Why JM Financial Share Price is Falling

Share price of JM Financial crashed 20% in early trade today.

This severe fall comes after the central bank of India put some restrictions on the non-banking finance company.

To put things into context, JM Financial is the second victim this week which received a major blow from the Reserve Bank of India (RBI). We explained the ins-and-outs and what led to the fall yesterday, check it out here.

Coming back to the sudden fall in JM Financial shares...

Let's try to understand what exactly happened and what lies ahead for the company.

RBI Cites Major Deficiencies

The RBI on 5 March 2024 barred JM Financial from giving loans against shares and debentures, including sanction and disbursal of loans against initial public offering (IPO) of shares.

These restrictions are levied with immediate effect.

The central bank said that this action has been taken after observing certain serious deficiencies in the financial services firm's loan process.

RBI highlighted that there are serious concerns on the governance issues in the company, apart from violation of regulatory guidelines.

According to the RBI, JM Financial repeatedly helped a group of its customers to bid for various IPO and NCD offerings by using loaned funds. The credit underwriting was found to be perfunctory, and financing was done against meagre margins.

The RBI has allowed the company to service its existing loan accounts through the usual collection and recovery process.

More Pain in the Near-Term?

Note that JM Financial shares could show serious volatility in the near term as the RBI is expected to conduct a detailed audit of the matters under discussion.

The restrictions that RBI imposed will be reviewed upon the completion of a special audit.

With these recent developments, RBI is making it clear that it's leaving no stones unturned, and the players should follow all the guidelines as abided.

JM Financial is the third victim of RBI, following IIFL Finance and Paytm Payments Bank.

What JM Financial Had to Say About these Allegations

Whenever something big like this happens, companies immediately come out with circulars explaining reasons behind the same.

While we'll get to the crux of the matter over time as more details come out, JM Financial had this to say on the recent event...

• After careful and detailed review of the order issued by the RBI on the action against JM Financial Products Ltd, we strongly believe that there have been no material deficiencies in our loan sanctioning process.
  
  Further, the Company has not violated applicable regulations. We also wish to reaffirm that there have been no governance issues whatsoever and we conduct all our business and operational affairs in a bonafide manner. The company shall continue to service its existing customers as advised by the RBI.

The company's MD Ashu Madan even shared a post on X (formerly Twitter) -

JM Financial Group has been in the business of financial services over the last five decades. We take pride in our reputation in the financial services industry.

After careful and detailed review of the order issued by the RBI on the action against JM Financial Products Ltd, we...

— Ashu Madan (@ashumadan4) March 5, 2024

The Road Ahead for JM Financial

Keeping aside the current allegations, the JM Financial group does have an established track record and franchise in the domestic financial services industry.

The company has over the years grown its loan book which have supported its earnings profile.

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Net Sales	35,487	34,320	31,975	37,072	32,651
Growth (%)	16%	-3%	-7%	16%	-12%
Operating Profit	27,561	25,204	22,175	24,676	21,730
OPM (%)	78%	73%	69%	67%	67%
Net Profit	5,722	5,450	5,901	7,732	5,973
Net Margin (%)	16%	16%	18%	21%	18%
ROE (%)	17.4	14.5	12.8	13.6	9
ROCE (%)	14.1	13.6	11.9	12	9.4
Dividend (Rs)	1	0.2	0.5	1.7	1.8
Debt to Equity (x)	2.7	2.1	1.8	1.8	2

Data Source: Ace Equity

In FY23, the company posted subdued numbers owing to dampened investor sentiment, increasing rate scenario, while some of its security receipt recoveries were also delayed.

The March 2023 quarter marked JM Financial's lowest ever profit in many years.

However, the following quarters showed improvement. In the most recent December 2023 quarter, JM Financial posted its highest ever net profit and revenue.

The growth is attributed to its equity broking segment doing extremely well. The equity broking's average daily turnover jumped 50% in the December 2023 quarter to Rs 426.4 bn.

Going forward, the management expects the strong business performance across segments like investment banks, mortgage lending, and Platform AWS to continue.

It will be interesting to see how the events unfold in the coming days. Watch this space for more as we discuss what happens with IIFL Finance, JM Financial, and other NBFC as RBI takes such strict actions.

How JM Financial Share Price has Performed Recently

In the past five days, JM Financial shares have fallen around 21%. Most of the losses are due to today's 20% crash.

In the past one year however, JM Financial shares are up 18% despite today's fall.

JM Financial has a 52-week high of Rs 115 touched on 29 January 2024 and a 52-week low of Rs 57 touched on 29 March 2023.

Here's a table comparing JM Financial with its peers -

Comparative Analysis

Company	JM Financial	IIFL Finance	Rane Holdings	Kama Holdings	Paul Merchants
ROE (%)	8.9	20.8	11.1	44.1	9.0
ROCE (%)	9.4	11.8	11.7	34.7	11.3
Latest EPS (Rs)	7.3	47.3	51.5	234.1	174.2
TTM PE (x)	13.1	10.1	21.8	11.2	5.3
TTM Price to book (x)	1.0	1.8	1.8	1.3	0.5
Dividend yield (%)	1.9	0.8	1.5	6.4	0.0
Industry PE	9.5
Industry PB	2.1

Data Source: Ace Equity

About JM Financial

JM Financial is an integrated and diversified financial services group. Its primary businesses include mortgage lending, distressed credit, asset management.

It is also engaged in investment banking and the management of private equity funds.

To know more, check out JM Financial 5-year factsheet and its latest quarterly results.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...