Value Buying

Promoters of Motilal Oswal Financial Services bought stock worth ₹153 million when it hit a 52-week low

Well-known market veteran, Raamdeo Agrawal is known for his value bets. And his time-tested approach has led to a multi-million dollar portfolio. He is now buying things closer home, having picked up stock worth Rs. 153 million in Motilal Oswal Financial Services, the company that he co-founded with Motilal Oswal. Promoter entity Passionate Investment Management bought the shares after it has corrected 40% from its May high of Rs.828. It currently trades at Rs.555 after hitting a 52-week low of Rs.480 earlier this month.

Challenging macro has affected the entire financial services space, including MOFS’ peers. In fact, the company’s Q1FY20 revenue and net profit (excluding Motilal Oswal Housing) dropped 3.5% and 1.3% (year-on-year) to Rs.4.72 billion and Rs.1.12 billion, respectively. But the co-founders remain hopeful about the opportunity ahead. Chairman Motilal Oswal mentioned in the latest earnings call, “Each of our 7 businesses offers significant headroom for growth and operating leverage as they scale up.”

After the latest acquisition, Passionate Investment Management’s stake has risen from 55.02% to 55.23%. Prior to this, promoters had bought shares worth Rs.23 million between February 26 and March 1 this year. Overall promoter holding, though, has decreased marginally from 70.30% in December 2018 to 70.12% in June 2019.

Even after the recent 40% correction, some analysts are not too enthused about MOFS. They expect the company’s performance to remain muted. “We anticipate a substantial slowdown in all the business verticals at least over the next two quarters,” states an HDFC Institutional Equities report. Raising capital for its AMC business is expected to get more difficult as regulatory norms tighten and the vertical posted net outflow of Rs.4 billion in the June quarter. “Despite most negatives factored in, the business needs to display scalability and improvement in asset quality,” adds the report.

In the midst of all this, institutional investors are sending mixed signals. Mutual funds have upped their stake from 0.96% in December 2018 to 1.55% in June 2019. While UTI MF has increased its stake from 0.03% to 0.59%, Franklin Templeton MF’s stake is almost unchanged at 0.91%. FPIs have reduced their stake from 13.90% to 13.64% during the same period. Franklin Templeton Investment Funds has increased its stake from 2.53% to 2.82%.