Motilal Oswal Financial Services Ltd - Research Report

Private Client Research




Finance - NBFC

CMP (Rs)



Motilal Oswal Financial Services Ltd

Finance - NBFC

March 25, 2020

Sensex: 28535.78

CNX Nifty: 8317.85


BSE: 532892

Current MCap (in Rs. Crores)
Expected MCap (in Rs. Crores)
Investment Duration
10 Years


March 25, 2020



CNX Nifty








Stock Data

CMP (Rs)
Face value (Rs)
52 Week Range (Rs)
905.40 - 431.00
Market cap (Rs Crores)
Price To Book Value (x)
P/E Ratio (x)

One Year indexed Stock Performance

Motilal Oswal Financial Services Ltd Sensex
Motilal Oswal Financial Services Ltd
Return (%)


(in %)

+91 22 6639 3000


Motilal Oswal Financial Services Limited (MOFS) is a non-banking financial company (NBFC), registered under the Reserve Bank of India Act, 1934. MOFSL is a diversified financial services company with fee based and lending business activity. MOFSL operates in businesses such as Retail and Institutional broking, Investment banking, Asset Management, Wealth Management, Private equity and Housing finance. In each of the businesses, MOFSL offers unique value proposition to its customers and creates its niche in each of the business segments and commands premium position over peers. MOFSL carries its lending business by running Loan against shares book and retail mortgage backed lending in affordable housing segment under the name of Motilal Oswal Home Finance Ltd.

Chairperson and MD – Motilal Oswal, CA by qualification, he started MOFS along with Co-promoter, Raamdeo Agrawal in 1987. He has served on the Boards of the BSE, Indian Merchant’s Chamber (IMC), and on various committees of the BSE, NSE, SEBI and CDSL.

Joint Managing director - Raamdeo Agarwal, CA by qualification, he started MOFS along with Mr. Motilal Oswal in 1987. He is a Joint MD of MOFS and co-founder of MOFS.

Managing director - Navin Agarwal is a CA, ICWA, CS and CFA by qualification. He is responsible for the Institutional Broking & Investment Banking business and has been instrumental in building a market-leading position for the Group in Institutional Broking. He has been with MOFS since 2000.

CFO - Shalibhadra Shah is a CA by qualification. He is finance professional with 17 years of experience in finance, accounts, Taxation and Compliance. He joined MOFS Group in 2006.

Asset Management the future growth engine

Emerging Asset Management Business
Motilal Oswal Asset Management (MOAMC) operates PMS, AIF and MF in the public equities space. MOAMC has crafted its niche with majority of AUM in equities. Total public market AUM was at Rs.38,893 crore as of March 2019, up 9% YoY. Within this, the MF AUM was up 10% YoY to Rs.19,979 crore, PMS AUM was up 7% YoY to Rs.15,996 crore and AIF AUM was at Rs.2,759 crore. AMC business has scaled up quite well and profitability has improved significantly over the years from Rs.5 cr in FY14 to Rs.150 cr in FY19.

Mutual fund equity AUM market share has improved from 0.6% in FY2015 to 2% in FY2019.

We do not foresee any material impacts on MOAMC’s business because of slab wise reduction in Total Expense Ratio (TER), as its AUM is well positioned with 50% of it consisting of alternative assets like PMS and AIFs. Also, majority of the impact has been passed on to the distributors.

Motilal Oswal Financial Services Ltd
Motilal Oswal Financial Services Ltd

New fund launches to scale AMC business
MOAMC has recently launched 4 index funds MO-Nifty 500, MO-Nifty Bank, MO-Nifty Mid-Cap 150, MO-Nifty Small-Cap 250, these are India’s 1st of its kind retail focused passive funds. These index funds provide easy, economical and effective way of investing to the customers.

MOAMC in Q2 has launched new fund offer (NFO) of open-ended scheme under active category, MO-Large and Mid-Cap Fund with a blend of large and mid-cap stocks for the customers seeking long term capital appreciation.

Turnaround of Housing Finance business
The name alignment to ‘Motilal Oswal’, strong capital support from MOFS, promoter group’s stated commitment and increased involvement toward ‘Motilal Oswal Home Finance’ (MOHF), along with demonstrated operational, managerial and financial support, bring huge synergy benefits to MOHF.

Benefits are already visible with rating agencies upgrading their ratings for the home finance business. Top management has now been revamped with a new CEO, CFO, CRO and teams for collections, legal and technical.

We expect the home finance business to see turnaround in this financial year. With legacy loan book is seasoned for over 27 months, new loan book having zero NPAs, strong recoveries and upgrades is seen from written-off pool.

Market Leader in Portfolio Management Service (PMS)
As on 31st March 2019, PMS AUM stood at Rs.15,996 crore. MOFS is a market leader in PMS with 16% market share in AUM. MOFS has successfully scaled up its PMS AUM from Rs.5,412 cr in FY16 to Rs.15,996 cr in FY19.

The PMS industry has seen a robust growth of 18% CAGR in the last five years. AUM has increased from Rs.6 lakh cr in January 2014 to Rs.13.7 lakh cr in January 2019.

Motilal Oswal Financial Services Ltd

Fund based Investments
It includes activities focusing on ‘skin in the game’ approach and enhancing Return on Equity. Investments into opportunities like Motilal Oswal Home Finance Ltd., sponsor commitments to own mutual funds and private equity funds. As of 30th June 2019, investments in quoted equity investments including Mark to Market (MTM) gains was at Rs.1,610 crore. These investments have helped seed new businesses, which are scalable, high-Return on Equity (ROE) opportunities. These investments also serve as highly liquid resources available for future investments in business, if required.

Stable Broking business with reduced dependence
MOFS was successful in expanding its retail client base in FY 2019 despite market headwinds during the year. The company had more than 11,99,923 retail broking and distribution clients growing at a CAGR of 13% from FY15-19. Client acquisition stood at approximately 1,50,000 during the year. MOFS have 2500+ franchisees spread across India. In FY2019 alone, it has added 650 new franchisees and channel partners.

MOFS has been able to reduce cyclicality of the broking business by increasing its focus on distribution business. The distribution revenues now contribute 14.4% of the gross broking income with continual increase in distribution AUM. Broking & Distribution (B&D) business contributed 61% of total revenue in FY14, it has come down to 41% of total revenue in FY19. B&D profit for FY19 grew 18% YoY. Distribution AUM stood at Rs.9572 cr, growth of 27% YoY.

Motilal Oswal Financial Services Ltd

Wealth management – consistent growth with improving productivity
Wealth AUM stood at Rs.175 bn as on 31st March 2019 growing 19% YoY. Wealth Management business remains in investment phase on account of investment in relationship managers (RMs) in past 2 years. RMs productivity will improve with time and profitability of the business can improve commensurately.

Motilal Oswal Financial Services Ltd

Focus on Branding
MOFS has significantly invested in branding and advertising in the past few years and the same has started realizing benefits in terms of brand-recall in the long term. Their tag line of ‘Think Equity. Think Motilal Oswal’, ‘Buy Right Sit Tight’, ‘Think Equity. Think QGLP’ and ‘At Motilal Oswal we’ve spent 30 years focusing only on Equity’ have been gaining traction among customers.

Beneficiary of fundamental transformation in the Indian savings environment
India has historically been and is expected to remain a savings economy. The gross domestic savings rate (as a percentage of GDP) is higher than those of major economies such as the US, the UK, France, Japan and Germany. Indians traditionally have been great ‘savers’ but not good investors. Both the terms used to be confused with each other and most of the savings went into gold, real estate and fixed deposits. However, what is happening now is nothing short of a revolution with people preferring more of financial assets as compared to physical assets and within the realm of financial assets, the allocation towards smarter investment products like mutual funds, PMS, is increasing compared to fixed deposits.

Rising commitment to MF investments through Systematic Investment Plans (SIPs)
Apart from the good stock market performance that has obviously attracted investors, there is no doubt that continuous investor education via industry body Association of Mutual Funds in India (AMFI), by individual MFs, as well as SEBI has contributed to a significant awareness amongst retail investors about mutual funds and SIPs as a convenient and disciplined approach to investing in equities on a periodic (weekly, fortnightly, monthly) basis. Under guidance from SEBI, industry umbrella body AMFI began the ‘Mutual Funds Sahi Hai’ (‘Mutual Funds Are Good’, also translates as ‘Mutual Funds Are the Right Choice’) campaign. Over the past two years, the campaign has penetrated multiple media platforms through its eye-catching adverts explaining various aspects of MF investing.

Mutual Fund Industry in India is poised for strong growth
The equity investment culture through mutual funds has been deepening and we believe the MF industry is in a sweet spot to exploit the same. The strengthening of SIP flows looks sustainable given the continued incremental commitments in the form of new folios.

The Indian mutual fund AUM stood at Rs25 lakh crore as of April 2019 and the trend suggests a likely growth rate of 20-22% CAGR between FY20-FY23E. This can take the MF AUMs beyond Rs50 lakh crore market over next three to four years. A continued preference for financial assets over physical assets should support the growth in MF AUMs (Note: Financial assets include equity, debt securities, ETFs, etc. Physical assets include real estate, gold, etc). We expect this to manifest in the form systematic investment plans (SIPs) and tax saving ELSS schemes (ELSS schemes are tax-saving schemes which are equity oriented, they offer tax deduction under section 80C of the Income tax Act) through retail participation.


Mutual fund Industry in India
The Indian mutual fund (MF) industry has a long history of over 50 years, starting with the formation of UTI in 1963. UTI launched its first scheme, Unit Scheme 1964, in 1964. As of FY19, the mutual fund industry comprised of 44 players. The mutual fund industry’s Asset under Management (AUM) has grown from Rs. 8.3 lakh crore as of March 2014 to Rs. 23.8 lakh crore as of March 2019, Average AUM of the Indian Mutual Fund Industry for the month of April 2019 crossed a landmark of Rs.25 lakh crore and stood at Rs.25,27,633 crore, supported by strong investor inflows. Equity as a percent of total AUM has increased from 25% in March 2014 to 43% in March 2019.
Systematic wealth accumulation has gained significance in recent years, especially among individual investors. The SIP book size increased from Rs.3120 crore as of April 2016 to Rs.7120 crore as of March 2018 and to more than Rs.8000 crores as of March 2019. AUM attributable to individual investors has witnessed the fastest growth among investor categories. With the recent surge in retail investors participation in mutual funds, they have shown a growing preference for equity-oriented funds.

PMS Industry in India
Portfolio Management Services (PMS) is a most versatile investment vehicle. It is the most suitable investment vehicle for meaningful/concentrated, benchmark-agnostic, bottom-up stock picking. This merit has led to PMS being the vehicle of choice for investors, who are seeking differentiated portfolios based on bottom-up stock picking. 
On a five-year CAGR, PMS service providers across categories (large cap, mid cap, small cap and multi cap) on an average have outperformed benchmark returns and delivered anywhere between 3.5 per cent and 9 per cent excess returns over the benchmark index. The strong performance over this period fueled further inflows. 

Wealth Management Industry in India
The Indian Wealth Management industry is one of the most rapidly growing industries in India. The huge potential of this industry can be established through the rapidly expanding High Net worth Individuals (HNI) base in India. The Indian Wealth Management market is on a sustained path of growth, given India’s long-term economic prospects, positive demographics, rising income levels and current low penetration of this industry. India is currently ranked among the Top 10 nations in terms of total private wealth held as per Capgemini’s World Wealth report. The aggregate wealth held by Indian HNIs is expected to grow at a CAGR of 27% for next five years.

Housing Finance Industry outlook
As per ICRA, Housing Finance companies (HFCs) long-term growth prospects look attractive, but tight liquidity situation will affect near-term growth prospects. While the home loan portfolio of HFCs continued to grow at a faster pace of 21%, the pace of growth for banks also increased to 16%.
A marginal shift in market share from HFCs to banks is also expected. Additionally, the pace of growth in the non-housing loan segment is expected to come down as HFCs would prefer to conserve liquidity.

Broking Industry in India
The average daily traded volumes (ADTO) for the equity markets during FY2019 stood at Rs.9.93 lakh crore, up 46% YoY from Rs.6.79 lakh crore in FY2018. The overall Cash market ADTO reported growth of 7% YoY at Rs.35,180 crore in FY2019. However, the absolute growth was affected due to decrease in delivery-based trade, which saw de-growth of 8.2% YoY to Rs.8,854 crore v/s 26% growth in FY2018. Amongst cash market participants, retail constitutes 53% of total cash volume, institution constitutes 25% of total cash volume and proprietary constitutes 20%. The increase in demat accounts during the year stood at 12%. The revival in market sentiments along with a clearer picture on the political front is expected to give a push to primary market activities and overall volumes. Indian households are seen to hold interest in equity and equity products with expectations of higher returns than traditional fixed income products.

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

Profit & Loss Summary

(Rs Crores)

Particulars (Rs. in cr.) FY17 FY18 FY19 FY20 E FY21 E FY30 E
Revenue 1840.86 2750.74 2462.68 2809.93 3109.89 9358.85
Growth % 74.29 49.43 (10.47) 14.10 10.67 14.68
EBITDA 925.84 1393.40 919.64 1445.48 1601.77 5319.43
EBITDA Margin % 50.29 50.66 37.34 51.44 51.51 56.84
Growth % 126.46 50.50 (34.00) 57.18 10.81 16.55
PAT 364.53 623.22 290.32 563.73 643.76 2665.57
PAT Margin % 19.80 22.66 11.79 20.06 20.70 28.48
Growth % 123.20 70.97 (53.42) 94.18 14.20 18.52
Source: Stockaxis Research, Company Data

Profit & Loss Segmental

(Rs Crores)

Particulars (Rs. in cr.) FY18 FY19 FY20 E FY21 E FY30 E
Broking 1120.90 1133.40 1224.07 1322.00 2642.68
Invetment Banking 111.60 38.10 40.01 44.01 103.76
Asset Management 519.80 578.60 585.79 702.95 3627.07
Wealth Management 98.10 108.80 124.78 129.05 291.45
Private Equity 165.60 110.40 126.96 146.00 513.62
Fund based 248.50 59.10 73.08 84.04 295.65
Housing Finance 670.80 648.40 635.25 681.84 1884.62
Total Revenue 2935.30 2676.80 2809.93 3109.89 9358.85
Operating costs 1357.30 1543.10 1364.46 1508.12 4039.42
EBITDA 1409.10 936.70 1445.48 1601.77 5319.43
Depriciation 37.49 23.95 30.97 31.90 41.63
Finance cost 528.43 516.85 588.75 616.79 1362.72
Provisions & Bad Debts W/off 411.74 187.97 74.11 94.72 361.00
Profit before Tax 431.44 207.93 751.64 858.35 3554.09
Tax 205.86 94.07 187.91 214.59 888.52
Profit after tax 637.30 302.00 563.73 643.76 2665.57
Broking 143.60 173.40 201.97 218.13 502.11
Invetment Banking 59.50 8.10 10.65 11.72 29.57
Asset Management 110.40 147.60 166.95 205.61 1305.75
Wealth Management 21.30 14.00 9.36 11.61 65.58
Private Equity 80.80 30.10 39.99 45.99 200.31
Fund based 202.50 61.20 98.28 63.03 221.74
Housing Finance 19.20 -132.40 36.53 87.66 340.52
Source: Stockaxis Research, Company Data

Balance Sheet

(Rs Crores)
EQUITY AND LIABILITIES FY2017 FY2018 FY2019 FY2020 E FY2021 E FY2030 E
Share Capital 14.45 14.51 14.57 14.57 14.57 14.57
Reserves 2236.43 2906.45 3079.66 3643.39 4287.15 17997.64
Total Shareholders fund 2250.88 2920.96 3094.23 3657.96 4301.72 18012.21
Trade Payables 1031.29 1320.39 1390.62 1228.01 1357.31 3635.48
Total Debt 5052.59 5322.94 5114.93 5626.42 6189.07 14593.49
Other Financial liabilities 324.22 573.16 597.67 627.55 658.93 1022.22
Other Non Financial liabilities 152.18 200.97 162.82 170.96 179.51 278.48
Total Liability & Equity 8811.16 10338.42 10360.27 11310.91 12686.54 37541.88
Net Block 259.36 263.84 266.92 274.93 283.18 369.48
Trade Receivables 1284.58 1091.69 1572.83 1685.96 1865.93 5615.31
Cash, Bank and Investments 2793.67 3260.90 3374.97 3579.40 4037.25 12423.49
Loans and Advances 4319.22 5541.07 4878.61 5512.83 6229.50 18713.67
Other Financial Assets 36.25 20.62 37.28 39.14 41.10 63.76
Other Non Financial Assets 118.08 160.30 229.66 218.65 229.58 356.16
Total Assets 8811.16 10338.42 10360.27 11310.91 12686.54 37541.88

Sum of the parts valuation

(Rs Crores)

Business Segment Metric FY20 E FY21 E FY30 E Multiple (x) FY20 E FY21 E FY30 E
Capital markets PAT 212.62 229.85 531.68 30.00 6378.70 6895.38 15950.44
AMC PAT 216.30 263.22 1571.63 40.00 8652.05 10528.76 62865.35
Investments MTM 1692.00 1945.80 6845.08 1.00 1692.00 1945.80 6845.08
Housing finance BV 870.13 957.79 2764.10 3.00 2610.38 2873.37 8292.30
Valuation per share No. of Shares FY20 E FY21 E FY30 E
Capital markets 14.57 437.86 473.32 1094.90
AMC 593.91 722.73 4315.30
Investments 116.14 133.57 469.87
Housing finance 179.19 197.24 569.21
Total 1327.10 1526.86 6449.28

Key Ratios

(Rs Crores)

Particulars FY2017 FY2018 FY2019 FY2020 E FY2021 E FY2030 E
EBITDA Margin % 50.29 48.01 34.99 51.44 51.51 56.84
PAT Margin % 19.80 21.71 11.28 20.06 20.70 28.48
EPS 25.02 43.75 20.73 38.70 44.19 182.97
P/E 25.98 14.86 31.35 16.80 14.71 3.55
Book Value 181.00 244.26 232.30 251.06 295.25 1236.25
P/BV 3.59 2.66 2.80 2.59 2.20 0.53


We like MO as all business segment are scalable and offer huge headroom for growth. We feel Motilal Oswal should be viewed as an Asset Management play rather than a Broking company, as Asset and Wealth management business is the highest contributor to profit, ahead of capital market business.

With turnaround in Housing Finance business, operating leverage playing out in the Asset and Wealth management business and stable broking business, we see long runway in all business verticals. We initiate a buy on the stock with a target market cap of Rs.96,000 crore in 10 years.