Motilal Oswal Financial Services Ltd (MOTILALOFS) Q2FY27 Concall Transcript - Sep-2026 Qtr
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Moderator: Ladies and gentlemen, good day, and welcome to Motilal Oswal Financial Services Q2 FY '27 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator
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Manish Kayal (Motilal Oswal Financial Services Ltd): Thank you, Yashashwi. Good afternoon, everyone. I welcome all the participants on behalf of Motilal Oswal Financial Services Limited to take time out to attend our Q2 FY '27 earnings conference call. We hope that you had an opportunity to go through our investor deck and press release uploaded on stock exchanges and on our website yesterday. We have also uploaded our Excel data book on our website that has all the operational and financial numbers. Please note that today's discussion may include forward-looking statements. These forward-looking statements are based on our macro assessment, and the actual outcome may vary. To represent the group, we have the senior leadership members on this call. We will start this call with an opening remark by Navin, our Group MD, and then we will have a Q&A session. Over to you, Navin.
Navin Agarwal (Motilal Oswal Financial Services Ltd): Thank you, Manish, and good afternoon everyone, and a warm welcome to our earnings call for the quarter ended September 2026 to discuss the group's overall performance. Let me first before I get down to the quarter performance, share some broader sense of the group's strategic direction, which will which could drive, you know, continued strong performance like we have been delivering over the last decade. Motilal is one of the largest integrated capital markets players with rising share of annuity revenues and each business offering strong growth runway, leveraging the opportunity opportunities available in financial with financial financialization of Indian savings. Our operating businesses have delivered a decadal compounded growth of 33% growth, EPS has grown at 26% compounded, return on equity for a decade has averaged at 23%. This strong growth is supported by our investment book also, which is which has been growing compounded for a decade at 41%, led by strong IRRs, as well as reinvestment of the operating profit post the dividend distribution that we do to shareholders. Since our listing in 2007, we have never diluted equity while consistently paying out dividends and executing three buybacks. This is only been possible due to our unique twin-engine business model wherein our large investment book serves as a strong backbone to all the operating businesses, which have seen regulatory changes, rising funding needs, strong underlying business growth, and market share gains. All this required huge capital which would only have been possible through this twin-engine business model. Sustainable growth in is witnessed in our ARR, annual recurring revenues and profit share. ARR revenues now contribute 66% of the group's revenues. This number was 55% in FY '24. This has helped us in reducing the cyclicality in our revenues led by the transaction businesses. All this has happened mainly on account of the asset and private wealth profit after tax growing by 44% year-on-year. These businesses now contribute 57% of the group's profit after tax in first half. This number was 39% in FY '24. The non-broking revenue share even in the wealth management business has increased to 65% in the first half versus 53% in FY '24. This transition is led by strong performance in all businesses, comprehensive offering in the asset management business, which now spans all listed products to the less understood alternate franchise where we foresee strong growth in the number of offerings, product offerings and profitability given our long history of strong IRRs. AUM of asset management business continues to grow and currently stand at 2.23 lakh crores, including MO Alternates, which is a new milestone for the group. This AUM has witnessed a compounded growth of 32% over the last 5 years since March 2021 with strong market share gains. Also during the second quarter, the group received license from SEBI to act as a custodian of securities. This approval allows F Motilal Oswal to complete the institutional product offerings. This was after more than a decade that the regulator gave this license to a non-bank. We've already hired CEO and the senior management team for this business and this business will commence operations in the fourth quarter of this fiscal year, subject to the completion of operational readiness. Our market cap ranking has also consistently improved along with our profit after tax ranking among listed players. We are currently ranked among top 151 companies on trailing 12-month profit after tax.
Navin Agarwal (Motilal Oswal Financial Services Ltd): this number, 10 years back, was 345, and 15 years back, was at 373. Also, by market cap, we ranked 175 now. 10 years back, this number was 285. 15 years back, this number was 385. We see the next decade offering equally exciting opportunities and prospects, which should drive improvement in these rankings further. Now, starting with a detailed second quarter performance highlights. Our profit after tax improved by 29% on year-on-year basis to 718 crores, led by asset and private wealth businesses, which grew by 43% year-on-year. These businesses, I repeat, now contribute 58% of the total operating profit versus 49% in FY '26 and 42% in FY '25. We expect that the share of asset and private wealth businesses to continue to rise as these businesses have strong tailwinds and have been good outgrowing the rest of the businesses for the last few years. We have stepped up investments on all fronts, including people, brand, technology in the past couple of years, and we expect these to bear fruits in the coming years in terms of continued market share gains and improvement in profitability. Turning now to individual segments, I'll start with the asset and private wealth businesses, which comprise of the asset management listed, the MO Alternate unlisted, and the private wealth management businesses. The asset and private wealth business continued its momentum during the quarter with robust flows of 12,477 crores of net inflows, taking the AUM to 5.2 lakh crores as of September '26, which is up by 42% year-on-year. The operating leverage from rising AUM should be a strong driver to our profit growth. I'll start with the asset management business, which includes mutual fund, PMS and AIF. As of 30th September, 99% of our AUM outperformed their respective benchmark in the past three years. Our product bouquet has not only widened, but also grown significantly. We now have 24 schemes that have crossed 1,000 crore AUM. This number was 16 schemes last year. Only six of our funds have a vintage of over 3 years. This number will be 8 by March '27. It'll be 16 by March '28, as most of these are category-leading funds in terms of performance since inception, and are in the mainstream categories, that should help in continued strong flows, as well as diversification of the AUM across more schemes over the next two years' time. This will also continue our trend of net mutual fund flow market share improvement, which currently stands in the month of September stands at 6%. Our flow market share continues to be well above our AUM market share of 2.7%. Our passive fund AUM crossed 50,000 crore milestone, demonstrating our focus on growing even the passive business along with the active business. We are ranked 5th in the passive business, excluding the low-yield broad market indices like Nifty, which have very large institutional capital deployed at low yields. The unique PAN catered by our AMC is more than 1 crore as of September '26, and so 1 in 6 investors in the mutual fund industry are now investors in Motilal Oswal Asset Management, showing strong confidence by retail investors in our franchise. The revival in 2Q was propelled by has propelled our average AUM to grow from 1.67 lakh crores as of March '26 to 2.01 lakh crores as of September '27, reflecting the continued momentum in the business. The Q2 SIP flows remained strong at 4,170 crores, market share was 4.4%. The SIP AUM stood at 42 42,000 crores as of September '26. We have a strong distribution reach, with 2,400-plus distributors now contributing over a crore of gross flows in the last 12 months, and 30%-plus of our ex-digital sales now come outside of the top 10 market. We believe that the AMC AUM growth will be supported by several factors. 99% of the AUM is outperforming its respective benchmark on 3-year basis. This strong performance should drive net flows growth. Annualized SIP run rate of about 18,000 crores should drive AUM growth. Growth across products and more products crossing 3-year vintage should be a tail
Navin Agarwal (Motilal Oswal Financial Services Ltd): Current average AUM of 2 lakh crores is 28% higher than the 1.57 lakh crore AUM average in FY '26. Potential mark to market gains, after 2 years two muted years, should also, help, the AMC business. Collections from our proposed NFOs besides the institutional flows should be a driver. Finally, we are also tapping new growth avenues for our businesses including entering the pension business, launching our SIF, launching outbound GIFT City funds, and broadening our hybrid presence. In summary, a strong growth of AMC led by the above factor continue. AMC will remain a key growth driver and an ARR driver to Motilal Oswal. Turning now to the MO Alternates business. This business has a vintage of over two decades. We already have a strong franchise in growth capital and real estate and are confident of delivering industry leading IRRs to our clients in all the products that we offer. We are in the process of executing our final close of our maiden private credit fund of 3,000 crores. Our maiden commercial offices, real estate fund has just been launched. We're witnessing increasing allocation from family offices as well as institutions in this segment. This business should is in in in in my opinion at the same stage of evolution as the mutual fund business was over a decade back. In summary, alternates asset manage- management business too will be a important growth driver and ARR driver for Motilal Oswal on the back of increasing fund sizes in our every subsequent series that we have demonstrated over the last 20 years, entry into newer categories like private credit, commercial offices, and more funds entering the carry income recognition threshold, which will boost our carry income run rate. The asset management business now contributes 43% of the group operating profit after tax in the second quarter. This number in the same quarter last year was at 31% and we believe should continue to rise in in the overall profits. Turning to our private wealth business, the Q2 ARR revenue is strong at 180 crores. Net flows was up 65% quarter-on-quarter to 6,357 crores, leading to an AUM growth of 58% year-on-year to 2.96 lakh crores. Our 443 RMs will also witness productivity improvement as the vintage increases. Only 33% of the RMs have a vintage of over three years. For second quarter, profit after tax is up 2% year-on-year due to a high base of the second quarter of last year. However, the 3- and 5-year profit after tax growth for the private wealth business has been at 25% and 29% respectively and we expect the second half profit after tax growth to also be much higher than the first half. We have made large investments in senior leadership, RM, and we will continue to do the same in a ca- calibrated manner going forward as well. Focus is to grow the ARR AUM through various initiatives, including advisory solutions on both equity and debt, including bespoke advisory segment, product called Delphi, which is seeing strong traction; strengthening leverage solutions as a value add for the UHNI clients; exclusive co-investments leveraging, group synergies. In summary, we expect, a strong growth in the private wealth business on the back of rising monetization and improving product and people propositions. Turning to our wealth management business, which includes retail broking, distribution, and our retail lending book, we continue to have sharp focus on growing our ARR revenue, which includes distribution income as well as NII. This has led to the share of these businesses in the wealth management franchise increasing from 33% in FY '21 to 58% in 2Q FY '27. ARR revenue grew by 10% on a Y-o-Y basis to 328 crores this quarter. Distribution book grew by 26% to 48,000 crores, year-on-year. We are confident that our distribution book will grow meaningfully as we continue to harness the cross-sell potential of our franchise. It stands at 18%. Our loan book in this segment rose by 42% to 10,200 crores. Our MTF market share is close to 7% and will improve going forward. Our broking business continues to retain its leadership as a full-service broker amongst the non-bank players. We are the largest broker in the cash segment on revenue market share in the non-bank segment. Our overall retail broking market share, including commodities, stood at 7.9% this quarter, led by market share gains in F&O premium segment from 7.6% to 8. 8% quarter-on-quarter, and our cash market share in the same time period has improved from 6.8% to 8%. Headwinds for broking revenues due to regulatory changes and flat markets over the last quarter, we believe, are in the base and expect growth to improve going forward.
Navin Agarwal (Motilal Oswal Financial Services Ltd): Coming to the capital market businesses, comprising of Institutional Equities and Investment Banking, despite challenging market conditions, our investment banking businesses successfully closed 41 deals in the first half, cumulative raise of 99,000 crores. Fee income of 39% growth quarter-on-quarter to 94 crores. We rank number one in QIPs and number three in IPOs in the first half of this financial year, as per the capital markets league table. In the Institutional Equities business, we're continuously increasing our coverage, we crossed 400 companies coverage and are on track to cover 500 companies which will not only increase our research depth, but also improve opportunities to engage with this corporate for other businesses. In summary, we've built a strong franchise and diversified our product portfolio over the years. Our size per deal is higher than the past, and with a strong deal pipeline, we're well positioned to benefit from any market revival. Coming to the Housing Finance business, the disbursement grew 29% year-on-year to 701 crores. AUM grew by 24% to 6,476 crores. We expect Housing Finance business to witness similar growth as we have delivered in the last quarter, in the coming 3 years time. Business has a high capital adequacy ratio, low leverage, giving us enough growth levers without any external equity capital dependency. Our Treasury Investment book grew by 27% year-on-year to 11,346 crores. I repeat, this business has this book has witnessed a compounded growth of 41% since March 2014, led by strong IRRs and reinvestment of the operating profit. To conclude, we believe that the regulatory headwinds of the broking business are in the base. Indian investors continue to display resilience as far as SIP flows are concerned. I spoke about the rising share of ARR in our overall businesses and those businesses having strong tailwinds in terms of market share gains, and this should be an important growth driver for us in the second half of the year, like we've delivered in the second quarter, just in the recently concluded second quarter. I will now open the floor for Q&A. Thank you.
Moderator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take our first question from the line of Sagar Jethwani from PhillipCapital PMS. Please go ahead.
Sagar Jethwani (PhillipCapital PMS): Yeah. Congratulations on a good Q2 when also on getting the custodian license. My first question is on the custodian business. How do you see the scale-up in next 2 years? Is it is it ARR accretive given the combination of transaction fees and custodian fees linked to the AUC? So that is my first question.
Navin Agarwal (Motilal Oswal Financial Services Ltd): Very tough to comment anything, we're only hoping to launch this business in the fourth quarter of the year. The team has just come in place, the product offering is still formulated being formulated. So I think we'll we'll hopefully be able to, you know, guide you on the broad product positioning strategy for this business maybe at least, you know, three quarters down the line. It's it's anyways not going to contribute, you can say, anything in the in the in the even in the next financial year ending March '26.
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