I am currently making a portfolio of good dividend paying stocks. And Motilal Oswal Financial Services Limited (NSE:MOTILALOFS) was on my watchlist. So I went through it’s 2020 Annual Report.
Now, Annual Reports are like stories – you and I reading it will get a completely different understanding of that same story. So I highly recommend you to go through the report yourself; the below points are what caught my attention (Note: All monetary figures are in lakhs):
1. In FY20, total retail client base stood at 14,48,935 with a CAGR of 16% from FY16-20.
2. Asset Management – Registered highest ever profit of 160 cr in FY20, a growth of 9% YoY. Till now they were mainly into active funds but recently they also entered into the passive category with the launch of Index Funds.
3. Wealth Management – Client acquisition saw an encouraging growth with the number of families under its business, increasing 13% YoY to 4186. And a new MD & CEO has also joined with over 20+ years of experience in Wealth Management Industry.
4. Operating Revenue down for 3rd straight year but also Operating Expense lowest in the last 3 years.
5. Despite making less revenue than FY19, dividend distribution has increased as compared to last year probably because of less tax paid in FY20.
6. Share buyback for a total amount not exceeding ₹150,00,00,000 at a price not exceeding ₹650 per equity share.
7. Among its Indian subsidiaries, 7 out of 13 have negative PAT (Profit After Tax) growth.
8. Among it’s outside Indian subsidiaries, 2 out of 4 has negative PAT growth.
9. 62.65% of the total turnover of the company came just from the brokerage business. So a very high concentration in just 1 sector and that too a very competitive sector.
10. Out of 19 promoters – 3 increased their stake, 10 did nothing, 6 reduced their stake including Motilal Oswal & Raamdeo Agrawal. But another point to note that most reduction in stake was because of Inter-se Transfer which means they gifted or transferred their shares to relatives etc.
11. Motilal Oswal has around 4% market share in the retail brokerage industry.
12. Market share (Equity-AUM) of Motilal Oswal AMC mutual funds stood at 1.9%, same as 2019 and 0.1% less than 2018.
13. High promoter shareholding at 69.76%
14. Standalone Results (in lakhs as of 31 Mar)
- Cash and cash equivalents during 2020 was ₹67,668, whereas in 2019 they had ₹25,799. So that’s an increase of 2.6X in their cash reserve.
- Now if you go to the notes, to know more about this increase you will see they mainly increased their fixed deposit with banks (with original maturity more than 3 months) to ₹44,902 (2020) from ₹24,939 (2019)
- Total assets also increased in 2020 to ₹6,16,590 from ₹5,70,624.
- Standalone Borrowings (Other than debt securities) drastically decreased in 2020 to ₹36,313 from ₹102,180 in 2019.
15. Consolidated Results (in lakhs as of 31 Mar)
- Cash and cash equivalents increased as usual due to increase in the standalone results i.e. to ₹84,352 from ₹37,368 in 2019.
- But Total Assets dropped in 2020 to ₹1,011,060 from ₹1,048,175; despite an increase in Standalone assets, which shows poor performance of some of its subsidiaries.
- Consolidated Borrowings (Other than debt securities) reduced just like the standalone results to ₹180,355 (2020) from ₹257,612 (2019)
16. Net cash generated from operating activities in 2020, more than doubled to ₹78,400 from ₹30,620 in 2019.
17. Also learned that the company itself invests in many of its own mutual & index funds and ETFs. Around ~₹57,000 lakhs. They are mainly calling this “Skin in the game” and also promoting this with paid ads. But one thing to note is that this amount has significantly dropped since 2019. Probably one of the reasons for huge cash reserve. Just like every other company they are investing less and preserving more cash.
18. Most of its subsidiaries are audited by different companies, so the auditors of Motilal Oswal didn’t audit some of its subsidiaries.
19. Loans (in lakhs as of 31 Mar)
- Home loans in 2020 dropped to ₹364,312 from ₹435,747 in 2020. A good conservative decision, looking at the current scenario of the housing market.
- Margin trading facility loans in 2020 dropped to ₹19,849 from ₹47,561 in 2019.
20. Mutual fund management and advisory fees dropped to ₹13,619 in 2020 from ₹16,051. Kind of a concerning figure.
21. Expense
- Huge reduction in Rent in 2020 i.e. ₹505 from ₹1,693 in 2019
- But for some reason legal and professional expense increased a lot in 2020 to ₹3,097 from ₹2,179 in 2019.
22. Decrease in gross debt and drastic increase in cash reserve resulted in drastic decrease in net debt. A good sign.
Conclusion: I truly believe that Motilal Oswal could easily become the Vanguard of India with its early launch of low-cost index funds and ETFs. But currently am not very comfortable to include it in my long-term dividend portfolio as it will face a huge competition in its brokerage business from which most of its earnings comes. Despite its entry into the passive funds, the low-cost structure of it will not help the company gain much revenue from it. So at this point, I am and will be a customer of Motilal Oswal’s products but not an investor.
And as I always say, please don’t take this as investment advice; I am in no way a certified investment advisor. This is just to help and motivate you to start your investment journey as fast and with as little money as possible.
As always, never forget our life mantra: Save Invest Repeat. And do let me know if you own or planning to own Motilal Oswal’s shares. Talk to you on Twitter – @InvestRepeat. Also, you can join my private Telegram channel (Username: InvestRepeat).
Your man,
SIR
