Tag: JM Financial

Shares of PB Fintech likely to see limited upside in near term, says JM Financial, BFSI News, ET BFSI

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PB Fintech, the parent company of PolicyBazaar, made a positive stock market debut with a 17.35% gain on Monday. The listing pop came as a positive surprise to many experts and analysts, however, JM Financial Services expects limited scope for further gains in the stock.

The brokerage has set a price target of Rs 1,270, which implies a near 5 per cent downside from the current market price. “We initiate coverage with a ‘hold’ rating, solely due to premium valuations with significant upside risks in our ‘bull’ scenario that can drive share price to over Rs 2,200 by December 2024,” it said.

Though the brokerage firm sees limited near-term upside against CMP post the strong listing, they reckon there is a likely path for PB Fintech to grow to a valuation of $13.5 billion over the next couple of years against $7.3 billion currently. This is only if few incremental levers fall into place, which are unlikely in the very near-term, the brokerage said.

These levers consist of digital penetration reaching 5.5 per cent against 4.5 per cent.

Shares of PB Fintech likely to see limited upside in near term, says JM Financial

“Policybazaar is the dominant market leader in a large and growing industry with strong tailwinds such as increasing digital penetration, rising disposable income and insurance awareness. We do believe Policybazaar will be in the driving seat in enhancing insurance penetration in India,” JM Financial said

The brokerage firm is of the strong opinion that the company should continue deepening scale moats in light of new-found competition emerging from insurers’ direct channels and cross-sell by fin-tech players like PhonePe and Paytm.

JM Financial expects PB Fintech, PolicyBazaar’s parent, to grow revenues by 31 per cent annually over the next 10 years.

“While we expect slight market share loss in online distribution due to insurers’ investment in direct channel and newer competition, this loss will be aptly compensated by the company’s growth in physical distribution” it added.



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IPO financing costs double as 5 IPOs set to hit market, raise Rs 31,000 crore, BFSI News, ET BFSI

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After the Reserve Bank of India capped the borrowing from NBFCs for IPO subscription to Rs 1 crore per borrower, investors have been hit by doubling interest rates in the last two months.

Funding rates have shot up as many large-sized IPOs are scheduled within a short span of time. Interest rates have risen to 12-13 per cent in the last two months as liquidity has tightened in the system. Liquidity is further seen going down in the next couple of weeks and funding rates may rise further. With five IPOs scheduled to hit the market by November 3 and aiming to raise Rs 31,000 crore, the demand for funds is bound to go up amid a liquidity crunch.

Five IPOs

Five companies are looking to mop up over Rs 31,000 crore cumulatively between October 28 and November 10. Industry players expect Nykaa to be the biggest draw. Its IPO is expected to generate bids between Rs 80,000 crore and Rs 90,000 crore in the HNI category.

NBFCs issue seven-day commercial papers (CPs) to meet this funding requirement. The CPs are issued at 5.5 to 6.5 per cent. Industry players said the huge borrowing requirement had also led to a 100-200 basis points increase in CP rates.

Bajaj Finance, Kotak Securities, IIFL, JM Financial, and Motilal Oswal are among NBFCs that are looking to borrow or have borrowed from the CP market to lend to HNIs to apply for IPOs of Nykaa and others.

Rising costs

With the increase in funding rates, the cost per share has gone up drastically for wealthy investors.

For instance, at 7% for seven days, the cost for one share of Nykaa comes at around Rs 151 for 100 times HNI portion subscription. At 11%, the cost will go up

to Rs 237 per share, and at 13%, it will be Rs 280 per share. This means investors will make money only if the Nykaa lists with a premium of more than Rs 280 per share if one borrows at 13%.

The IPOs of Nykaa and PB Fintech are currently traded at a grey market premium of Rs 670 and Rs 220 apiece, respectively.

Raising funds

While the Nykaa IPO will hit the market on Thursday to raise Rs 5,352 crore, the PB Fintech IPO will open for subscription on Monday, November 1, to raise

Rs 5,710 crore. There is demand for nearly Rs 1 lakh crore from high-net worth investors for these two IPOs against the availability of Rs 50,000-60,000 crore at one time

NBFCs are readying a war chest of close to Rs 2 lakh crore to lend to high net worth individuals (HNIs) for their IPO bets.



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JM Financial Products to raise upto ₹500 crore via public issue of secured NCDs

Banking & Finance

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JM Financial Products, the NBFC arm of the JM Financial Group on Friday announced Tranche – I public issue of secured NCDs of face value of ₹1,000 each.

The issue includes a base issue size of up to ₹100 crore with an option to retain over subscription up to ₹400 crore, which would in all total up to ₹500 crore.

“The funds raised through this Tranche I Issue will be used for the purpose of onward lending, financing, and for repayment / prepayment of interest and principal of the borrowings of the company (at least 75 per cent) and for general corporate purposes (up to 25 per cent),” JM Financial said in a statement..

Tranche – I Issue will open on September 23, 2021 and close on October 14, 2021.

The issue offers four Series, of which Series I comes with floating interest rate option and Series II, III and IV comes with fixed interest rate option.

The fixed coupon rate is of up to 8.3 per cent per annum and the floating interest rate will be calculated based on 91-day T-bill and 3.15 per cent spread.

The tenor will range from 39 months to 100 months. “This public issuance will continue to help us diversify our borrowing and investor mix. Our strong balance sheet, well-capitalised and diverse set of businesses and strategic client-focused approach position us to drive sustainable value for our stakeholders,” said Vishal Kampani, Managing Director, JM Financial Products and Managing Director, JM Financial Group.

The lead managers to the issue are Equirus Capital and JM Financial.

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CMS Info Systems files draft papers with Sebi to garner Rs 2,000-cr via IPO, BFSI News, ET BFSI

Banking & Finance

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New Delhi, Cash management company CMS Info Systems has filed preliminary papers with markets regulator Sebi to mop up Rs 2,000 crore through its initial share sale offering. The company’s initial public offer (IPO) is a pure offer for sale by promoter Sion Investment Holdings Pte Limited, an affiliate of Baring Private Equity Asia, as per the draft red herring prospectus (DRHP).

Sion Investment, which acquired CMS in 2015, holds 100 per cent stake in the company at present.

CMS provides cash management services, which include ATM services, and cash delivery and pick-up.

The company’s integrated business platform is supported by customised technology and process controls, which enables it to offer customers a wide range of tailored cash management and managed services solutions.

It caters to broad set of outsourcing requirements for banks, financial institutions, organized retail and e-commerce companies in India. It operates business in three segments — cash management services, managed services and others.

This will be the company’s second attempt to go public. Earlier in 2017, it had filed draft papers with Sebi and had obtained the regulator’s clearance to launch the IPO. However, the company did not launch the public issue.

Axis Capital, DAM Capital Advisors, Jefferies India, and JM Financial are appointed as the book running lead managers to the issue.



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Will RBI take away the punch bowl from IPO financing party?, BFSI News, ET BFSI

Banking & Finance

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Ever thought why the initial public offerings of many companies receive bids that are over 100 times the offer. Apart from the investor appetite and retail frenzy the biggest factor in work is margin financing of IPOs by banks and NBFCs.

July saw several records being broken in the IPO market as a whopping Rs 8.86 lakh crore were bid for IPOs of Rs 18,400 crore on offer. About 98% of the money came from margin financing. Zomato, with an IPO size of Rs 9,375 crore, got bids for Rs 3.58-lakh crore, a subscription of nearly 39 times.

How does it work?

Unlike for retail investors, there is no limit on HNIs and institutions bids in an IPO. HNIs have to put only Rs 1 crore of their own for a bid worth Rs 100 crore while the NBFC funds the remaining 99 per cent. With the lenders charging 10-15%, the cost is just Rs 20 lakh towards interest for Rs 100 crore bid for 3-5 days. With all IPOs listing above the issue price, the leveraged investor can exit on the opening day. With a spectacular listing like the Zomato that gave 63% returns, more players are attracted to the market. The risk of the IPO collapsing in the initial days is virtually absent due to the heavy bidding and grey market premium.

With 15 per cent of an IPO reserved for HNIs and 50 per cent for institutions, their allotment is often enough to cover their interest cost as their bids are extremely high. Self-funding and other sources of borrowing would further increase the size of the IPO financing market.

The fund raise

Bajaj Finance had raised Rs 27,200 crore since June 10, while Infna Finance, Aditya Birla Finance and Tata Capital have collected Rs 13,225 crore, Rs 11,380

crore and Rs 9,625 crore, respectively. Two JM Financial firms have together raised Rs 16,300 crore, while IIFL Facilities Services and IIFL Finance have garnered about Rs 11,600 crore, according to reports. Most non-bank lenders raised funds by issuing commercial papers in the primary market. These papers have tenures of seven to 10 days and yield to maturity between 3.7% and 5.8%.

The risk

Financiers insist the risk is limited since there is a margin for the lender in terms of shares. Normally, higher the funding cost, lower the chances of making money on the IPO after all costs are factored in. Investors need to pay interest on the entire amount borrowed and not on the amount actually allotted. That is why higher oversubscription works against borrowers as they have to have more interest on idle funds.

RBI proposal

The euphoria due to excess funding is leading to artificial demand and distorting IPO prices in the short term. While the funded investors exit on listing, serious investors get low allotments.

In January this year, the Reserve Bank of India had proposed to cap IPO financing by NBFCs to up to Rs 1 crore per person, a move which may lead to a sharp drop in bidding by high net worth individuals (HNIs) and a drastic reduction in subscriptions of offers.

Banks have a Rs 10-lakh limit on IPO financing and there is no such cap for NBFCs. “IPO financing by NBFCs has come under close scrutiny, more for their abuse of the system,” the RBI said in a discussion paper. “Taking into account the unique business model of NBFCs, it is proposed to fix a ceiling of Rs 1 crore per individual for any NBFC,” the RBI said. Market players said that RBI’s proposed rule would surely bring a break to highly subscribed IPOs.



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JM Financial Q1 consolidated profit jumps 117% to ₹203 crore

Banking & Finance

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JM Financial consolidated net profit surged by 117.01 per cent to ₹203.14 crore for the first quarter ended June 30, 2021 led by a sharp rise in its total income.

Its consolidated net profit was ₹93.61 crore in the corresponding period a year ago.

“This is the highest-ever quarterly operating net profit reported,” JM Financial said in a statement on Wednesday.

Its total income rose by 43.62 per cent to ₹992.55 crore from ₹ 691.11 crore a year ago.

The consolidated loan book grew by 1.7 per cent to ₹11,014 crore as on June 30, 2021 compared to ₹10,833 crore as of June 30, 2020.

Gross non-performing assets and net NPA stood at 3.46 per cent and 1.89 per cent, respectively, as of June 30, 2021 compared to 1.8 per cent and 1.22 per cent, respectively, as of June 30, 2020.

Gross provisions

“We have made additional gross provisions (including fair value loss) of ₹132 crore on account of the uncertainties around Covid-19 for the quarter ended June 30, 2021, thereby taking the total provisions to ₹515 crore on account of the pandemic,” it said.

During the quarter ended June 30, 2021, the underlying businesses of the reportable segments have been reclassified to investment bank, mortgage lending, alternative and distressed credit and asset management, wealth management and securities business, JM Financial further said.

“Our diversified business model has demonstrated time and again resilience through economic and market volatility. This new realignment of business segments will facilitate seamless execution of our strategy,” said Vishal Kampani, Managing Director, JM Financial Group.

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ARCs may be allowed to tie up with AIFs for asset turnaround, BFSI News, ET BFSI

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After proposing to set up a bad bank, the government is looking to give more leeway to asset reconstruction companies (ARCs) in buying NPAs and reconstruction.

The government is looking into proposals to allow ARCs to team up with private equity and venture capital funds to recapitalise and ensure the turnaround of a defaulting company.

The Reserve Bank of India (RBI) may also set up a task force comprising industry veterans and experts to review the regulations governing.

If an ARC, ties up with an alternative investment fund (AIFs) such PE or VCs to arrange finance for reviving a company through equity infusion, or acts as a sponsor in an AIF, then its investment commitment would be lower than 15% cash as required under the current rules. That could help in more loan sale transactions between banks and ARCs.

According to the rules, an ARC must pay a minimum 15% of the deal value in cash and the balance as ‘security receipts’ (SRs) which are similar to seven-year bonds.

What ails ARCs

The cash proportion of 15% has pushed the ARCs to raise their returns through securitisation and asset reconstruction

Unless the ARC recovers 130% of the acquisition value, it will not make its return. Even at 100%, ARC will make a loss because the management fee of 1-2% doesn’t make any ARR for ARC. Recovery should be over 130% so that 100% of security rights will be redeemed.

Provisioning impediment

Also, in September 2016, the Reserve Bank of India introduced new regulatory guidelines regarding provisioning. From April 2018 banks have to sell at 90% cash and 10% SRs. If a bank holds more than 10% SR, it had to continue provisioning for the loan which is not even on their books. So there is no incentive for them to transfer to ARCs. Now no banks transfer on 15:85 and all deals are in cash.

Cash deals

At such high levels of cash, the market becomes unviable for all but a few. Some ARCs such as Edelweiss, JM Financial that have raised money from Alternative Investment Funds (AIFs) do transactions on a cash basis, but other ARCs have deployed whatever capital they had, and now have none.

The holdings of such AIFs which have the capital to invest in newly-issued security receipts have risen sharply. These funds hunt for viable assets. Vulture funds and AIFs look for 25% plus returns while the ARCs look at 18-20%.



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