| JM Financial Properties And Holdings Limited | ||||
| Rated amount enhanced | ||||
| Rating Action | ||||
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| & Assigned for initial/follow-on public offer financing on episodic basis | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its rating on the commercial paper of JM Financial Properties and Holdings Limited (JMFPHL) at ‘CRISIL A1+’.
The ratings continue to reflect JM Financial group's continued healthy capitalisation metrics, comfortable earnings profile and established track record across its businesses. While the group's asset quality metrics have so far remained stable, the vulnerability of the same in the current environment 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.
Since September 2018, the operating environment for non-banking financiers {non-banking financial companies (NBFCs) including housing finance companies (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. In this environment, JM Financial group has managed to raise long term funds aggregating over Rs 3,700 crores in FY20 and around Rs 3,123 crores for FY21. 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. During this period the company has also managed to diversify its investor base by raising money through retail investors, insurance companies 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.
On the asset quality side, JM Financial Group had provided Covid-19 linked moratorium to its borrowers in line with the relief measures provided by the Reserve Bank of India (RBI). 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. Under the Covid-19 linked restructuring the group has only restructured assets worth Rs 62 crores and none of them are in the real estate sector. Around 18-19% of the total loan book has been given DCCO extension. Nevertheless, post September 2020, the asset quality metrics have inched up with GNPA at 3.5% as on March 31, 2021, almost similar to the pro-forma GNPA as of December 31, 2020 (1.7% as on March 31, 2020). Nevertheless, the group has a track record of recovering from slipped accounts in the past and has put in place steps to recover from the stressed accounts even going forward. Consequently, the SMA-2 accounts improved to 2.9% as on March 31, 2021 as against pro-forma SMA-2 of 4.4% as on December 31, 2020 (2.6% as on March 31, 2020). CRISIL Ratings understands that collections in the month of April were not severely impacted as the lockdowns were enforced towards the second half of the month. However, collections in May have been impacted and with the steady removal of lockdown restrictions in June, collections are expected to be better than May. Nevertheless, the group still has a fair share of the book under contractual moratorium but it has been able to get interest as well as principal payment from these borrowers. The ability to get timely recoveries and control incremental slippages, will remain a key monitorables going forward.
Capitalisation metrics remain healthy with networth (including minority interest) of around Rs 9,552 crore as on March 31, 2021 with overall CAR at 40.2% (38.7% as on March 31, 2020). 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 March 31, 2021. The Net Debt to Equity as of March 2021 on a consolidated basis stood at 0.7x. The capitalisation metrics have been supported by proactive capital raises with JM group raising equity of around Rs 1379.4 crores in fiscal 2018-2019 and Rs 770 crores in June 2020. This provides cushion to mitigate potential asset-side slippages.
Earnings profile too is comfortable with well diversified revenue stream marked by the diverse presence of the group. Despite the challenging macroeconomic environment, the group reported ROA[1] of 3.7% for fiscal 2021 which has averaged around 4% for the past five fiscals, despite elevated Covid linked provisioning reflecting the stability. The revenue stream continues to remain diversified with investment banking, wealth management and securities business (IWS), Mortgage lending, distressed credit and Asset Management businesses contributing 49%, 38%, 12% and 1% respectively. Any impact on the earnings profile in the event of slippages translating into elevated credit costs remains a monitorable. [1] Return on assets is calculated as profit after tax/average total assets and is as per CRISIL calculations |
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 59.25% 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 overall wholesale segment is facing challenges on account of funding constraint and lack of demand which makes the segment vulnerable to slippages in asset quality. Since the company maintains healthy capitalisation, it inherently provides cushion against the asset-side risk. Capitalisation is supported in the form of fresh equity as well as healthy accruals to networth.
Capitalisation metrics remain healthy with networth (including minority interest) of around Rs 9,552 crore as on March 31, 2021 with overall CAR at 40.2% (38.7% as on March 31, 2020). 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 time as on March 31, 2021. The Net Debt to Equity as of March 2021 on a consolidated basis stood at 0.7x. The capitalisation metrics have been supported by proactive capital raises with JM group raising equity of around Rs 1379.4 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 banking, wealth management, and securities-based 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 and has never faced any asset quality issues. Over the years the company has strengthened its risk department.
The group's earnings remain comfortable, with total revenue of Rs 3,227 crore and a profit after tax (post Minority interest) of Rs 590 crore for fiscal 2021. 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 grown its investment banking, wealth management and securities business and mortgage lending business and it constituted around 49% and 38% of total revenue, respectively, for the fiscal 2021. 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 given the nascent stage of operations, the group intends to focus on growing the retail portfolio which would provide granularity to the AUM. Profit after tax (PAT) contribution from these segments has also been high and constituted 56% and 28% of total PAT of the company. 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[1] of around 3.7% for fiscal 2021 similar to that for the full fiscal 2020 despite elevated provisioning. Any impact on the earnings profile in the event of slippages translating into elevated credit costs remains a 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. However, the current challenging funding environment has significantly increased refinancing risks especially for real estate players.
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 individual housing loans portfolio.
On the asset quality side, JM Financial Group had provided Covid-19 linked moratorium to its borrowers in line with the relief measures provided by the Reserve Bank of India (RBI). 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. Under the Covid-19 linked restructuring the group has only restructured assets worth Rs 62 crores and none of them are in the real estate sector. Around 18-19% of the total loan book has been given DCCO extension. Nevertheless, post September 2020, the asset quality metrics have inched up with GNPA at 3.5% as on March 31, 2021, almost similar to the pro-forma GNPA as of December 31, 2020 (1.7% as on March 31, 2020). Nevertheless, the group has a track record of recovering from slipped accounts in the past and has put in place steps to recover from the stressed accounts even going forward. Consequently, the SMA-2 accounts improved to 2.9% as on March 31, 2021 as against pro-forma SMA-2 of 4.4% as on December 31, 2020 (2.6% as on March 31, 2020). CRISIL Ratings understands that collections in the month of April were not severely impacted as the lockdowns were enforced towards the second half of the month. However, collections in May have been impacted and with the reopening of the lockdowns in June, collections are expected to be better than May. Nevertheless, the group still has a fair share of the book under contractual moratorium but it has been able to get interest as well as principal payment from these borrowers. 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. JM Financial group has managed to raise long term funds aggregating over Rs 3,700 crores in FY20 and around Rs 3,123 crores for FY21. 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. During this period the company has also managed to diversify its investor base by raising money through retail investors, insurance companies and mutual funds. [1] Return on assets is calculated as profit after tax/average total assets and is as per CRISIL calculations |
Liquidity: Strong At a group level, as on March 31, 2021, the group had total debt repayment (including interest) of 4313 crore till September 2021. In addition to scheduled collections, the group had cash and equivalent of Rs 5,351 crore and unutilised bank lines of Rs 659 crores |
Rating Sensitivity factors Downward factors
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About JM Financial Properties and Holdings Limited (JMFPHL) JMFPHL operates as a full-fledged business service centre. The main revenue of the company is from the business service centre fees, received from the group companies. They have appointed an Administrative Manager to look after all administrative matters, Information Technology professionals to take care of the basic IT related services, a Receptionist and a Contractor exclusively engaged in the business of providing security, housekeeping services and routine electrical maintenance. |
About the Group JM Financial is an integrated and diversified financial services group. The Group's primary businesses include (a) Investment banking, wealth management and securities business (IWS) which includes fee and fund based activities for its clients (b) Mortgage Lending which includes both wholesale mortgage lending and retail mortgage lending (home loans, education institutions lending and LAP) (c) Distressed credit which includes the Asset Reconstruction business (d) Asset Management includes the mutual fund business.
As of March 31, 2021, the consolidated loan book stood at ~Rs 10,854 crore, distressed credit business AUM at ~Rs 11,060 crore, wealth management AUA at ~Rs 59,052 crore, and mutual fund QAAUM at ~ Rs 2,389 crore.
The Group is headquartered in Mumbai and has a presence across 518 locations spread across 166 cities in India. The equity shares of JM Financial Limited are listed in India on the BSE and NSE. |
Key Financial Indicators
*Before Minority interest and after share of profit of associate |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Assigned for initial/follow-on public offer financing on episodic basis |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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