Motilal Oswal Financial Services share price Shares of Motilal Oswal Financial Services Ltd (MOFSL) rose nearly 3% in Thursday’s trade after India Ratings and Research raised the company’s long-term credit rating to ‘IND AA+/Stable’ from ‘IND AA/Positive’. The rating action drew attention to the company’s asset management and wealth management businesses, along with share of recurring fee-based income. The shares opened at 975.50 on September 17 and rose to an intraday high of 1,004.30.
Traded at 985.80, up 2.89% from previous close of 976, during the session
India Ratings upgrades MOFSL credit rating India Ratings’ latest rating action encompasses Motilal Oswal Financial Services and certain other subsidiaries. The long-term rating on specified non-convertible debentures and bank loan facilities has been upgraded to IND AA+/Stable. The rating upgrade also covers instruments of Motilal Oswal Home Finance and Motilal Oswal Finvest. Meanwhile, India Ratings has maintained the IND A1+ rating on the commercial paper programmes of MOFSL, Motilal Oswal Finvest and Motilal Oswal Wealth.
Credit ratings in focus for investors of MOFSL share price Motilal Oswal Financial Services, rated by three rating agencies in India, has seen an update of late that offers investors new information about the company’s credit profile.
Why did India Ratings upgrade Motilal Oswal Financial Services?
According to India Ratings, the upgrade reflects the strengthening of MOFSL’s overall business profile, led by the firm’s continued expansion of its asset management and private wealth management businesses. The company has also been ramping up its share of recurring fee-based revenue.
This is significant since some businesses have a higher dependence on market transaction revenues, which are subject to significant volatility. A higher proportion of income from recurring sources gives greater revenue stability across market cycles. India Ratings also drew attention to growth in the company’s customer franchise and assets under management (AUM).
The broader mix of products across broking, wealth management, private wealth, asset management, alternative assets and housing finance has also helped diversify its earnings.
Why does recurring income matter in the growth story?
One of the key highlights flagged by MOFSL is the evolving nature of its business as it shifts focus from equity broking to asset management and private wealth management. The company said that around two-thirds of its revenue now comes from recurring sources. Its asset and wealth management businesses also contribute significantly to its earnings.
Moving away from reliance on transactional earnings, the company is increasingly driven by recurring fee-based revenues.
This, India Ratings explained, makes earnings more resilient over time.
Capital, liquidity support features in upgrade According to India Ratings, the company’s capitalisation and liquidity position were also key supportive factors in the upgrade decision. The agency cited a strong capital position, liquidity buffers, internal accruals and the ability to transfer liquidity across group entities, among other factors.
The group’s diverse portfolio of businesses and cross-selling ability was also seen as supportive of a strong growth outlook.
The latest upgrade, therefore, was not only related to recent financial performance in the market. Future enhancements in the company’s business structure, with an emphasis on fee income and asset management, also played a role.
Upgrade signifies success of our transformation
Motilal Oswal Financial Services claimed its “transformation from an equity broking company to a growth-oriented integrated wealth creation platform” had been acknowledged by the credit upgrade.
Group CFO, Shalibhadra Shah, said the upgrade reflects the strength and consistency of the company’s earnings growth, as it continues shifting towards fee-based and stable annuity-type cash flows. “The upgrade is likely to help group access various sources of capital and lead to lower borrowing costs,” he added. The company said that following the upgrades from the two Indian rating agencies, it is now AA+ rated by S&P Global Ratings. ‘Stock can take a breather, for now’ In the broad market, Motilal Oswal Financial Services shares gained nearly 3% intraday.
The credit-rating upgrade and daily price action are merely two different facets of the company.
The credit upgrade and improvement in funding costs does not necessarily have to have an immediate impact on the stock price. Though the upgrade emphasises the company’s success at diversifying its revenue streams, expanding its AUM, and strengthening its financial and liquidity position, investors will need to keep an eye on company-specific factors such as earnings growth, AUM expansion, trading and broking activity, wealth management capabilities and broader markets. The change in investment sentiment has raised expectations of a more settled long-term outlook, but the focus remains on how MOFSL will be successful in its strategic transition towards a diversified financial services platform.
