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Sailing against the wind
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).
HIGHLIGHTS OF THE QUARTER
* AMC (ex. WM): Revenues/EBITDA/PAT was in-line at Rs 1,752/672/430mn (-3.8/+16.9/+27.6% YoY). On back of sub-dued equity markets, MF/PMS AUMs grew 4.7/3.9% QoQ to Rs 200/160bn and net AUM accretion declined to Rs 2bn (-93.3/-75.0% YoY/QoQ). Management suggested that TER cuts will impact MF revenues by ~6bps of AuM.
* Capital Markets (in. WM): Revenues/EBITDA/PAT at 3,213/991/443mn (-13.3/-25.8/-31.6% YoY), were ahead of estimates. Competitive intensity continues as evidenced by broking market share/yields declined 175/83bps YoY to 2.6%/1.5bps. Large deal win resulted in strong IB revs, which at Rs 146mn were 2.8x vs est.
* Treasury: Led by a sharp equity rally (Nifty 4QFY19: ~7%), PAT printed Rs 528bn i.e. +27% vs. est.
* MOHL: 4QFY19 NII/PAT at Rs 514/81mn (vs. Rs 567/ (234)mn in 4QFY18), displaying a profit after 4 qtrs. Net slippages during 4QFY19 improved materially to Rs 160mn (-81.6/-78.4% YoY/QoQ), while disbursements were weak at Rs 0.8bn (-55.6/+33.3% YoY/QoQ). We are encouraged by the seasoning of the book and lower slippages in 4Q, but remain watchful on scale-up.
* We have increased our multiple for MOHL to 0.7x (+40%), resulting in an increased value of Rs 34/share.
* Outlook: Limited upside to stock as macros remain challenging.
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.
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