Buy Motilal Oswal Financial Services Ltd For Target Rs.654 - HDFC Securities
Motilal Oswal Financial Services Ltd.’s, (MOFSL) diversified business with rising fee based income along with differentiated client franchise provides potential of gains from financialisation of savings. The production and distribution of all financial products and services helps the company’s advisors to attain client’s financial objectives with high end service. The company has well established brand and experienced management team. Over last three decades, MOFSL has seen various markets cycles and has a strong track record in the capital market space. This gives us confidence that the company will also emerge out stronger from this pandemic led down cycle. The AMC business is showing traction despite a challenging environment due to recovery in markets, better performance by MOFSL' funds and launch of passive funds. The broking business is expected to do well over FY21E as volumes continue to show strong traction. Scaling up of MOHL will still take some time.
Valuations and View:
We expect (ex-Aspire) revenue to grow by 20.6% CAGR growth, operating profit by 72% (due to FY20 lower base) over FY20 to FY22E. We have estimated ~3% CAGR in broking revenues over the same time frame while wealth management revenues for the same period are expected to grow by 21% CAGR mainly driven by AUM growth of CAGR 25% which is expected to reach to Rs.245 bn in FY22E from current Rs.156 bn. Rich pipeline and constant engaging on a wide cross-section of mandated transactions across capital markets and advisory will drive 48% CAGR revenue form investment banking segment of the company. We expect, AMC business to consolidate in FY21 on account of sales likely to reset as a result of changing regulations. Going forward, we expect it to register an AUM CAGR growth of 21% FY20-22. We will monitor recovery and repair at Aspire.
We feel that investors can buy Motilal Oswal Financial Services Limited (MOFSL) on dips to Rs.567-571 band (13.7x/18.7x capital markets/AMC FY22E PAT + 0.7x FY22E market value of the treasury book+0.5x FY22E ABV of HF) and add more on dips to Rs.516-520 band for the base case target of Rs.621 (14.5x/22x capital markets/AMC FY22E PAT + 0.7x FY22E market value of the treasury book+0.5x FY22E ABV of HF) and Bull case target of Rs.654 (15.5/23.5x capital markets/AMC FY22E PAT + 0.7x FY22E market value of the treasury book+0.5x FY22E ABV of HF) over the next two quarters.
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