JM Financial Limited (523405) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the earnings conference call for JM Financial Limited. [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 this expectation 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, 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 our financial results for the quarter ended June 2026. You would have seen our results presentation and press release on the stock exchanges and the website. I hope you've had a chance to go through the same. On the call, we also have Sonia, MD and CEO of Investment Banking; Anuj, Head of our Private Wealth; Manish, MD and CEO of our Home Loans business; and Nishit, our Group CFO. I will give the key updates and hand over to Nishit, who will take you all through the numbers. Quarter 1 results demonstrate the strength of our diversified business model, and pleased to report that the Private Markets segment provided very strong cushion to the earnings amidst volatility in Capital Markets. We have always maintained that Private Markets business can be a strong countercyclical force to the volatility in Capital Markets, and our Q1 results validate the same. Net revenue for us increased 13% Y-o-Y to INR 883 crores. Pre-provision operating profit increased by 21% year-on-year to INR 469 crores, and PAT ex-provisions before minorities increased by 24% Y-o-Y to INR 379 crores. In Private Markets, we witnessed one of the best quarters for our ARC business with very strong resolutions in distressed credit assets during the quarter, where we collected over INR 2,000 crores and the group share of that cash flow was over INR 1,200 crores. Corporate Advisory and Capital Markets had a slow quarter, primarily because of lack of IPO issuance and primary market activity. However, our pipeline of transactions is extremely strong with almost INR 220,000 crores of pipeline on the IPO front. The INR 220,000 crore number includes filings of NSE as well as Jio. Even if you were to exclude those 2 large IPOs, we've seen a decent growth, and the pipeline is at INR 150,000 crores. We are witnessing early signs of recovery in Capital Markets, which will help us execute, hopefully, majority of our pipeline in the rest of the year. The month of July, our revenues on the transaction side in Corporate Advisory and Capital Markets for the month of July already exceed what we have done in June, which is a very, very positive sign. And we've also seen the reversal of FDI flows to becoming net buyers from being net sellers. And if that trend were to continue or even remain stable, we are hopeful that we should be able to pull through with a significant amount of our pipeline. In Wealth Management, performance was a little subdued because of weak transactional business, which is related to the markets and also the primary market issuance, but the recurring AUM and loans have shown good traction. In Asset Management, we are increasing bouquet of mutual fund products and recently launched JM Multi Asset Allocation Fund. On the AIF front, we launched our JM Pre-IPO fund as well as our JM Credit Fund. We're expecting very good numbers in most of these funds. And we continue to invest in the Asset Management business. We have outlined INR 150 crore investment further into Asset Management over the next 2 years. On our Affordable Housing business, it reported a strong Y-o-Y growth in disbursements of 87% and a 28% Y-o-Y growth in AUM. That business is now on a solid footing. And again, we focus on listing that separately in a span of 2 to 3 years. With this brief update, I'm handing over the call to Nishit, to take you through the financials in detail.

Thank you, Vishal. On the financial numbers for Q1 FY '27, net revenue increased by 13% year-on-year to INR 883 crores, and pre-provision operating profit increased by 21%. Profit after tax, ex-provision before minority interest, increased by 24% to INR 379 crores, and profit after tax, ex-provision and after minorities, stood flat at INR 302 crores for the quarter. Reported profit after tax after minority was INR 292 crores, resulting in an annualized ROE at approximately 11%. The consolidated net worth, excluding minority interest, stood at INR 10,900 crores, translating to a book value of approximately INR 114 per share. The leverage is 1x. On to the business segments. [Technical Difficulty]

Ladies and gentlemen, we have the management's line disconnected. Please stay connected while we reconnect the management. Thank you. Ladies and gentlemen, we have the management line reconnected. Sir, you may please proceed.

I'll just repeat for the benefit of everyone. For quarter 1 FY '27, net revenue increased by 13% Y-o-Y to INR 883 crores, and pre-provision operating profit increased by 21%. Profit after tax, ex-provision before minority interest, increased by 24% to INR 379 crores, and profit after tax, ex-provision after minority, stood flat at INR 302 crores. Reported PAT for the quarter stood at INR 292 crores, resulting in an annualized ROE of approximately 11%. The consolidated net worth stood at INR 10,900 crores, translating to a book value of approximately INR 114 per share. The leverage is 1x. On to the business segments, Corporate Advisory and Capital Markets. This includes the investment banking and the institutional equities business. We closed 9 Capital Markets transactions aggregating to approximately INR 22,000 crores in Q1 FY '27. In addition, we have filed documents for 60 IPOs aggregating to an issue size of approximately INR 150,000 crores and the pipeline of transactions is increasing. That pipeline does not include IPO transactions of Jio Platforms Limited and National Stock Exchange. For Q1 FY '27, net revenue for the segment stood at INR 115 crores as against INR 182 crores and PAT stood at INR 32 crores. The performance for the quarter was impacted by lack of primary issuances. Wealth and Asset Management. On Wealth Management, our sales and RM strength is over 1,000 professionals with 71 branches and approximately 870 franchisees. Wealth loan book grew by 43% year-on-year to INR 2,417 crores and recurring AUM of our wealth business grew to approximately INR 33,400 crores. The proportion of recurring to total AUM has now increased to 30%. On a Y-o-Y basis, net revenue stood at INR 185 crores as against INR 211 crores and PAT stood at INR 19 crores. The performance for the quarter was impacted by slow transaction business. In the mutual fund space, the closing AUM from non-liquid funds showed signs of recovery and stood at approximately INR 10,900 crores, up 16% on a quarter-on-quarter basis. The employee strength in the Asset Management business has increased by 10% year-on-year to 222 employees. For our Asset Management business, management fees from mutual funds for quarter 1 increased by 62% to INR 13 crores. Loss after minority interest stood flat at INR 5 crores. Private Markets. This business comprises of private credit, that is, corporate, bespoke, real estate, and distressed credit, and investments which include private equity funds, REITs, AIFs, et cetera. Private Markets is a very unique platform with a focus on providing differentiated solutions to our clients. Private Markets witnessed significant recoveries in distressed credit assets. Gross resolutions were over INR 2,000 crores, of which group share of cash flows was over INR 1,200 crores. Net revenue for quarter 1 FY '27 doubled to INR 462 crores and pre-provision operating profit grew almost 2.3x to INR 375 crores. The segment profit after minority interest stood at INR 228 crores for Q1 FY '27. Affordable Home Loans. This business includes our home loans business focused on the affordable segment. We have a branch network of 151 branches and a customer base of close to 36,000. AUM increased by 28% year-on-year to INR 3,715 crores. For Q1 FY '27, revenue increased by 22% Y-o-Y to INR 123 crores and profit after tax and minority interest grew by 16% year-on-year to INR 17 crores. With this brief update, I would like to hand over the call to the moderator and open the floor for questions.

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

My question is on the cyclicality that we see. This quarter, IPO transactions were weak. So the Corporate Advisory, Capital Markets division not doing well is kind of expected. But we see a very similar kind of weakness flowing in the wealth business and even the private credit, where the loan book -- the loan growth continues to -- the buildup has still not started. So Vishal, if you can just say that how does this cyclicality break? And like what time lines should we think about in terms of wealth scaling up on its own without a lot of transactions in the Corporate Advisory business? And when does private credit also pick up? Like -- I see recoveries are there, but when does that organic growth start?

Yes. So let me address the private credit question first. If you see this Page 13 on our investor presentation, I think the bespoke book that we have, which includes loan against shares as well as the work we do on our corporate is on a 5-quarter high. In fact, if you see, it went down to almost INR 2,700 crores and right now is at INR 3,000 crores. So what we had guided at the end of quarter 4 was this book should see at least a 15% to 20% growth Y-o-Y. So I think we've almost done half of that growth in the first quarter. So we are hoping that that trajectory will continue. So I think the growth has already started. And this is -- without a lot of syndication. Now there's more syndication to happen, and that itself will grow the book 15%, 20% quite comfortably till the end of the year. You are seeing the overall book being flattish because it's just the real estate book, which is degrowing, as well as the noncore book, which obviously will keep degrowing. So the idea is just to focus on bespoke, where the growth is coming. And at some point in time, when we get comfortable on the risk-adjusted returns for real estate, as I mentioned earlier as well on my calls, we will start lending in real estate. We are still not sure whether the time is right. So the growth in Private Markets on the credit side has already started. And even on the ARC front, we are seeing some very interesting transactions. We were able to do our largest transaction even last quarter. And it's a very interesting time where there are -- we are seeing some retail assets where there are decent returns, which we are able to close and do some transactions. And there will be some syndication that may happen on the ARC side as well. And ARC, as you know, Digant, is the recovery resolution is a lumpy business. Obviously, we've seen a phenomenal quarter in June quarter. But I think even the next few quarters, this year should be pretty decent from an ARC perspective. So all in all, I think Private Markets is in good shape. And we should be able to meet our guidance in the Private Markets side. On the wealth side, as I've maintained that the investments have all been made. Teams are in place. This year is a focus in terms of productivity. There is a good sort of feedback on the client side. We are adding clients. Our recurring AUM is growing. But of course, we were a transactional-heavy firm. And last year as well as last to last year, there were a lot of transactions done on the private side. And that transaction activity on the private side, which, as a market participant, you will know, has not been as encouraging in the last 6 months. So it's really a drop on that front. It doesn't take away anything from the business that we are building. Even in terms of the wealth broking accounts that we've been able to open, the number of loans we've been able to grow on the margin side and the LAS side for most of these customers have been very, very encouraging. So I think it's just about continuing to focus on the execution, and fairly confident at some point in time we'll see very, very encouraging sort of stats and numbers on the wealth business, as said. I mean, you asked me for a time line. I mean, I've always maintained that it's a 2- to 3-year build-out. The recruitment phase is sort of completed last 18 months to 2 years. And hopefully, this year and next year is the time where we should see good sort of returns from that business. Anything you want to add to the same, Anuj, please go ahead or it's all covered?

Yes. No, I think, as Vishal mentioned, the recurring AUM is building up very well. We are focusing on increasing the share of our recurring business in the overall AUM and revenues. And as Vishal mentioned, the build-out has happened. We've penetrated into 21 cities into India, built out offshore as well. So really, the focus is on productivity and enhancing that, especially for the new relationship managers we've hired over the last 12 to 18 months.

Okay. Second question is that this quarter was very good for ARC recoveries. And as you know, Vishal, as you said, it's a lumpy business. So maybe this quarter saw very good recoveries. If you can just give some color on like what happened and what more to expect? That will be useful because this is a pretty heavy quarter on that division.

Yes. So Digant, most of the resolutions, which we have done in the ARC last quarter, have all been from the new book. When I say new book is it's all the new underwriting that has happened post-COVID. In fact, largely in 2023, '24, and '25. And the returns have been fairly decent. I think our overall IRRs have been 18% plus in all of those transactions. We have completely moved away, as you know, from taking any sort of turnaround risk ourselves in the ARC. So these are all well-structured transactions where we share a significant portion of the upside with the sort of originator of the deal. So I think it's all in all looking good. As I said, we've deployed a bit also last quarter at the ARC level, and we expect returns to be similar in that space. So ARC wholesale returns are around 18% to 22%. And at the retail asset levels, the returns are around 15% to 18%. So all in all, on average, we're able to clock anywhere between 16% to 18%. So that should continue. We also have 2 or 3 large resolutions which are still pending from the pre-COVID book. And there has been a lot of encouraging sort of movement on all of those in the last 1 year as well. And I talked a bit about it in the last call that I think this year, we'll see very good cash flow and recovery from the ARC, and it's already visible in terms of Q1. And I think there will be some more, fingers crossed, over the next 9 months as well. And this doesn't include anything that -- any of the write-backs that we expect on the provisions we've made on our real estate book. So there is not much of that in Q1. But there's progress being made on that front as well, which, again, hopefully, we should be able to report in the next 9 months.

Great. So Vishal, in this ARC part, like you said that retail is 15%, 16%, wholesale is maybe around 22%. So what portion of the INR 12,000 crores of capital employed in this division, debt plus equity, what portion would earn this kind of yield? Like would it be the...

INR 12,000 crores is the value of SR. It's not our capital deployed. So if you -- again, if you focus on just Page 13.

So you're talking about the ROEs, right? What you were saying was the ROEs, right?

I'm saying the IRR to us. So I'll explain to you -- so when you see Page 13, you see our distressed credit portfolio was INR 3,665 crores at the end of quarter 4 '26, which is now INR 3,114 crores. This includes almost INR 1,200 crores of recovery and INR 600 crores of new transactions done. And the movement over here is roughly INR 500 crores, INR 600 crores. So that is what has been -- that is our capital deployed. The SRs are where we have syndication and where we have partners also holding the SRs, whether in the form of banks or hedge funds internationally or other large HNIs who are partnering with us. So that return belongs to them. So our investment in the INR 12,000 crores is INR 3,114 crores. So when I talk about returns for us, now in this INR 3,114 crores, some book is the old book and some book is the new book. So a lot of the new book already has got paid. The old book, we are waiting on certain resolutions to happen. Assume the book is roughly 50-50. And on the new book, which is roughly almost half of the book, INR 1,600 crores, we should be expecting close to 16% to 18% average sort of IRR. So that's the way to model it out.

Perfect. And once these old ARC transactions, they get resolved, money comes, we deploy it in a similar way, so that itself increases our yield in terms of the year?

Yes. So I'm happy to report that with this kind of cash that we've generated and the expected cash flows over the next 6 months, our ARC will be debt-free. I mean, it's been like a 7-year cycle. 7 years back, we were at peak debt to equity of almost 3x in the ARC, and we will be debt-free. And if we generate all of this cash, then not only are we debt-free, but just the cash should be able to generate going forward safely 16% to 18% IRR. So I think we are in a very, very good position. A lot of hard work done by the ARC team, and we're very happy with the outcome.

Okay. All right, Vishal. And lastly, if I can just squeeze in. On this syndication, I think there is a good fee income also [Technical Difficulty]

[Operator Instructions]

Can you hear me now?

Go ahead.

Okay. Maybe I'll just try to ask if I'm audible that there was a good amount of fee income from syndication also in this quarter. So anything you would just like to highlight here? That's the last from my side.

Yes, yes. So on the credit side, we had roughly INR 20 crores of syndication income. So I think the numbers will only get better over a longer period of time.

The next question is from the line of Nitin Jain from Fair Value Equity Advisory.

So I would just like to double-click on the wealth business. So although the recurring AUM as a part of the overall AUM has increased over the year, the profitability seems to have dropped sharply in this business. Can you provide some color what caused this drop?

Sure. I think one of the reasons was highlighted earlier that the fact that the transactional revenue has gone down, and that's across The Street, the transactional volumes have come down. Secondly, also, we've hired a lot of RMs over the last 18 months, as was highlighted earlier. Now all the RMs have a certain gestation cycle of getting profitable in the next 2- to 3-year time frame. So we are going through that period where the focus is outrightly on improving productivity and making sure that they are productive and hence, profitable in the coming year as well. So that's the reason because we hired massively in the last 18 months, the profitability impact will come in the coming months.

Right. So just a follow-up to that. You've indicated that the major recruitment phase seems to be behind us. So would it be safe to assume that the employee expenses as a percentage of the revenue of this business should decline going forward, right?

Yes. They would have peaked now. And we will not stop hiring, but we will hire judiciously and selectively where there are gaps, but most of the hiring is behind us. Also from a recruitment perspective, you have to understand that wealth is an extremely important channel for us, even from an investment banking perspective, purely from a distribution of deals, both on the private as well as the capital market side. Secondly, it's a very important channel for us from marketing our AIF and marketing some of our Asset Management products. So there needs to be a certain critical size that we need to have. So you need to reach that critical size, make that productive. And then after a year to 18 months, again, start reinvesting. So that is the journey that we have. We have a 5-year plan, which was cleared by the Board last year and we are following that as closely as we can.

Okay. That's helpful. My last question is, how are we implementing AI across the firm? So just for example, if you look at the IB division, the number of companies under research coverage, they have increased from around 300 to 360. The employee count also has increased proportionately. So are we not seeing any efficiencies from implementation of AI?

Well, we're seeing very early efficiencies. But unfortunately, for us, an AI-driven robot on the sell side is not yet acceptable to buy-side analysts. The day that starts happening, we'll see a tremendous amount of AI efficiency. So yes, in terms of analysis, scraping annual reports, giving you data, doing comparable company analysis, all of that, yes, is being implemented. Also, we have to be mindful on the regulatory side in terms of what we can do and what we can't do, what kind of disclosures we need to give while we are using AI for a lot of the analysis. So a lot of work happening. Can we say that we are on completely top of maximizing the AI potential right now? We are not. And when will we get there? Frankly, we don't even know. We are still learning ourselves. A lot of the AI you talk about, all developments that have happened only in the last 6 months. As you aggressively start using AI, the token cost can go up like crazy. So let's wait and watch. We are very open to implementing a lot of AI. And we know that at some point in time, we necessarily will have to. But I think this is a better question suited for maybe a year to 18 months down the line in terms of what have you been able to achieve and implement in terms of AI. I think on the analysis side, on the risk side, you can do a lot, but front office is still limited here.

The next question is from the line of Kanishk Gupta from SS Family Office.

I would like to ask on the Asset Management side of the business, the AUM has largely been flat and -- but the partners have gone up and SIP book was down 30%. So what's being done on that side of the business to get it back on track and keep it growing?

This is Nishit here. So if you look at it on a quarter-on-quarter basis, there has been an increase in the AUM by almost 16% as far as the non-liquid schemes are concerned. Your observation is valid in terms of the SIP book coming down. But having said that, we've engaged with a lot of our channel partners. The performance of the schemes, et cetera, has also seen improvement, especially some of the schemes like small cap funds, et cetera. So hopefully, that kind of fall will be arrested, especially when we are looking at data in the month of July, et cetera.

I think one thing that we had a concentration of more small and mid-cap schemes. Flexi-cap also had a concentration, which was largely in small and mid-cap. So when the small and mid-cap space corrected earlier this year and late last year, that was a time when there was some loss of AUM. And what Nishit is saying is that a large part of that AUM loss has been corrected, and we did not stop engaging with distributors. In fact, we went on the front foot. We engaged more with distributors. We added even more channels of marketing at that point in time. So when the revival, which has already happened in the last 3 months in terms of performance, happens, then we can look forward and add more AUM and add more clients on the mutual fund side. So hopefully, we should be back on track both on the SIP book as well as AUM growth very quickly over the next couple of quarters.

Some kind of quantitative targets that you can provide, so that will help investors track the progress better?