiting regulatory approvals. And as soon as we have those approvals, you will see that we will drive a very successful pre-IPO launch. So that itself will add to the AUM. There will be a fee fund that gets launched after the pre-IPO fund. There is a real estate fund that we've already got permission for, which is a credit fund. There are many others that are in the pipeline, but we'll talk about it when we are closer to -- when we're done with the filing bit so that they're in the public domain. But rest assured, that Asset Management and third-party funds here are an integral part of how we see the growth. We've been building up in terms of teams and processes to make sure that when we hit the ground, our distribution and our fund management team work in tandem so that we're able to raise the right amount of funds. There is a lot of -- and you will see that first up over the next couple of months with the success of the pre-IPO fund.

All right. And last on this wealth is that our relationship managers has gone up from, say, 101 to 204. So their contribution to the AUM would also still be pending, right, because most of them have just joined over the last 12 months and they are yet to be sort of...

Absolutely. We're taking their cost, but their contribution still has to come. So you can do the math on that.

All right. All right. My second question is on this private credit -- private markets. So Vishal, in this, we've seen a good rundown of the book already. So just wondered if you can summarize last 6, 9 months, like have this -- the rundown has been pretty smooth, but whatever remains do you see anything which is toxic or anything which can give a negative surprise? Or you -- it's as orderly as we wanted it to be?

Digant, I think this question now has been asked for 6 quarters in a row. And as I told you, I mean this entire book is a post-COVID book. All of the so-called toxic assets where we are having good recoveries from now are from the pre-COVID book. Happy to report that another very significant sticky asset in our ARC has got a bit of binding bid with a guarantee -- bank guarantee, and that's gone through NCLT process, and that's been closed in October. So I think we are on track for good recoveries across both the real estate assets that we have and the ARC assets that we have. So that will significantly boost a lot of that asset conversion into cash flow. And in many of those, there is still significant provisions, which have made. So I don't see any sticky asset. In fact, if you see the noncore loan book, which is run down on Page 17 in our presentation, which we've transparently shared, we've also talked about how the real estate loan book has run down from a pretty significant number. I mean this number used to be INR 10,000 crores 2 years ago -- 2 years and 2 months ago, and it's less than INR 2,000 crores today. So it's -- I don't anticipate any sort of surprises at all. And also the syndication business is picking up very well. Hopefully, we are crossing a few good transactions in the second half because the activity really started 9 months ago in this business, and we're seeing very good traction.

Right. Okay. That's great to know, Vishal. Sir, second question is that in this private markets division, our net worth is, say, INR 6,500 crores and the debt is INR 7,000 crores. So we have around INR 13,000 crore, INR 14,000 crores in that division. Now when we build a P&L for this particular division, is there a metric where we can say, okay, this entire INR 13,000 crores, INR 14,000 crores will yield x amount, and it can probably result in an ROA on that INR 13,000 crores or so much like or when do we reach that stage, any thoughts here would be helpful.

So let me -- that's a great question. And it's a question we discuss in all our management committees as well as the Board. So I think the focus, Digant, right now is on recoveries as well as syndication today, and we don't want to distract ourselves from recoveries. We've seen a good recovery in Q1. As I said, we closed a good asset in NCLT, which will be a 6-month, 9-month process to finally close in our ARC in the month of October. So I think there is still a pretty significant balance number, almost INR 1,000 crores to INR 1,500 crores of recovery between real estate and distressed assets to take place. And so the idea is that, let's focus that's next 6 months, 9 months, maybe even right up to March '27, make these recoveries happen. This will bolster and make our balance sheet even stronger. And the idea is then that how on a -- as I've said before, on a -- between a 1 to 1.5 debt equity on this private market business. How do we make sure through co-investments, through syndication to having the right private equity sort of investing as well as credit space investing, we at least are able to generate a mid-teens ROE. So we are working on that plan. Lots of things happening. So right now, as I said, the focus is on recovery, the focus is on ramping up wealth distribution, while ramping up some of our asset management products. That distribution will also assist the entire private markets business in terms of syndicating more. So yes, there is a strategy behind it. I think you will see it all coming together in the time frame of 18 months. Meanwhile, management will continue strengthening the balance sheet even more from where it is today.

[Operator Instructions] The next question is from the line of Mr. Jaiprakash from Korman Capital.

Am I audible?

Yes, yes.

So a couple of questions I have. So in the last year FY '25, I noted that the Wealth Management business had a profit of INR 133 crores, but in the presentation, you excluded the digital investments you are making. And if you exclude that, the profits would happen INR 200 crores. So can you give us what is the current investment? How much Wealth Management profits are currently because of this digital app investment? And how will it look in a couple of years? That's the first question.

Sure. So let me highlight that the current level of Wealth Management losses profits include the losses of the investment in the digital businesses. And what we have decided to do is because digital is a core part of our strategy, whether it is BlinkX or JM Pro. We've decided not to disclose numbers ex the losses of that division, but we can share those numbers what the profits would have been if they were not including the losses of digital. Nishit, do you have those numbers handy, you can give it to them.

So basically, for the first half, the profit would have been INR 91-odd crores compared to INR 73 crores reported numbers. The gap would be the digital investments.

Understood. And how long this will continue? If you can just give color on that?

Yes. So the important thing is that the losses have come down from where they were for the last 2, 3 years. There's approximately between INR 200 crores to INR 250 crores of investments that have been made so far. There was, as you know, a change in regulations in terms of options trading, which has obviously reduced volumes considerably in the last 4 quarters due to which we slowed down a bit on the marketing spend and this strategy is being remodeled a bit. So I think we will be careful. We are not -- our plan is to reduce the burn as much as we can over the next -- again, 6 months to 12 months and try and bring it to a breakeven by FY '27. Chirag, anything you want to add on this?

The point note is important that, yes, ex digital profits for Wealth Management are higher. But we are not reporting it that way.

Okay. Not a problem. So just a question. Next question is this pipeline you have, like, IPO pipeline, right, generally how much time does it take to really exhaust this pipeline? Is it 1 year, 6 months, 9 months? And what is generally the commission, which we can earn on that? Just a broad guide that will be helpful.

Yes. Sonia will answer that question. .

So see, usually, what happens is we get the regulatory approval, say, in 3 or 4 months and thereafter then there is marketing. And then depending upon how the market is, we usually try to launch. So from start to finish, markets allowing the IPOs clear out in a cycle of anywhere around 6 to 12 months. So on an average around 9 months is a good time from start to finish. And most of these deals are deals which -- where there are 3 or 4 book running lead managers. And the commission usually in this is anywhere in the region of 2% to 3% for the BRLMs.

And the 2%, 3% is basically split between these managers, right?

Sorry, I couldn't hear your question.

So this 2%, 3% commission is basically split between the bankers, right, the book running managers?

That's correct.

Yes. So if there are 3 bankers in the deal or 4 bankers in the deal, it's usually split equally, in some cases, 2 or 3 banks make more and 2, 3 banks make less. It's very sort of deal defined, but you can assume that on average, we should be making 1% on our sort of pipeline between 80 bps to 1%.

The next question is from the line of Mr. Himanshu Upadhyay from Statford Investments.

Am I audible?

Yes, yes. Go ahead.

So my question was to Manish. I just saw the presentation last night, okay? On the home loans business, okay? And what I see is 20% or nearly 1/5 of our book is new to credit people, okay? Generally, what is the nature of new to credit to the people because -- and their behavior in the subsequent 3 years. Is it more towards greater than 750 CIBIL score people or 650, 750 or below 600. So any thoughts on that will be helpful. .

Yes, Himanshu. So basically, nowadays, a lot of app-based loans are anyway being taken by a lot of customers in Tier 2, Tier 3 cities. So new to credit is around 30% for us. And after a year, generally, they end up having a CIBIL score of anywhere between 650 to 700, if they are good. Generally I have seen new to credit customers, they bounce, but they pay. Because of the financial indiscipline, they keep on bouncing. But my 6 MOB performance is like 99.5% collection efficiency.

And one more thing, Manish, on the portfolio quality, the EMI bounce remains around 20%. So out of 28,000 loans, it seems 5,000 are EMI bounce ratio, they were 5,000. So how big is our collections team and out of 1,700 people, will it be predominantly or a very large proportion will be collection?

No. So one is -- I was talking NHB, the industry level bounce itself is 22%, okay? Our bounce is also around 20%. That number is around 5,000. And you are right. Out of 1,200 -- total, we have 1,700 people. In collection department, we have 160 people. So basically, out of 135 branches, every branch has 1 collection person and then there is a structure above the branch, which is area and state level collection person.

Okay. And again, on the product summary. So currently, we are 2:1 home loan to LAP ratio. So going ahead also, do you think the ratios will remain 2:1, home loan versus LAP? Or do you think the nature of book might change over a period of time as we progress? Or how has it behaved in last year in terms of ratio?

So ratio will be like this only because regulatory, I have to manage more than 60% HL, home loans, to have that license. That is our principal business criteria as prescribed by NHB. And that is why we are at like 2/3, 1/3. Minimum 65% is HL and balance is LAP. That will not change.

Okay. And in terms of -- so the next slide, when you see it gives the portfolio cuts, okay, in terms of customer type, sourcing type, LTV and CIBIL. If I say that out of these 4 portfolio cuts, which is the most important in terms of understanding the credit nature of the people, loan to value plays a much important role in the ticket size where we are working or it is CIBIL score, or salaried, self-employed. So some thoughts will be helpful here, the important criteria.

So honestly, it is not one, all the 4 are important and that's why we publish. So I tell you all the 4 quickly. Salaried versus self-employed, generally, even in salaried, we get cash salaried, which are not the bank credit salary. So basically, we are in the assessment-based underwriting, affordable housing finance company like others. So that is, of course, important if your view on the economy itself is very important for this customer to behave. That is first. Second is on LTV. Generally, my LTV is in the range of 55%, 60%. Some of the Tier 1 cities where there is a builder purchase, LTV can set up to 85% also. But our experience of last 8 years, loss given default is 12%. So basically, LTV is an important parameter, but we end up recovering almost 90% of the cost given there is a loss. CIBIL is again one more different way of understanding business. Anywhere above -- anybody about 750 CIBIL is obviously not our customers because he will get easily a credit line or a home loan anywhere in the market. So new to credit and 600 to 750 is a CIBIL where we play a big time.

Okay. And I have a query on Asset Management also. The peak of our SIP book was around INR 122 crores, INR 123 crores around Jan-Feb-March. And which has come down to INR 115 crores, okay? Any specific reason that we have seen some fall in SIPs per month? And secondly, even if we look at the -- our AUM nonliquid at Q1 end was around INR 12,000 crores. And even at this point of time or the Q2 end, we are around INR 12,100 crores. So what is the specific reason? And how are we working on those?

So we have done a few product launches in June, which started accruing slowly. We being a slightly smaller asset management company, we have faced some headwinds, if I may say so. We had a large percentage of our assets in digital. So a large percentage of the fall of the SIPs is from the DIY clients, who come from the digital space. So that's where we have lost some ground because of the market volatility, et cetera. But going forward, I think some of the IFA category clients are coming back, and I think that gives rise to more sticky SIPs and AUM. So I think we'll be able to get over this in the next quarter, going forward.

Okay. And there have been some redemption also on digital side because the AUM remains flattish, despite...

Yes, that's what I'm saying that the digital clients have shown some volatility and friskiness as they normally show. And with the markets being turbulent, that behavior has been exhibited. So while we recognize and we continue to access that channel, but the effort is to increase more SIPs, et cetera, from the IFA channel.

[Operator Instructions] The next question is from the line of Mr. Rupesh from Long Equity Partners.

My question, sir, is on private markets. In the annexure there is 1 slide, Slide #21. There, it shows segment PAT of INR 77 crores, right? So what I wanted to -- maybe if you can help me what in this is kind of like a one-off provision write-back or something? And what is like the core earning power of this business?

INR 8 crores of provision write-back. The rest is all normal operations.

So this business can do INR 70 crore profit per quarter?

Yes, yes. It will do more.

So sir, I mean, I'm a little bit surprised. So you have a roughly INR 4,000 crores of book, and you are saying the business can do 2% ROI per quarter? 8% ROA per year. Is that a fair understanding?