| JM Financial Limited | ||||
| Ratings Reaffirmed | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings of ‘CRISIL AA/Stable/CRISIL A1+’ on the long term bank facility and commercial paper of JM Financial Limited (JMFL).
On April 20, 2023, JM Financial Ltd has filed on stock exchanges that the Hon'ble NCLT has pronounced the order of approving the Scheme of Arrangement (“Scheme”) between JM Financial Capital Limited, JM Financial Services Limited and JM Financial Limited. The Scheme shall become effective upon filing of the certified copy of order with Registrar of Companies, Mumbai, Maharashtra.
CRISIL Ratings has noted that, the Scheme provides for the merger of JM Financial Capital into JM Financial Services Limited and the demerger of the Private Wealth Business and Private Wealth Management activities carried out by JM Financial Services Limited along with its 100% investment in JM Financial Institutional Securities Limited.
The Scheme of arrangement does not impact the business and the capital structure of the group on a consolidated basis.
On April 24, 2022, JM Financial Home Loans Limited and Indostar Capital Finance Limited, announced that the companies are engaged in preliminary discussions to explore potential strategic options including potential combination and listing of the retail mortgage portfolio of JM Financial and the home finance business of Indostar Home Finance Private Limited including other mortgage-backed business of Indostar.
CRISIL Ratings has taken a note of this announcement and has also noted that the discussions are currently at a preliminary stage and non-binding in nature and any transaction concerning JM Financial and Indostar will be subject to satisfactory due diligence, negotiation of commercial terms, execution of definitive agreements and receipt of all relevant regulatory and other approvals.
CRISIL Ratings will continue to monitor the developments on an on-going basis. In the interim, for arriving at the rating of entities of JM Financial Group CRISIL Ratings’ continues to combine the business and financial risk profiles of all companies within the JM Financial group. This also includes the non-banking financial company (NBFC), JM Financial Credit Solutions Ltd, where a fund raised by Mr. Vikram Pandit has 48.96% stake; as well as JM Financial Asset Reconstruction Company Ltd (JMARC; rated ‘CRISIL AA-/Stable/CRISIL A1+’), in which the group has 58.28% effective stake. The combined approach is because of significant operational and financial integration among group companies, common senior management, and shared brand. All the companies are collectively referred to as the JM Financial group.
The ratings continue to reflect JM Financial group's continued healthy capitalisation metrics, comfortable and diversified earnings profile, and established track record across its businesses. While the group's asset quality metrics have so far remained moderate, inherent vulnerability to slippages remains a key monitorable. Further, for non-banks with predominantly wholesale book like JM Financial group, the ability to raise funds from diversified sources on regular basis and at optimal rates remains a key monitorable. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of all companies within the JM Financial group. This also includes the non-banking financial company (NBFC), JM Financial Credit Solutions Ltd, where a fund raised by Mr. Vikram Pandit has 48.96% stake; as well as JM Financial Asset Reconstruction Company Ltd (JMARC; rated ‘CRISIL AA-/Stable/CRISIL A1+’), in which the group has 58.28% effective stake. The combined approach is because of significant operational and financial integration among group companies, common senior management, and shared brand. All the companies are collectively referred to as the JM Financial group.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The group maintains healthy capitalisation, inherently providing cushion against the asset-side risk. Capitalisation is supported in the form of fresh equity as well as healthy accruals to networth.
Capitalisation metrics for JM Group remains healthy with networth (including minority interest) of around Rs 10,938 crores as on December 31, 2022 (Rs 10,453 crores as on March 31, 2022) with overall CAR at 38.0% (39.4% as on March 31, 2022). Over the past five fiscals, the peak gearing for the company was at 2.8 times in December 2017 and remained comfortable at 1.3 times as on December 31, 2022 (1.2 times as on March 31, 2022). The Net Debt to Equity as of December 31, 2022 on a consolidated basis stood at 1.15 times (0.87 times as on March 31, 2022). The capitalisation metrics have been supported by proactive capital raises with JM group raising equity of around Rs 1,379.4 crores in fiscal 2018-2019 and Rs 770 crores in June 2020. This provides cushion to mitigate potential asset-side slippages.
The group has developed a strong franchise in key operating segments such as investment bank, platform AWS, distressed credit and mortgage lending. This is aided by the track record and reputation of its experienced management and healthy client relationship. Furthermore, management has been conservative in its risk philosophy. The group has strong network of borrowers with whom they have long relationship. Over the years the company has strengthened its risk department. Since 2018, the group has forayed into retail finance especially housing finance loans. While the share of the same to the overall portfolio remains small, the infrastructure has been scaled up and processes and systems have been put in place. As of December 31, 2022, the retail mortgage business has 78 branches. The group intends to focus on growing the retail mortgage portfolio which would provide granularity and further diversification to the AUM.
The group had a loan book of Rs. 15,234 crores on a consolidated basis as on December 31, 2022, comprising wholesale mortgage (52.1%), retail mortgage (10.3%), bespoke (25.0%), Financial Institutions Financing (6.6%) and Capital markets lending (5.9%). The group forayed in retail lending in FY2017 through products like home loan, LAP and educational institutions lending.
The group's earnings remain comfortable, with total revenue of Rs 3,763 crores and a profit after tax (post Minority interest) of Rs 773 crores for the fiscal 2022, as against a total revenue of Rs 3,227 crores and PAT (post minority interest) of Rs 590 crores for fiscal 2021. For first 9 months of fiscal 2023, the total revenue stood at Rs 2,629 crore with profit after tax (post Minority interest) of Rs 540 crore. The group benefits from greater diversification of the business profile over the past few years and this has given stability to its earnings profile. The group has strengthened its investment bank segment primarily through fixed income capabilities and improving synergies and product capabilities. The investment bank, mortgage lending, alternative and distressed credit and Platform AWS business constituted around 36.4%, 35.8%, 9.8% and 17.3% of total revenue, respectively, for 9 months of fiscal 2023. Profit after tax (PAT) contribution from these segments constituted 56.4%, 19.4%, 3.3% and 4.4% respectively. The earnings profile for JM Financial group has been comfortable with an average 5-year ROA of around 4.0% providing sufficient cushion in the earnings profile to withstand any increase in delinquencies. The group reported a ROA of around 4.2% for fiscal 2022 higher than 3.8% for fiscal 2021 despite elevated provisioning driven by the strong performance of the investment bank, platform AWS, and distressed credit businesses of the group. For the 9 months of fiscal 2023 the ROA was 3.3% (annualized). Any impact on the earnings profile in the event of slippages translating into elevated credit costs remains monitorable.
Weaknesses:
At a sectoral level, what has supported the asset quality metrics of wholesale non-banks in the past, has been the ability of the entity to get timely repayments/exits via refinancing or event-linked fund inflows. Further, at a sectoral level, wholesale segment is vulnerable to slippages in asset quality. However, JM group has so far managed its portfolio prudently and faced limited slippages. The group maintains healthy capitalisation, which inherently provides cushion against asset-side risk. JM Financial group has put in place adequate credit appraisal, strong risk management and processes which has supported the asset quality metrics. The management too has taken steps in order to reduce concentration risk in the portfolio with focus on growing the retail mortgage portfolio.
On the asset quality side, post the reopening of the lockdowns, underlying collections for real estate segment had improved. Additionally, RBI permitted one-time restructuring scheme as well as extension of date of commencement of commercial operations (DCCO) by another one year (effectively two years) without downgrading the asset classification. As on December 31, 2022, the DCCO book was ~10.3% of the total loan book.
Post September 2021, amidst the macroeconomic environment, the asset quality metrics have inched up with GNPA at 4.3% as on March 31, 2022, (3.5% as of March 31, 2021). However, as on December 31, 2022 the GNPA improved to 3.6%. CRISIL Ratings has also noted assets sold to ARC by the NBFCs in the group against which security receipts of ~Rs 406 crore are held as on December 31, 2022.
Nevertheless, the SMA-2 accounts which had increased to 6.2% as on December 31, 2020, improved to 1.1% as on December 31, 2022.
With a fair share of the portfolio being still under moratorium, the ability to get timely recoveries and control incremental slippages, will remain a key monitorables going forward.
Since September 2018, the operating environment for both NBFCs and HFCs has been challenging in terms of accessing funds, especially for those with a wholesale lending book. Interest from investors in the debt capital market has reduced in the recent past, and a material turnaround is not expected in the near term. As on December 31, 2022, the total borrowings for the group stood at Rs 14,702 crore out of which 80% are long term in nature. The funds raised has been through diversified sources including Commercial papers, Non-Convertible Debentures, Inter Corporate Deposit and Bank loan with improving cost of borrowings. Over a period of time, the company has also managed to diversify its investor base by raising money through retail investors, corporates, high networth individuals, general and life insurance companies, NHB, employees provident fund trusts and mutual funds. The group's commercial paper (CP) borrowings are largely matched by similar maturity short term assets which include capital market and trading assets and assets having short term contractual maturities. |
Liquidity: Strong At a group level, as on December 31, 2022, the group had total debt repayment (including interest) of Rs 1,462 crores till March’ 2023. In addition to scheduled collections, the group had cash and equivalent of Rs 2,109 crores and unutilised bank lines of Rs 336 crores. Further, asset-liability mismatch (ALM) statements of the key lending entities of the Group did not show negative cumulative mismatches in the up to 1-year buckets, as on December 31, 2022.
ESG CRISIL Ratings believes that JMFL’s Environment, Social, and Governance (ESG) profile supports its credit risk profile.
The ESG profile of financial institutions typically factors in governance as a key differentiator between them. The sector has reasonable social impact because of its substantial employee and customer base, and it can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on environment and other sustainability related factors.
JMFL group has an evolving focus on strengthening various aspects of its ESG profile.
JMFL group’s key ESG highlights:
There is growing importance of ESG among investors and lenders. JMFL group’s commitment to ESG will play a key role in enhancing stakeholder confidence, given presence of foreign investors |
Outlook: Stable CRISIL Ratings believes the JM Financial group will maintain its healthy financial risk profile over the medium term, supported by strong capitalisation, conservative gearing, and high profitability |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company JM Financial Limited (JM Financial), is the flagship listed company of the Group. It is an operating cum holding company and is engaged in various financial services businesses on its own and through its subsidiary and associate companies. It holds investments in its subsidiaries that are engaged in various businesses, namely, Non-Banking Financial Services, Asset Reconstruction, Equity Research, Equity Broking to Institutional and non-Institutional Investors, Wealth Management advisory, Mutual Funds Asset Management, etc. |
About the Group JM Financial is an integrated and diversified financial services group engaged in various capital markets related lending activities. The Group's primary businesses include (a) Investment bank which shall cater to Institutional, Corporate, Government and Ultra High Networth clients and includes investment bank, institutional equities and research, private equity funds, fixed income, syndication and finance; (b) Mortgage Lending includes both wholesale mortgage lending and retail mortgage lending (affordable home loans and secured MSME); (c) Alternative and Distressed credit includes the asset reconstruction business and alternative credit funds; and (d) Platform AWS which shall provide an integrated investment platform to individual clients and includes wealth management business, broking, PMS and mutual fund business.
As of March 31, 2022, the consolidated loan book stood at ~Rs 13,017 crore, distressed credit business AUM at ~Rs 10,936 crore, wealth management AUM at ~Rs 82,443 crore, and mutual fund QAAUM at ~ Rs 2,318 crore.
As of December 31, 2022, the consolidated loan book stood at ~Rs 15,234 crore, distressed credit business AUM at ~Rs 11,039 crore, wealth management AUM at ~Rs 82,242 crore, and mutual fund QAAUM at ~ Rs 3,256 crore.
The Group is headquartered in Mumbai and has a presence across 710 locations spread across 199 cities in India. The equity shares of JM Financial Limited are listed in India on the BSE and NSE. |
Key Financial Indicators
NCI is Non controlling interest *annualised |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||
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This Annexure has been updated on 28-Apr-23 in line with the lender-wise facility details as on 15-Mar-22 received from the rated entity.
Criteria Details
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