Motilal Oswal Financial Services Ltd. share price target

Motilal Oswal (MOSL) reported a mixed Q1FY21 performance wherein broking revenue was healthy but asset & wealth management saw pressure. The topline stayed flat at | 633 crore (excluding MTM impact) while earnings increased 29% YoY to | 167 crore, led by MTM gains on investments....

For the AMC business, we are concerned about fund raising, and regulatory clampdown. We remain wary of increased competition in broking. Lastly, despite much of the negatives in MOHL being factored in, the business needs to display scalability. We maintain a SELL with a TP of 711 i.e. 10/20x Broking/AMC business Dec-21E EPS. Key Risks: any sharp turnaround in fund raising and broking market activity, stronger scale up and lower stress in legacy book at MOHL. Treasury income (Rs 545mn, +82.3% beat), boosted MOFS (ex-MOHL) reported 3QFY20 PAT to Rs 1.49bn (+11.0/-3.1% YoY/QoQ). However 9MFY20 core cap markets/AMC performance remains weak as PBT declined 9.9/9.0% YoY. We tweak our estimates but retain SELL (unchanged TP of Rs 711), as core profit growth remains elusive.

The Indian broking industry has a large of number of players, many being proprietary in nature while large brokers still offer trading and investment services to customers. In terms of market share, as per active clients, top 10 brokers contribute ~63% in industry size. Among the same, top two brokers constitute ~15% of market share in active clients, followed by ~46% market share contributed by the next eight players. Top two players constitute 15% in ADTO of the market. Indian brokers have progressed from being pure brokers (bank led brokers & non-bank led full service brokers) to distributors...

With significant deterioration in macros, we anticipate slowdown in all business verticals. For the AMC business, we are concerned about fund raising, and regulatory clampdown. We remain wary of increased competition in broking. Lastly, despite much of the negatives in MOHL being factored in, the business needs to display scalability. We maintain a NEUTRAL with a TP of 645 i.e. 10/19x Broking/AMC business Sep-21EPS. Key Risks: any sharp turnaround in fund raising and broking market activity, stronger scale up and lower stress in legacy book at MOHL. Driven by higher than expected treasury income (Rs 270mn, -20.4% QoQ and capital markets PBT (Rs 653mn, -6.8/+9.6% YoY/QoQ), MOFS (ex-MOHL) reported a PBT of Rs 1.44bn (+7.1% vs. est.). RPAT (ex-MOHL) of Rs 1.54bn was 3.85x/37.2% YoY/QoQ mainly due to tax reversal. We marginally tweak our estimates and retain NEUTRAL with TP of Rs 645.

With significant deterioration in macros, we anticipate a substantial slowdown in all the business verticals over at least the next 2 quarters. For the AMC business, we are concerned about fund raising, fee renegotiations and regulatory clampdown impacting growth, while for broking we are wary of increased competition. Lastly, despite much of the negatives in MOHL being factored in, the business needs to display scalability and improvement in asset quality. Challenging macros compel us to downgrade our FY20E/21E earnings (ex-MOHL) by 16.3/16.7%; we also cut our multiples for the AMC business to 17x (-15%) and thus maintain a NEUTRAL with a TP of 545 (+9.3%). Key Risks: any sharp turnaround in fund raising and broking market activity, stronger scale up and lower stress in legacy book at MOHL. MOFS (ex-MOHL) reported an in-line APAT of Rs 1.12bn (-3.2% vs. est). APAT for AMC/capital markets segment were at Rs 409/356mn (-8.5/45.6% YoY). Difficult macros drive our earning cuts; retain NEUTRAL with TP of Rs 545.

On the AMC side we remain concerned about fund raising, fee renegotiations and regulatory clampdown, while on broking we are wary of increased competition. Lastly, despite much of the negatives in MOHL being factored in, the business needs to display scalability. Challenging macros compels us to retain SELL. Key Risks: Positive macro environment driving up fund raising and broking environment and stronger scale up in MOHL. Led by treasury gains and IB deal win, MOFS (ex-MOHL) reported APAT of Rs 1.38bn (+21.7% vs. est). Performance at the relatively structural businesses (broking + AMC) was in-line as difficult fund raising and highly competitive broking environment persist. Despite MOFS being a high quality franchise, tough macros compel our SELL rating with TP of Rs 650 (20x/10x AMC/Capital Markets FY21E PAT).

We thus downgrade the stock to a SELL and retain our SoTP of Rs 613 (-13.6%). We remain watchful and await 4QFY19 earnings for fresh information. Contrary to our neutral stance, MOFS has shot up by ~11.1% in the last few weeks. In this note we outline the optimism built in the CMP as we have failed to discover strong credible reasons for this sharp up-move.

We initiate coverage with a NEUTRAL rating and SoTP of Rs 611 (+7.6%). Motilal Oswal Financial Services (MOFS) runs Indias largest PMS (AUM Rs 150bn), is an emerging MF (rank 16) and is 8th among retail brokers. The group has investments of Rs 19.8bn, of which ~82% is invested in own funds. MOFS has a differentiated client franchise and will gain from financialisation of savings.

Motilal Oswal Financial Services Ltd Q2FY19 results Comment Operating Income rose by 5.39% to Rs. 682.07 Cr in Q2FY19 when compared to the previous quarter. On the other hand, it decreased by 15.33% when compared with Q2FY18.

Operating Income decreased by 14.04% to Rs. 646.47 Cr in Q1FY19 when compared to the previous quarter. Motilal Oswal Financial Services Ltd Q1FY19 results Comment