The nature of FY2020 remained volatile and challenging for the overall markets withvarious macro-level headwinds like weak auto sales muted growth in personal and consumerloans and sluggish rural demand. Adding to these woes was the default of a major housingfinance company escalation in US-China trade tensions and fall in oil prices. Even thenequity markets enjoyed a bull run for most part of the year with the Sensex and Niftytouching an all-time high in January. But with the origination and spread of coronavirusand significant lockdown imposed by the government economic activity was severelydisrupted. India's growth engines (private consumption private investment and exports)slowed down significantly due to tightening credit and poor customer sentiment. Despitesuch challenges during the year our company withstood the volatility and continued
to march towards achieving linearity in the business. We continue to remain optimisticon the growth potential of all our business verticals given the robust fundamentalstructure and revival in macro-conditions. Our consolidated revenues for FY2020 stood at '2411 crores and consolidated operating PAT for FY20 was at ' 398 cr +56% YoY. OperatingPAT is excluding MTM on fund based investments. FY20 reported profit was lower at ' 183 cron account of MTM loss on fund based investments. Our RoE excluding other comprehensiveincome stands lower on YoY basis at 6.6%. Going forward our focus on knowledge talentprocesses technology brand & culture and intersegment synergies will pave the roadfor achieving milestones across all business verticals.
Despite regulatory changes on fees and AUM de-growth driven by market correction duringthe year PAT of our Asset Management business grew 9% YoY. Our AMC AUM which includesMFs PMS and AIFs stood at ' 29691 crores at the end of FY2020. We firmly believe in ourQGLP (Quality Growth Longevity and Price) philosophy which has rewarded us over theyears in terms of performance and will continue to follow and improvise it. Our AMCbusiness has always been the promoter of trail based model and hence the ban on upfrontfee structure has been in our favour. Slab wise Total Expense Ratio (TER) changes hastriggered higher redemption in 1st quarter of the year resulting in negative net flows forthe quarter. However improvement in performance of most of the schemes and effort ofright communication to customers resulted in positive net flows for the remainingquarters. The impact of TER change has been shared with distributors in same proportion ofcommission sharing so net impact to us is lower. During the year PE busienss AUM haswitnessed growth of 3% YoY to reach ' 6530 crore led by successful fund raising of IREF-4fund. We did not record any carry income during the year. Our Wealth Management businessgot impacted on account of lower net sales during the year led by challenging marketconditions and adverse regulatory measures. Because of this our AUM declined to ' 15624crores. But we have been successful in adding new families. With the improvement in thevintage of RMs the profitability of our Wealth Management business is poised for furthertraction.
On the Capital Markets front the suppressed sentiments and dip in FII flows had animpact on primary and secondary markets. Despite such headwinds we were successful inadding around 2.5 lakh clients taking the total Retail client base to ~14.5 lakh. Ourdistribution AUM has reached above ' 9034 crore and has huge head-room for growth as theclient penetration stands at ~16% of our retail client base. In Institution Equitiesbusiness our rankings and clientele continued to remain robust. The Investment Bankingbusiness during the year remained under pressure as primary market activities almost driedup as companies put their capital raising plans on hold. We
continue to engage on a wide cross-section of mandated transactions across capitalmarkets and advisory. As the markets recover we expect a number of these transactions toconclude successfully.
On our Housing Finance business our efforts were concentrated in building a newerversion of business with alignment of processes remaining the utmost priority. Our seniormanagement team with all functional heads (Risk Credit Technical Legal Collections) isnow in place. We have verticalised the organizational structure with independent salescredit collection and legal teams. There was a significant reduction in NPAs in FY20 postsell of NPA book to ARC. After implementing several changes in Aspire along with parentsupport it has now culturally aligned with MOFSL group. Hence we have changed the nameof "Aspire Home finance" to "Motilal Oswal Home Finance" which willyield multiple benefits. Going forward our focus will continue to make our HousingFinance business a turn-around story.
In our fund based businesses (comprising of sponsor commitments to quoted equity andprivate equity funds) most of the gains are still unrealized and yet to be booked in ourreported P/L. As per IND-AS these gains are a part of our reported earnings. Our QGLPphilosophy niche expertise in equities proven track record and belief in 'skin in thegame' augurs well for our fund based business.
Some of the key highlights of FY2020 include 9% growth in PAT of Asset Managementbusiness 4% growth in PAT of Broking business profit of ' 39 crore for Home Financebusiness in FY20 Index Funds launch in AMC. We have maintained dividend payout policywith dividend payout ratio of 39%. Company has also initiated Buyback of equity sharesupto ' 1.5 bn (excluding tax).
Our strategy to diversify our business model towards linear sources of earnings hasshowed results with bulk of the revenue pie now coming from new businesses. Asset &Wealth businesses are now the largest contributor to profits and ahead of the Capitalmarket businesses. Going forward with expectations of profits from our efforts in HousingFinance and scalability of other businesses we remain excited for the future prospects ofthe company.
Although International Monetary Fund slashed its FY21 growth projection for India to1.9% (from 5.8% projected in January) India stands to benefit in this uncertainenvironment. Many global MNCs are likely to consider diversifying their manufacturingoperations from China to India given the low corporate tax rate skilled populationrelatively low wages and a large domestic market. Also the growing demand for affordablehousing industry stands positive for our business. Sustenance of macros at reasonablelevels augurs well for our business and industry as a whole. As these macro trends open upopportunities our experience and emphasis on 'knowledge first' give us the ability tocapture these growth prospects.
With best wishes
|Motilal Oswal |
|Managing Director & Chief Executive Officer |
|Motilal Oswal Financial Services Ltd. |