| JM Financial Limited | ||||
| 'CRISIL AA/Stable' assigned to Bank Debt; CP Reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AA/Stable’ rating to the bank loan facilities of JM Financial Limited (JMFL) and reaffirmed its ‘CRISIL A1+’ rating on the commercial paper.
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, the vulnerability of the same amidst the economic 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. |
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: * Healthy capitalisation The group maintains healthy capitalisation, inherently providing cushion against the asset-side risk. Capitalisation is supported in the form of fresh equity as well as healthy accruals to networth.
Capitalisation metrics for JM Group remains healthy with networth (including minority interest) of around Rs 10,269 crores as on December 31, 2021 (Rs 9,552 crores as on March 31, 2021) with overall CAR at 44.5% (40.2% as on March 31, 2021). Over the past five fiscals, the peak gearing for the company was at 2.8 times in December 2017 and remained comfortable at 1.05 times as on December 31, 2021 (1.29 times as on March 31, 2021). The Net Debt to Equity as of December 2021 on a consolidated basis stood at 0.68 times (0.73 times as on March 31, 2021). The capitalisation metrics have been supported by proactive capital raises with JM group raising equity of around Rs 1,379.4 crores in fiscal 2018-2019 and Rs 770 crores in June 2020. This provides cushion to mitigate potential asset-side slippages. The group raised Rs. 2,239 crores in 9MFY22 from long term borrowings from various diverse sources such as public issues, insurance companies, trusts, NHBs, etc.
* Established market position across its businesses and diversified business model The group has developed a strong franchise in key operating segments such as investment bank, platform AWS, distressed credit and mortgage 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. 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, the infrastructure has been scaled up and processes and systems have been put in place. As of December 31, 2021, the retail mortgage business had ~50 branches. The group intends to focus on growing the retail mortgage portfolio which would provide granularity and further diversification to the AUM.
* Diversified business model and comfortable earnings profile The group's earnings remain comfortable, with total revenue of Rs 2,926 crore and a profit after tax (post Minority interest) of Rs 594 crore for the nine Months ended December 31, 2021, as against a total revenue of Rs 3,227crores and PAT (post minority interest) of Rs 590 crores 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 strengthened its investment bank segment primarily through fixed income capabilities and improving synergies and product capabilities. The investment bank, mortgage lending, distressed credit and Platform AWS business constituted around 33.8%, 30.6%, 14.9% and 17.4% of total revenue, respectively, for the nine Months ended December 31, 2021. Profit after tax (PAT) contribution from these segments constituted 42.9%, 14.5%, 16.4% and 13.8% of total PAT of the company. Despite elevated provisioning for any Covid related stress buckets, 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 of around 4.4% for the 9 Months of fiscal 2022 higher than 3.8% for full fiscal 2021 despite elevated provisioning driven by the strong performance of the investment bank, platform AWS, and distressed credit businesses of the group. Any impact on the earnings profile in the event of slippages translating into elevated credit costs remains a monitorable.
The group had a loan book of Rs. 11,240 crores on a consolidated basis as on December 31, 2021, comprising wholesale mortgage (60%), retail mortgage (6%), bespoke (22%), Financial Institutions Financing (4%) and Capital markets lending (8%). The group forayed in retail lending in FY2017 through products like home loan, LAP and educational institutions lending.
Weakness: * Asset quality in the wholesale lending business remains inherently vulnerable; albeit risk management processes are comfortable 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. Further, at a sectoral level, wholesale segment is vulnerable to slippages in asset quality. 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 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 retail mortgage portfolio.
On the asset quality side, 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. Around 23.8% of the total loan book as on December 31, 2021, has been given DCCO extension. Nevertheless, post September 2021, amidst the macroeconomic environment, the asset quality metrics have inched up with GNPA at 4.4% as on December 31, 2021, higher than the GNPA of 3.5% as of March 31, 2021. Further, the SMA-2 accounts which had increased to 6.2% as on December 31, 2020, improved to 2.9% as on March 31, 2021, and 2.5% as on December 31, 2021.
The collections have improved post the second covid wave and are near to pre-covid levels. However, a fair share of the portfolio is still under moratorium. The ability to get timely recoveries and control incremental slippages, will remain a key monitorables going forward.
* Potential funding challenges for wholesale-oriented non-banks 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. For the 9 months of fiscal 2022, the company raised around Rs 4,548 crores of funds, out of which long term funds stood at Rs 2,239 crore. 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. 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 At a group level, as on December 31, 2021, the group had total debt repayment (including interest) of Rs 3,327 crores till June 2022. In addition to scheduled collections, the group had cash and equivalent of Rs 3,854 crores and unutilised bank lines of Rs 168 crores. Further, 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 December 31, 2021. |
Outlook : Stable CRISIL Ratings believes the JM Financial group will maintain its healthy financial risk profile over the medium term, supported by strong capitalisation, conservative gearing, and high profitability. |
Rating Sensitivity Factors Upward factors
Downward factors
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About the Company JM Financial Limited (JM Financial), is the flagship listed company of the Group. It is an operating cum holding company and is engaged in various financial services businesses on its own and through its subsidiary and associate companies. It holds investments in its subsidiaries that are engaged in various businesses, namely, Non-Banking Financial Services, Asset Reconstruction, Equity Research, Equity Broking to Institutional and non-Institutional Investors, Wealth Management advisory, Mutual Funds Asset Management, etc |
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, syndication and finance; (b) Mortgage Lending includes both wholesale mortgage lending and retail mortgage lending (home loans, education institutions lending and LAP); (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 wealth management business, broking, PMS and 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 AUM at ~Rs 76,122 crore, and mutual fund QAAUM at ~ Rs 2,389 crore.
As of December 31, 2021, the consolidated loan book stood at ~Rs 11,240 crore, distressed credit business AUM at ~Rs 10,710 crore, wealth management AUM at ~Rs 84,988 crore, and mutual fund QAAUM at ~ Rs 2,020 crore.
The Group is headquartered in Mumbai and has a presence across 624 locations spread across 186 cities in India. The equity shares of JM Financial Limited are listed in India on the BSE and NSE. |
Key Financial Indicators
NCI is Non controlling interest |
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)
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Annexure – List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||
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This Annexure has been updated on 15-Mar-22 in line with the lender-wise facility details as on 15-Mar-22 received from the rated entity.
Criteria Details
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