Motilal Oswal Financial Services reports Highest ever Q2FY21 PAT of Rs 296cr, +108% YoY and Rs 463 cr, +70% YoY in H1FY21.

Motilal Oswal Financial Services Ltd. announced its results for the quarter and half year ended September 30, 2020 post approval by the Board of Directors at a meeting held in Mumbai on October30, 2020.

Performance for the quarter and half year endedSeptember30, 2020:

• In Q2FY21, consolidated revenues grew by14% YoY at Rs 747cr, Operating Profit(PAT)grew by 33% YoY at Rs 123 cr, Consolidated PAT grew by 108% YoY at Rs 296 cr including MTM gains (Rs 173cr, +246% YoY).
• Consolidated revenues in H1FY21 grew by 8% YoY at Rs 1,380cr, Operating Profit (PAT) for H1FY21 grew by 18% YoY at Rs 226 cr and consolidated profit grew by 70% YoY at Rs 463 cr.

Speaking on the performance of the company, Mr. Motilal Oswal, MD&CEO said “During this unprecedented time, we have successfully migrated all of our employees to WFH and despite WFH we haven’t witnessed much impact on our businesses. In fact, in most of our fee based businesses we have seen strong traction; retail broking business which is our cash cow business has achieved new highs across every parameter. Our strategy to diversify our business model towards linear sources of earnings continues to deliver results. Our Asset Management business is likely to gain from strong product performance and its niche positioning .Our Housing finance business is geared up for profitable growth under new leadership. Our traditional broking business benefitted from industry consolidation with its knowledge driven phygital offerings. Each of our 7 businesses offers headroom for growth.

Key highlights for the Q2FY21

• Highest-ever Consolidated Quarterly Revenues & Profits. Strong Sequential growth revenues and profitability across businesses.
• Broking – Highest ever Revenues & PAT, market share gains 80 bps YoY &10 bps QoQ, highest ever quarterly clients addition, significant investments made in last 12 months in expanding talent pool & distribution network.
• AMC – AUM back to pre-covid level, gross sales gaining traction, digitally launched NFO of S&P 500 index fund and Multi asset fund.
• Home Finance – Sharp reduction in cost of funds driving margin expansion, strong traction in collection efficiency during and post moratorium periods, aggressive covid-related provisions of Rs 23 cr, continued superior quality of new book underwritten, industry veterans on boarded to run the business – Arvind Hali joined as MD & CEO and Amar Bahl joined as Deputy MD & COO.
• Consolidated net worth stood at Rs 3,490cr, net debt is Rs 3,535cr. Excluding Home finance, net debt is Rs 832 cr. Overall debt is down by 2% YoY. Total D/E declined to 1.3x. Ex-MOHF D/E stood at 0.4x. Net of investments, we have a net cash balance sheet. RoE for H1FY21 stands at 36%(ex-OCI & exceptional item).
• Company has completed Buyback of its equity shares amounting to Rs 1.48Cr (including tax) resulting in increase in promoter equity in the company by 1.3% to 70.67%.
• Besides financial performance, recent time has been very eventful in terms of our successes in brand building, advertising and several other fronts. MOFSL got inducted in “Hall of Fame” at 10^thFinancial Advisory Awards 2019. MOFSL rank 2^nd“Best Local Brokerage” in Asia Money broker’s poll 2019.Our latest Ad on “Skin in the Game” has received appreciation in various media. These and several other recognitions of Motilal Oswal as a preferred consumer and employee brand in financial services space.

Performance of Business Segments for the quarter and half year ended September30, 2020

• Capital markets Businesses (Broking & Investment banking)
• Capital markets comprises of Retail Broking, Institutional Equities and Investment Banking business. Revenues for this segment were Rs 424cr, +37% YoY in Q2FY21 and Rs 767 cr in H1FY21, +31% YoY.  Capital market businesses have contributed ~57% of consolidated revenues. Profits were Rs 80cr, +44% YoY and contributed ~27% of consolidated PAT.
• Broking and distribution business profit grew by 51% YoY and 33% QoQ at Rs 81cr in Q2FY21 led by healthy volume growth of 70% YoY and gain in market share. (PAT growth on YoY basis would have been 69% after excluding the impact of adoption to new tax regime in Q2FY20).
• In Retail Broking &Distribution, our Market share has improved by 80 bps on YOY basis to 3.1%. We have witnessed strong traction in new client addition driven by Franchisee and retail channel , total ~117,000 clients acquired in Q2FY21, +227% YoY. Active clients have also registered 35% YoY growth at 4.5 lacs as of September2020.
• Our strategy to bring in linearity through the trail-based distribution business is showing results. Distribution AUM grew by 9% QoQ at Rs 11,123cr as of Q2FY21. With only 14% of the 1.65million client base tapped, we expect a continued increase in AUM and fee income as number of clients to whom we have cross sold and number of products per client cross sold rises.
• In Institutional Broking, Strong improvement in domestic client rankings in H1 with top 3 rank retained in most clients. This has been the result of focus driven differentiated research products with 250+ companies covering 21 sectors. We hosted two large conference in September, AGIC & Ideation conference where >200+ corporate participated. Frequency of arranging webinars and expert calls has gone up significantly.
• Investment Banking business continues to engage on a wide cross-section of mandated transactions across capital markets and advisory. In Q2, we participated in two large QIPs in BFSI space.

• Asset Management businesses (AMC, PE and PWM)
• Asset Management business AUM across MF, PMS&AIF stood at Rs 38,581cr, +10% QoQ. Our AMC ranks 15 by total equity assets; in PMS we maintain a leading position.PAT for the quarter stood atRs 29cr as AMC’s profit was impacted on account of lower average AUM post unprecedented market correction in March and also due to cut in TER in MF.However, this impact would be neutralised post TER revision in October month.
• Our Equity MF AUM of Rs 22,216cr is just 1.9% of the Industry MF Equity AUM of Rs 10.2 tn. We have seen improvement in performance of several products. Several schemes rank top decile in performance since inception as well as over the last 1 year. We witnessed traction in gross flows.
• MOAMC digitally launched NFO of Multi Asset fund in Q2FY21.
• Our share of Alternate assets, comprising of PMS & AIF, is the highest among AMC’s at ~42%.
• Private Equity has committed investment AUM of Rs 6,500cracross 3 growth capital PE funds and 4 real estate funds. In Q2FY21, revenues stood at Rs 27crand PAT stood at Rs 7cr. The 1^st growth fund (IBEF 1) has delivered an XIRR of ~27%. Average IRR on exited investments in Real estate funds is 21%+. Strong performance and positioning has also aided new fund raise, we have have achieved final close of IREF IV fund at ~Rs1,150cr in February 2020.The fund has deployed Rs 580cr across 10 investments.
• Wealth Management business AUM grew by 13% QoQ at Rs 20,010cr in Q2FY21. Wealth business revenue grew by 25% & 14% YoY in Q2FY21 & H1FY21 respectively led by strong net sales of +317% YoY at Rs 1,342crin H1FY21.Gross &Net sales were multi-quarter high. Yield has improved in Q2FY21 by 24bps at ~78 bps led by

higher net sales of high yielding equity product during the quarter.RM count of this business stood at128. Our trail revenues predominantly cover our fixed costs.

• Overall Asset and Wealth Management revenues were Rs 178cr& Rs 326crin Q2FY21& H1FY21 respectively. Asset & Wealth contributes24% of consolidated revenues. Profits were Rs 44 cr& Rs 73 cr in Q2FY21 & H1FY21 respectively and contributed 15% of consolidated profits.

• Housing finance business
• Motilal Oswal Home Finance (MOHFL) reported profit of Rs 6cr in Q2FY21.Reported profit looks suppressed due to higher tax on account of reinstatement of deferred tax asset post migration to new regime. Excluding this, PAT for the quarter would have been Rs 13cr.
• MOHFL board has appointed Mr. Arvind Hali as MD & CEO and Mr. Amar Bahl as Deputy MD & COO. Both are industry veterans with over 20+ years of experience in mortgage industry.
• NII grew by 3% YoY and NIM expanded 20 bps YoY at 5.2% in Q2FY21.
• Yield on Advances improved by 10 bps YoY to 14.2% in Q2FY21 while of Cost of Funds is down by 50 bps QoQ / 120 bps YoY to 9.3%, resulting in expansion in Spread by 40bps QoQ to 4.9%.
• We have raised ~Rs 1000 Cr in H1FY21 at average cost of 7.6%. We expect average CoF to trend lower in H2FY21.
• Loan book stood at Rs 3,652cr as of H1FY21. Disbursements in H1FY21 were Rs 84cr. New book sourced from April’18 validates the new credit policy with only 1case in NPA out of ~6700 loan cases.
• GNPA at 1.6%, NNPA at 1.2%.We have further enhanced Covid provisioning in Q2FY21 to Rs 23 cr (~70 bps).
• Opex was brought down to Rs 20cr in Q2FY21 and is down ~30% from the high. As a result, Cost to Income ratio is down to 36% from 44% in Q2FY20.
• Strong support from parent continues with total capital infusion to Rs 850Cr. Net Gearing stands at 3.1x and Tier 1 CAR remains robust at 44%.
• Limited borrowing repayment for next 1 year, strong undrawn borrowing lines (Rs 715cr), Cash on Balance sheet of Rs 511crplaces us in comfortable liquidity situation.

• Fund based investments includes sponsor commitments to our AMC&PE funds and strategic equity investments.
• Fund based investments like commitments to our asset management products.
• Total quoted equity investment including unrealised gains was Rs 1,430cr as of Q2FY21. CumulativeXIRR of these investments is ~13.3% (since inception).
• Total equity investment including alternate funds was at Rs 2,130cr as of September-20.XIRR of 27.9% on alternate equity investments.