Motilal Oswal Financial Services: Q2-25 Earnings Call Highlights
Strong quarter with robust growth across all metrics. Positioned to benefit from rising financial savings. Investments in people & products yielding results. Management optimistic about the future
motilaloswalgroup.com | NSE: MOTILALOFS
1. Key Takeaways
1.1 TLDR
MOFSL delivered a strong quarter with robust growth across all key metrics.
The company is well-positioned to benefit from the long-term trend of rising financial savings in India and its strategic investments in people and products are yielding positive results.
Management remains optimistic about the future and confident in its ability to deliver sustained growth and strong returns for shareholders.
1.2 Operational Highlights:
Record quarterly profit, strong performance across all segments, and market share gains. Consolidated PAT (including OCI) up 123% YoY to INR 1,242 crores, ROE at 48%, and AUM crossed INR 5.7 lakh crores, up 82% YoY.
Wealth Management business leads growth. Net revenue up 53% YoY, driven by strong retail broking ADTO growth (90% YoY) and market share gains in cash and F&O segments.
Asset & Private Wealth businesses continue to outperform. AUM crossed INR 1 lakh crore in July 2024, driven by strong performance in mutual funds, PMS, and AIFs.
Housing Finance business demonstrates growth momentum. Disbursements up 114% YoY, AUM up 13%, and healthy asset quality metrics.
Treasury investments deliver strong returns. Total equity investments including alternate funds grew to INR 8,113 crores with an XIRR of 20.8% since inception.
1.3 Key Themes
Mega Trend of Rising Household Savings:
"A study by our co-founder Mr. Ramdeval shows that the cumulative household savings will rise from about $14 trillion in the last 25 years to $126 trillion in the next 25 years with a higher share of financial savings, equities, alternates, and greater concentration of wealth."
Market share gains: The company strengthened its market share in nearly every business segment, demonstrating the success of its growth strategy.
Strong AUM growth: Assets under advice crossed ₹5.7 lakh crore, up 82% year-on-year. This growth was fueled by strong performance in wealth management, asset management, and private wealth segments.
Positive outlook: Management expressed optimism about the future, driven by the mega trend of rising household savings and the company's strong brand and balance sheet.
Focus on ARR growth: MOFSL is actively shifting its revenue mix towards ARR, primarily driven by growth in the Asset Management and distribution businesses within Wealth Management.
Investing in distribution: The company is expanding its distribution network and team to fuel further growth in the Wealth Management and Asset Management businesses.
Skin in the game strategy: The company's treasury investments, primarily allocated to equity instruments, serve as a backbone for its agency businesses and demonstrate management's confidence in the long-term performance of its products.
Navigating regulatory changes: MOFSL is well-positioned to benefit from the recent regulatory changes impacting F&O segment due to its strong cash market presence and diversified revenue streams.
1.4 Key Quotes
"Our businesses have demonstrated strong performance. We reported an all-time high quarterly profit and strengthened our market share nearly in every business that we are present in."
On ARR mix: "Overall at the group level, the mix is coming from largely from our asset management business…followed with…the ARR improvement…happening on our distribution business in our wealth management."
On product launches: "As we go forward, one should expect to see us launch a product on the passive side or on the active side practically every month…There are gaps in our product suite on the mutual fund side that is what we are looking at filling."
On treasury investments: "The treasury profits are mostly marked to market and hence not distributable...The treasury book while it looks just like excess cash on the balance sheet is actually no excess cash...It is all the backbone for the agency business..."
1.5 Analyst Concerns
Future volume growth in Wealth Management given the regulatory changes impacting the F&O segment.
Productivity of newly added RMs in the Wealth and Private Wealth Management businesses.
Growth outlook and RM hiring plans for the Housing Finance business.
Impact of planned exits from private equity and real estate funds on future earnings.
Sustainability of treasury income and its role in supporting the agency businesses.
Motilal Oswal Financial Services Limited Q2 FY25 Earnings Call FAQ
1. What is driving the growth in the wealth management business?
The wealth management business has demonstrated strong performance, driven by:
Strong volume growth: Both cash and F&O segments have witnessed strong volume growth, leading to increased revenue and market share gains.
Market share expansion: The company has steadily increased its market share in both cash and F&O segments, indicating a growing customer base and preference for Motilal Oswal's services.
Increased ARR contribution: AUM growth, along with improved NIMs and growth in distribution assets, is contributing to higher ARR revenue, reducing reliance on transactional brokerage revenue.
Strategic focus on distribution: The company is actively expanding its distribution network, with plans to double its manpower over the next two years. This expansion includes increasing the dedicated distribution team to garner more flows and assets, strengthening the focus on both ARR and TBR revenue streams.
2. What is the impact of the upcoming regulatory changes on the F&O segment?
The new regulatory changes effective from 20th November, particularly the reduction in expiry dates, may lead to some moderation in F&O volumes. However, the impact will be offset by:
Shift in volumes to other exchanges and indices: The changes are expected to drive a shift in volumes to other exchanges and indices, which presents new opportunities for Motilal Oswal to capture.
Strong growth in cash market: The company derives a significant portion of its revenue from the cash market, which is expected to continue its growth trajectory.
Growing distribution business: The company's investment in its distribution business, with increasing income from this segment, will further mitigate any potential impact.
3. What is contributing to the robust growth in Asset Management AUM and revenues?
The asset management business has achieved significant AUM growth and strong revenue performance due to:
Top-tier fund performance: Over 95% of the AUM is performing in the top quartile across mutual funds and alternate assets, attracting investors and driving inflows.
Wide range of product offerings: The company has expanded its product suite, including new launches in large-cap, small-cap, multi-cap, and sectoral funds, catering to a broader range of investor needs.
Expansion of distribution footprint: Motilal Oswal is aggressively expanding its distribution network, partnering with banks, IFAs, wealth firms, and leveraging digital channels to reach a wider investor base.
Strong growth in SIPs: The company is witnessing strong traction in SIP flows, contributing to a stable and growing AUM base.
4. What is the strategy for the private wealth management business, and how is the productivity of recently hired RMs?
The private wealth management business strategy focuses on:
Aggressive RM hiring: Motilal Oswal is expanding its RM base, aiming to reach 700 by the end of the year, focusing on both HNI and ultra-HNI segments.
Grooming junior RMs: The company continues its strategy of hiring and developing junior RMs, providing them with the necessary training and support to become productive senior RMs.
RM Productivity: New RMs typically achieve 1-1.5 times productivity in their first year, reaching 3+ times productivity by the third year. This strategy ensures a sustainable talent pipeline and drives long-term growth.
5. How should we interpret the treasury income, and will it be considered for dividend payouts?
The treasury income, though significantly impacting reported profits, should be viewed in the context of:
Mark-to-market accounting: The significant treasury income is primarily due to unrealized gains from mark-to-market accounting of equity investments.
Skin in the game and agency business support: The treasury book serves as skin in the game for various products and provides crucial capital support for the agency business, allowing the company to avoid external capital raising.
Dividend policy focus on cash earnings: The company's dividend policy considers cash earnings rather than unrealized mark-to-market gains, ensuring a sustainable and consistent dividend payout.
6. What is the outlook for the capital markets businesses, and are there any new products or segments planned?
The capital markets businesses, including institutional equities and investment banking, are expected to perform well, driven by strong deal pipelines.
Investment banking: A robust deal pipeline for the second half of the year points towards continued growth in this segment.
Asset management: The company plans to actively launch new products, both passive and active, almost every month, further strengthening its product offerings.
7. What is the growth strategy for the housing finance business?
The housing finance business is focused on:
Expanding RM network: Motilal Oswal is significantly investing in its RM network, aiming to drive disbursement volume growth and, subsequently, AUM expansion.
Focus on retail housing loans: The company is shifting its focus towards retail housing loans, leading to a change in the overall loan mix and a marginal moderation in yields.
8. What is the company's approach to capital allocation and growth?
Motilal Oswal Financial Services maintains a disciplined approach to capital allocation, prioritizing:
Organic growth and market share expansion: The company focuses on organic growth opportunities within its core businesses, aiming for market share leadership.
Strategic investments in growth areas: Investments are strategically directed towards scaling up businesses like wealth management and asset management to capitalize on the growing financial services market in India.
Maintaining a strong balance sheet: The company is committed to maintaining a robust balance sheet and avoiding capital dilution, utilizing internal accruals and the treasury book to support growth initiatives.
Source: Link to Earning Call Recording
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