Friday, June 1, 2012

JM Financial Bought by Morgan Stanley

Nimesh Kampani,
Chairman & Managing Director, JM Financial Ltd.
11:58 PM IST, FRIDAY, 1st JUNE 2012

By Staff Reporter:

JM Financial Ltd (BSE: 523405, NSE: JMFINANCIL) counter in BSE on Friday witnessed a significant buy of 1.65 crore shares by the leading FII, Morgan Stanley.

The deal amounting to a 2.20% stake in the domestic investment banking and financial services major, was disclosed at Bombay Stock Exchange after trading hours on Friday.

Morgan Stanley Asia (Singapore) Pte pumped in Rs. 19.55 crore to pick up the stake at Rs. 11.85 a share.

The deal had a matching seller in US based investment firm, Blue Ridge, when two of its arms sold off a combined 1.66 crore shares on Friday.

Blue Ridge has been an early backer and a long-term holder of JM Financial stock, and also the company’s largest non-promoter shareholder, with an 11.09% stake as of Q4 end.

Though the buy by Morgan Stanley is unimpressive due to the presence of a significant seller, there may be some peculiar positives from this deal to the JM Financial stock which has been pummelled out of shape during the last four-and-a-half years.

Firstly, Morgan Stanley has been a former business partner of JM Financial in India. The partnership which started in 1999, lasted till 2007, when Morgan Stanley took over the larger brokerage business and JM Financial’s founder, Nimesh Kampani, opted for the smaller investment banking business.

Morgan Stanley had, however, continued as a minor stakeholder in JM Financial ever since, and was an identified holder of the stock (holding more than 1%) as late as Q2 of last fiscal.

Though the former partners have also remained friendly since then, they have also been competing each other, as both the Wall Street bulge bracket firm and the relatively much smaller JM expanded into each other’s territories in the Indian market.

In a way, both firms are at crossroads again now, with Morgan Stanley reportedly close to bagging a banking licence in India, whereas JM Financial has had major M&A successes like the recent Pantaloon-Birla deal.

It remains to be seen whether Friday’s buy of a 2.20% stake by Morgan Stanley was just a temporary or friendly gesture to the embattled JM stock, to arrest or slow down its further slide, or part of a wider strategic plan to once again work closely with the former Indian partner.

Both could definitely use each other’s resources and expertise, even at the current stage. While Morgan Stanley’s strengths in the Indian and India-bound M&A market revolves around their large financing capacity, JM Financial’s strategy has been using its deep, personal, and often decades-long relationships with key Indian promoters.

Conversely, both are also lacking each other’s strengths, with JM finding the going tough without a larger balance sheet, and Morgan Stanley lacking the kind of personal relationships that Nimesh Kampani, and now son Vishal Kampani, enjoys with many of the biggest business families of India like Tata, Ambani, Birla, and Bajaj.

JM is also trying to crack a few overseas markets, especially in Asia, where such tie-ups can come in handy.

However, more details need to emerge officially from the two groups to confirm whether Friday’s deal has such strategic intent to work together again.

JM Financial stock had, earlier, benefited as well as got hurt significantly on an earlier buzz that Reliance Industries would buy it out to start its financial services foray, which ultimately didn’t work out.

On the fundamental side, JM Financial Ltd, which is like a kind of investment holding company for its many subsidiaries, has been under significant pressure.

Consolidated FY’12 net profit is down by 29.66%, while topline is also down by 2.36%.

However, it had a major turnaround in Q4, with consolidated revenue growing by 34.31% and net profit jumping by 51.97%, both on a year-on-year basis.

This notable turnaround in recent performance may also have been a buy cue for Morgan Stanley on Friday.

Though it has its fingers in many pies in the financial services sector, JM's largest grossers are its investment banking and securities business, and its fund-based businesses including financing.

As per Q4 Share Holding Pattern (SHP), apart from Blue Ridge, largest investors in JM are Wipro Chairman Azim Hasham Premji, UBS arm Swiss Finance Corporation Mauritius, and Valiant Mauritius Partners. However, UBS had sold off 1.38% stake at Rs. 13 per share in early May. Promoter stake is healthy at 67.18%, and had shown a slight up-tick in Q4.

The stock recently marked a new 52-Week Low of Rs. 11.51, and Morgan Stanley’s identified purchase has come in very close to this level, at Rs. 11.85.

On Friday, JM Financial closed trade at Rs. 11.86 in BSE, down by 1%, in a market whose key Sensex index was down by 1.56%.