| JM Financial Services Limited | ||||
| Ratings reaffirmed at 'CRISIL AA/Stable/CRISIL A1+'; rated amount enhanced for Commercial Paper | ||||
| 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 ‘CRISIL AA/Stable/CRISIL A1+’ ratings on Non Convertible Debentures and Commercial paper of JM Financial Services Limited (JMFSL).
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, including ARC businesses, within the JM Financial group. 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:
Capitalisation metrics for JM Group remains healthy with networth (including minority interest) of around Rs 11,276 crores as on September 30, 2023 (Rs 10,972 crores as on March 31, 2023) with overall CAR at 36.5% (38.6% as on March 31, 2023). Gearing remained comfortable at 1.5 times as on September 30, 2023 (1.45 times as on March 31, 2023). The management intends to keep the gearing at under 3.5 times at all points in time.
The capitalisation metrics have been supported by healthy accruals and capital raises with JM group raising equity of around Rs 1,379.4 crores in fiscal 2019 and Rs 770 crores in June 2020.Healthy capitalisation inherently provide cushion against the asset-side risk.
CRISIL Ratings has also taken note of the recent measures by Reserve Bank of India (RBI) covering the Banking and NBFC sector. Firstly, on the asset side for NBFCs, there is an increase in risk weights for unsecured consumer loans (including credit card receivables), by 25 percentage points to 125% from 100% earlier. This regulation applies to all retail loans except housing loans, vehicle loans, educational loans, loans against gold and microfinance/SHG loans. The increase in risk-weighted assets will lead to a decrease in the capital adequacy ratios but is not likely to materially impact the ratios, given that proportion of consumer loans is negligible as of September 2023.
Secondly, there is an increase in risk weights for Bank’s exposure to NBFCs by 25 percentage points (over and above the risk weight associated with the given external rating) in all cases where the extant risk weight as per external rating of NBFCs is below 100%. Herein, loans to HFCs, and loans to NBFCs which are eligible for classification as priority sector are excluded. This development may potentially lead to an increase in cost of bank borrowings for NBFC sector. This could lead to diversification in the borrowings mix with higher share of capital market instruments and securitisation, amongst others. Ability of NBFCs to pass on the potentially higher borrowing costs will be monitored.
Further, the recent circular by the Reserve Bank of India (RBI) pertaining to the investments made by regulated entities including non-banking financial companies (NBFCs) in Alternative Investment Funds (AIFs) is not expected to have any material impact.
The group has developed a strong franchise in key operating segments such as investment bank, platform AWS, alternative and distressed credit and mortgage lending. This is aided by the track record and reputation of its experienced management and healthy client relationship. The group has a strong network of borrowers with whom they have long relationship.
JM Group investment banking division which includes equity capital markets, private equity, debt capital markets and advisory business is amongst the oldest businesses within the JM Financial Group. The Investment banking division contributes to 39% of total group revenue and 69% of the total group PAT. Group has executed some large IB deals during the quarter such as: QIP _ Union bank of India (~Rs. 5,000 crore); Brookfield REIT (~Rs. 2,305 crore); BRLM to IPO and Pre-IPO – RR Kabel (~Rs. 2,439 crore); Samhi hotels (~Rs. 1,500 crore); Block deal- Five star business finance (Rs. 1,864 crore).
Over the years the company has also strengthened its risk department. The group had a loan book of Rs. 15,808 crores on a consolidated basis as on September 30, 2023, comprising wholesale mortgage (50%), retail mortgage (15%), bespoke (17%), Financial Institutions Financing (12%) and Capital markets lending (6%). The group forayed in retail lending in FY2017 through products like home loan, LAP and educational institutions lending.
As of September 30, 2023, the retail mortgage business has 105 branches. The group intends to focus on growing the retail mortgage portfolio which would provide granularity and further diversification to the AUM.
The group's earnings remain comfortable, with total revenue of Rs 2,295 crores and a profit after tax (post Minority interest) of Rs 361 crores for the H1 of fiscal 2024 (Rs 3,343 crore and Rs 597 crore, respectively, for fiscal 2023).
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 39%, 32%, 11% and 18% respectively of total revenue during H1 of fiscal 2024. Profit after tax (PAT) contribution from these segments constituted 69%, 4%, 7% and 5% respectively, during the period.
The earnings profile for JM Financial group has been comfortable with an average 5-year ROA of around 3.5% providing sufficient cushion in the earnings profile to withstand any increase in delinquencies. The group reported a ROA of around 2.7% for fiscal 2023 lower than 4.0% for fiscal 2022 owing to elevated provisioning driven in the distressed credit businesses of the group. For first half of fiscal 2024, the annualized ROA was 2.5%. Any impact on the earnings profile in the event of slippages translating into elevated credit costs would remain monitorable.
Weaknesses:
As on September 30, 2023, the GNPA and NNPA increased to 4.8% and 2.3%, from 3.4% and 2.1% respectively as on March 31, 2023. The increase in GNPA and NNPA was due to account shift from SMA to NPA and there were no material increment slippages.
However, retail mortgage GNPA and NNPA stood at 0.9% and 0.4% respectively. Similarly, wholesale mortgage GNPA and NNPA stood at 7.4% and 3.5% respectively.
Group’s wholesale segment is vulnerable to slippages in asset quality, which accounts of ~79% of lending book as on September 30, 2023. 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 have 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. 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 monitorable 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. As on September 30, 2023, the total borrowings for the group stood at Rs 16,949 crore out of which 77% are long term in nature. The funds raised have 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 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 September 30, 2023. At a group level, as on September 30, 2023, the company had cash and cash equivalents of ~Rs 1,631 crore and unutilised bank lines of Rs 148 crore. Against this, the group had total debt repayment (including interest) of around Rs 4,539 crores till Mar 2024, of which Rs 2,825 crore constituted CP and CC/WCDL, which subsequently gets rolled over. Besides, the Group’s investment and trading book of Rs. 1,558 crore as of September 30, 2023, comprising listed equity shares, bonds, fixed coupon notes, Government securities, Treasury bills and state development loans, can be liquidated to generate liquidity in case of contingency. |
Outlook: Stable CRISIL Ratings believes the JM Financial group will maintain its healthy financial risk profile over the medium term, supported by strong capitalization and conservative gearing. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company JMFSL, a 100% subsidiary of JMFL, is engaged in providing equity broking, investment advisory, wealth management (Elite), and distribution services to corporates, HNIs, and retail investors. It is also engaged in securities-based lending i.e. margin trade funding (MTF; approved by the Securities and Exchange Board of India, SEBI). JMFSL represents the Investment Advisory business of JM Financial Group and focusses on Investment Advisory businesses for non-institutional clients |
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, private wealth management, PMS, 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 elite and retail wealth management business, broking and mutual fund business.
As of September 30, 2023, the consolidated loan book stood at ~Rs 15,808 crore, distressed credit business AUM at ~Rs 15,114 crore, wealth management AUM at ~Rs 88,167 crore, and mutual fund QAAUM at ~ Rs 3,845 crore.
The Group is headquartered in Mumbai and has a presence across 814 locations spread across 222 cities in India. The equity shares of JM Financial Limited are listed in India on the BSE and NSE. |
Key Financial Indicators: JM Financial Limited (Consolidated)
NCI is non-controlling interest *annualised ratios are CRISIL Ratings Calculated NA is Not Available |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Yet to be issued |
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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