Brokerage Initiates Coverage On This Mid Cap NBFC Stock With Buy, Sees 29% Robust Gains

Keynote Capitals initiates coverage on Motilal Oswal Financial Services Limited (MOFSL) with a BUY rating and a target price of Rs. 896 using the 'Sum-Of-The-Parts' (SOTP) method. According to the brokerage's given Target Price, if you buy the stock at the Current Market Price, you can expect a potential gain of 29% in 12 months.

According to the brokerage, "With over three decades of experience in the capital market, MOFSL has witnessed multiple market cycles and black swan events. The Company's research and advisory support to its broking clients has contributed to client retention, despite competition from discount brokers. MOFSL is well-positioned to take advantage of the increasing participation of retail clients in the equity markets on the back of its established franchise."

Stock Outlook & Returns

The stock of MOFSL is currently trading at Rs 695.15 apiece on NSE, 1.28% up from its previous close. The stock recorded the 52 week high at Rs 1,005.95 apiece, and the 52 week low at Rs 653 apiece, respectively.

The stock has given 1.52% positive returns in the past 1 week and 4.56% in the past 1 month, respectively. Over the past 1 year, the stock has fallen 23.92%. In 3 years it fell 15.97% and in 5 years it fell 52.1%, respectively. 

Diversification of business to increase future opportunities

MOFSL has aptly diversified its business operations to reduce industry risk and expand on opportunities. The Company diversified into the AMC business, which is expected to increase AUM owing to fund performance. The wealth management business will benefit from the rise of High-Net-Worth Individuals (HNIs) and Ultra HNIs (UHNIs) in India, which is expected to increase at a CAGR of 12% and 7%, respectively, from CY21 to CY26. In investment banking, the Company has a strong pipeline of ~25 deals worth Rs. ~200 Bn from sectors like BFSI, Auto, Consumer, Healthcare, and Industrials. In 2020, the Company also diversified into the Insurance broking business, which grew by more than 40% YoY in FY22.

Value unlocking in the Housing Finance segment

The Company entered the housing finance segment in 2015 but faced numerous difficulties in scaling it up. In 2020, the Company appointed Arvind Hali as the MD & CEO and Amar Bahl as the Deputy MD & COO of Motilal Oswal Home Finance Ltd (MOHFL), each having more than 20 years of experience in the industry. The Company rebuilt this segment conservatively by implementing proper processes and systems. The changes have resulted in constant improvement in collection ratio, yields, NIM, decreasing NPAs, and cost of funds. The disbursements have increased by 80% YOY in H1 FY23. The management is currently discussing the demerger of the housing finance segment to unlock the latent value.

View & Valuation

The broking business is expected to maintain a 2.5% market share based on the addition of Demat Accounts, followed by a rise in AMC AUM, which is expected to revive on the back of the scheme's performance and addition of new AUM. The wealth management segment AUM is expected to grow at 18% CAGR from FY22 to FY24E. The revival in the housing finance segment is evident by 80% YoY growth in disbursements in H1 FY23. "Based on the expectation of business improvement, we initiate coverage of MOFSL with a BUY rating and a target price of Rs. 896 using the SOTP valuation method," Keynote Capitals said.

Disclaimer

The stock has been picked from the brokerage report of Keynote Capitals. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.