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Motilal Oswal Financial Services reports Q2FY18 Consolidated Revenues of Rs 713 crores, +35% YoY; and PAT of Rs 144 crores, +42% YoY

Mumbai 04-Nov-2017


INVESTOR UPDATE

Motilal Oswal Financial Services reports Q2FY18 Consolidated Revenues of Rs 713 crores, +35% YoY; and PAT of Rs 144 crores, +42% YoY

Mumbai, November 04, 2017: Motilal Oswal Financial Services Ltd. announced its results for the quarter ended September 30, 2017 post approval by the Board of Directors at a meeting held in Mumbai on November 04, 2017.

Performance Highlights

Rs CroresQ2FY18Q2FY17YoY ChgQ1FY18QoQ Chg
Revenues713529?35%576?24%
PBT231149?56%139?66%
PAT144102?42%102?41%
EPS (FV-1)1077

Performance for the quarter ended September 30, 2017

•Consolidated revenues were Rs 713 crores in Q2FY18, +35% YoY. 
•Strong growth in Q2FY18 across businesses. Asset & Wealth Management business top-line was up 62% YoY, Housing finance was +22% YoY, and Capital Market businesses +20% YoY. The revenue mix is seeing healthy diversification, as 61% of the revenue came from linear sources like Asset & Wealth Management and Housing Finance. While the share of Capital Markets reduced in the mix (34% in Q2FY18), it continues to grow strongly in absolute terms. Both, Asset Management and Housing finance businesses, saw strong growth in assets, and improved in profitability despite significant investments in manpower, distribution network and marketing. 
•PBT was up by 56% YoY at Rs 231 crores. Consolidated PAT was Rs 144 crores in Q2FY18, +42% YoY. This incremental PAT growth was contributed by Asset & Wealth management business (+52% YoY) and Capital Market business (+38% YoY). 
•Significant investments have been made into manpower in Broking (+44% YoY) and Housing Finance (+68% YoY). Ad expenses are +51% YoY in Asset Management business. These up-fronted investments will translate into operating leverage in the coming year. Some of this was visible, with PAT Margin of 20% in Q2FY18. However, the full effect of operating leverage is yet to unfold in our businesses.
•As of September 2017, Net worth was Rs 2,001 crores, Gross borrowing was Rs 5,470 crores and Net borrowing was Rs 5,260 crores (including Aspire). Excluding Aspire, Gross and Net borrowings were Rs 1,498 crores and Rs 1,213 crores respectively. Balance sheet has strong liquidity, with ~Rs 1300 crores as of September 2017 in near-liquid investments to fund any future investment needs of operating businesses.
•In line with our strategy to deliver sustainable 20%+ RoE in the long term, RoE for Q2FY18 was 29% on reported PAT. However, this does not include unrealised gains in our quoted equity investments (Rs 582 crores, as of September 2017). Including this, the RoE in Q2FY18 would have been ~32%.

Speaking on the performance of the company, Mr. Motilal Oswal, CMD said
“Our strategy to diversify our business model towards linear sources of earnings like Asset Management and Housing Finance continues to show results, with over half of the revenue pie now coming from these new businesses. Each of these businesses offers significant headroom for growth and operating leverage as they scale up. Even our traditional businesses also saw decisive uptick during the quarter by registering record revenues. With this strategy, we have achieved highest ever quarterly revenue and profit during Q2FY18 and H1FY18. Our brand is now being recognized in each of our businesses”.

Performance of Business Segments for the quarter ended September 30, 2017
•Capital markets Businesses (Broking & Investment banking) 
oCapital Market revenues in Q2FY18 were Rs 241 crores, +20% YoY. Market ADTO grew 65% YoY in Q2FY18, with F&O +68% YoY and cash +21% YoY. Our market share in high-yield cash segment was improved on sequential basis and overall market share improved to 2% in Q2FY18. Blended yield maintained at 2.9% in H1FY18. Some of the operating leverage from the investment in manpower (+44% YoY), brand & technology is visible, as PAT margin is at 17% in Q2FY18. However, the full benefit of operating leverage is yet to unfold.
oIn retail broking & distribution, our strategy to bring in linearity through the trail-based distribution business is showing results. Distribution Net Sales were Rs 816 crores in Q2FY18, +142% YoY, and AUM was Rs 6,110 crores, +130% YoY. Distribution income at 15.9% of retail broking net revenues. With only ~9% of our client base and ~18% of the distribution network tapped as of now, we expect a meaningful increase in AUM and fee income as cross-selling increases. Our efforts to improve sales productivity is bearing fruit, with over 60% of leads generated online. Online business continues to grow, reaching 42% of retail volumes in Q2FY18.
oIn institutional broking, blocks continued to gain solid traction within our volumes. Our empanelled trend remains strong with 15 new client additions during the quarter. Focus has been on making the most of the market tailwind while building sustained areas of competitive advantage.
oInvestment banking continues to have a strong pipeline. IB fee were Rs 46.5 crores in Q2FY18, +59% YoY. Our IB was among the top 10 investment banks in primary market equity deal ranking in H1CY17. It has completed 7 ECM transactions in H1FY18. 
oCapital markets businesses contributed ~34% of revenues in Q2FY18. The contribution of capital markets in the PAT mix was ~29% in Q2FY18.

•Asset Management businesses are nearing critical mass
oAsset Management business across MF, PMS & AIF reached the mark of Rs 28,906 crores, +92% YoY AUM this year, comprising of Rs 14,329 crores MF AUM and Rs 13,436 crores PMS AUM. Our AMC now ranks among the Top-10 players by total equity assets with leadership position in PMS business. Net Sales were Rs 6,118 crores in H1FY18, +141% YoY and compares with Rs 6,102 crores in all of FY17. Net yield was maintained at ~0.9% in Q2FY18. Revenues were Rs 146 crores in Q2FY18, +96% YoY and PAT is Rs 23.3 crores, +154% YoY despite significant investments in brand building. The asset management business offers significant headroom for growth and operating leverage.
oOur QGLP philosophy continued to deliver on investment performance; our F-35 scheme has delivered absolute returns of 31% and alpha over benchmark of 16%, since inception. Our 3 flagship mutual funds schemes completed their 3-year performance track record, leading to increased participation from distributors.
oWith equity mutual funds focusing on retail outreach, PMS and AIF serve HNIs, family offices and institutions and are able to differentiate with concentrated strategies affording scope for higher alpha.
oAs of Sep 2017, ~15% of non-mutual fund AUM is performance-fee linked, and our target is to increase this further.
oOur market share in Equity MF Net Sales has