Ladies and gentlemen, good day and welcome to the earnings call of JM Financial Limited Q2 FY26 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 by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. Kindly note that any forward-looking statements made on this call are based on the management's current expectations. However, the actual results may vary significantly, and therefore the accuracy and completeness of this expectation cannot be guaranteed. I now hand the conference over to Mr. Vishal Kampani. Thank you, and over to you, sir.
Thank you. On behalf of JM Financial, we extend a very warm welcome to all of you to our earnings conference call to discuss the financial results for the quarter and half-year ended September 25. We have updated our results presentation and press release on the website and exchanges. I hope you had a chance to go through the same. On the call, we also have Chirag, our MD, Sonia, MD and CEO of Investment Banking, Manish Sheth, who runs our home finance business, Amitabh, who runs our asset management business, and Nishith, who is our group CFO. I will just give you the key updates, and I'll hand over the call to Nishith to take you through the quarterly commentary and the numbers. During this quarter, we are happy to report another strong set of numbers with an operating profit, PAT of INR 270 crores.
We have declared an interim dividend of INR 1.5 per share, which is in line with our strategy of increasing the distribution to shareholders. Fees and commission income has been the highest ever for any quarter at INR 341 crores. It continues to show a healthy growth of 20% YOY for two straight quarters, and the pipeline of transactions is extremely strong. Further, only on the IPO front, we have deals of almost INR 120,000 crores for which the documents have been filed with SEBI and hopefully will be executed over the next six months to 12 months. We have also crossed a very important milestone of 1,000 salespeople across our wealth management business, and our focus on scaling up wealth and asset management business continues. On our affordable housing business, we have crossed an AUM of INR 3,000 crores. With that, I'll pass the call on to Nishith.
Thank you, Vishal. I will first take the key updates on the respective segments and then move to numbers. Corporate advisory and capital markets includes the investment banking and institutional equity business. We are ranked number one in IPOs for the quarter in terms of value, and we have closed 15 capital market transactions amounting to INR 28,000 crores in the September quarter. In addition, we have filed documents for 56 IPOs, aggregating to an issue size in the range of approximately 120,000 crores, and the pipeline of transactions is increasing. This does not include the M&A and the corporate advisory pipeline of transactions that we have. On wealth and asset management includes the wealth management business, broking, PMS, equity and debt AIF, and mutual fund business. In line with our earlier guidance, we are rapidly expanding the wealth management business and the asset management business.
On the recruitment side, our sales and relationship manager strength has increased by 43% YOY in our wealth management business. On physical expansion, on a year-on-year basis, branches have increased by 11 to now 70 branches, and franchisees have increased by 38 to almost 900. The recurring AUM of all our wealth business grew by 26% year-on-year to INR 32,000 crores. The proportion of recurring AUM to total AUM has increased to 28%. In the mutual fund stage, the SIP book has increased 59% year-on-year to INR 115 crores per month, and the average AUM from non-liquid assets has increased by 36% year-on-year to approximately INR 12,100 crores. The employee strength in the asset management business has increased 18% year-on-year to 211 employees. We are also in the process of adding more strategies under our AIF umbrella. Private markets.
This business comprises of private credit across corporate, bespoke, real estate, and distressed strategies and investments. Private markets is a very differentiated platform with a focus on providing solutions to our clients. Our focus is on the big opportunities in the private market business comprising of private credit as well as the private investments. This includes investments on the equity side through a growth-focused private equity fund and investments in REIT and other products. There is a strong buildup of pipeline of syndication transactions in the private credit space. During the quarter, we have seen good traction on recoveries, and further efforts continue on the recoveries. Over the last one year, we have recovered approximately INR 1,275 crores in JM Financial ARC, and the borrowing to that extent has reduced 27% year-on-year to approximately INR 1,589 crores. Affordable home loans. This business includes our home loans business catering to the affordable segment.
We have reached a branch network of 134, and the AUM has increased by 28% year-on-year to 3,031 crores. Coming on to the numbers, during the quarter, fees and commission income has increased by 20% year-on-year to Rs 341 crores. For the half-year, the same has increased by 21% year-on-year to Rs 573 crores. Profit before tax and profit after tax after minority interest has increased by 1.2 times and 16% year-on-year respectively, and stood at Rs 344 crores and Rs 270 crores. In quarter two, there was a one-time tax credit of Rs 39 crores due to change in the tax rate, and the PAT adjusted for such credit stood at 193 crores. Therefore, the adjusted YOY increase for quarter two FY26 would be 40%.
For the half-year, profit before tax and profit after tax after minority interest increased by 1.4 times and 80% year-on-year respectively to INR 937 crores and INR 724 crores. Annualized ROE based on half-year numbers stood at 14.4%. The consolidated net worth, excluding minority interest, has increased to INR 10,241 crores, translating to a book value per share of INR 107. On the segment performance, on corporate advisory and capital markets, profit before tax stood at INR 187 crores and profit after tax stood at INR 142 crores, showcasing an increase of 42% and 41% respectively. For first half FY26, profit after tax increased by 54% to INR 219 crores.
On wealth management, profit before tax stood at INR 37 crores as compared to INR 45 crores for quarter two last year, and profit after tax stood at INR 30 crores as compared to INR 35 crores for the same period last year. For first half FY26, profit before tax increased by 8% to INR 89 crores, and profit after tax increased by 16% to INR 73 crores. On asset management, the loss for the quarter stood at INR 10 crores, largely on account of investments being made in the mutual fund and the AIF businesses. Our share of the loss is about 60%. For private market business, profit before tax stood at INR 101 crores as compared to a loss of INR 68 crores for the same period last year.
Profit after tax and minority interest stood at Rs 77 crores compared to Rs 11 crores for the same period last year. On a first half FY26 basis, the profit after tax grew over five times to Rs 355 crores. For affordable home loans business, revenue for quarters increased 41% year-on-year to Rs 109 crores, and profit after tax is almost double to Rs 13 crores. For first half FY26, revenue increased by 23% year-on-year to Rs 210 crores, and profit after tax increased by 19% year-on-year to Rs 27 crores. With this brief update, I would like to hand over the call to the moderator for questions.
Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone 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. The first question is from the line of Mr. Degant Haria from GreenEdge Wealth. Please go ahead.
Yeah. Hi, thank you for the opportunity. Firstly, congratulations on this capital market and advisory division. We've done extremely well. It's good to see the pipeline also growing. And secondly, even this interim dividend is a very welcome change. Now, I have three questions. So first question, Vishal, is on the wealth management side, how do we track the wealth management business going ahead? In the sense, have we made most of the OpEx, like is most of the OpEx flowing through the P&L, or we have more OpEx to come? And then can we see this recurring AUM growing at a much faster clip than what it was in the past? And then one more thing is that our profits in this entire division is, say, INR 80-100 crores, which is much below the potential of these businesses. So when can this start scaling up?
Will it be FY27, FY28? Any thoughts here? That's my first question.
Yeah. Let me just start, and then I'll give it to Chirag also to answer in more detail. So I think in terms of investments, we will continue. Profits are partly down because of lesser income in some of the transactional and pre-IPO deals, which were more in number in the Q1 compared to Q2 of this financial year. But investments will continue. I mean, we've already broken even in the business. We're already making money. If you see in our presentation on the capital employed, we're almost at 15% ROE in the business anyway. Another reason for a little bit of less revenue in the Q2 was broking volumes were lower, YoY and Q1Q. And that's an industry phenomenon, not a JM phenomenon. Most brokers you would have seen, and broking is, of course, a subsegment of wealth management.
Chirag, you wanted to talk on strategy a bit.
Yeah. Hi, Degant. So we've been saying this across calls that this is a core business for us. This is very critical to how we see this is one of the growth businesses for us, and we will continue to invest. There's no reason for us to believe that there isn't space for us to keep growing and growing at a faster clip on a year-on-year basis. And to that extent, we will keep investing. So yeah, on your question on the AUM also, yeah, you should expect that it will keep growing. And whenever we get good talent, we're happy to look at that as well. And whenever we get the opportunity in the markets we feel are right, we will use that to even grow at a faster clip.
Right. Chirag, so just on this recurring AUM bit, if you can just highlight us what are the plans in terms of launching, say, new AIF or private equity-based funds? How does this recurring AUM grow? We have to do certain things to make it grow. So if you can just highlight that strategy?
Yeah, sure. I can tell you things that we're already filed because that's out there in the public domain. To start with, there is a pre-IPO fund. That's, again, part of the given the fact that we are the number one ECM house, given the number of deals that we have done over the years, we believe that our right to win in the pre-IPO fund management segment was the highest. And therefore, we have already filed this. We have the team on board. We are waiting regulatory compliance. We are waiting regulatory approvals. And as soon as we have those approvals, you will see that we will drive a very successful pre-IPO launch. So that itself will add to the AUM. There will be a fee fund that gets launched after the pre-IPO fund.
There is a real estate fund that we've already got permission for, which is a credit fund. There are many others that are in the pipeline, but we'll talk about it when we're closer to when we're done with the filing bit so that they're in the public domain. But rest assured that asset management and third-party funds here are an integral part of how we see the growth. We've been building up in terms of teams and processes to make sure that when we hit the ground, our distribution and our fund management team work in tandem so that we're able to raise the right amount of funds. There is a lot of and you will see that first up over the next couple of months with the success of the pre-IPO fund.
All right. All right. Thanks. And last on this wealth is that our relationship managers have gone up from, say, 101 to 204. So their contribution to the AUM would also still be pending, right? Because most of them have just joined over the last 12 months, and they are yet to be part of the AUM.
Absolutely. We are taking their cost, but their contribution still has to come. So you can do the math on that.
All right. Thanks. My second question is on this private markets. So Vishal, in this, we've seen a good rundown of the book already. So just wanted if you can summarize last six to nine months, have the rundown has been pretty smooth, but whatever remains, do you see anything which is toxic or anything which can give a negative surprise, or it's as orderly as we wanted it to be?
Degant, I think this question now has been asked for six quarters in a row, and as I told you, I mean, this entire book is a post-COVID book. All of the so-called toxic assets where we are having good recoveries from now are from the pre-COVID book. Happy to report that another very significant sticky asset in our ARC has got a bid, a binding bid with a bank guarantee, and that's gone through the NCLT process, and that's been closed in October. I think we are on track for good recoveries across both the real estate assets that we have and the ARC assets that we have, so that will significantly boost a lot of that asset conversion into cash flow. In many of those, there are still significant provisions which have been made, so I don't see any sticky asset.
In fact, if you see the non-core loan book, which is rundown on page 17 in our presentation, which we've transparently shared, we've also talked about how the real estate loan book has rundown from a pretty significant number. I mean, this number used to be INR 10,000 crores two years ago, two years and two months ago, and it's less than INR 2,000 crores today, so I don't anticipate any sort of surprises at all, and also the syndication business is picking up very well. Hopefully, we're crossing a few good transactions in the second half because the activity really started nine months ago in this business, and we're seeing very good traction.
Right. Okay. That's great to know, Vishal. Vishal, second question is that in this private markets division, our net worth is, say, INR 6,500 crores, and the debt is, say, INR 7,000 crores. So we have around INR 13,000-14,000 crores in that division. Now, when we build a P&L for this particular division, is there a metric where we can say, "Okay, this entire INR 13,000-14,000 crores will yield X amount, and it can probably result in an ROA on that INR 13,000 crores of so much?" Or when do we reach that stage? Any thoughts here would be helpful.
So let me. That's a great question. And it's a question we discuss in all our management committees as well as the board. So I think the focus, Degant, right now is on recoveries as well as syndication today. And we don't want to distract ourselves from recoveries. We've seen a good recovery in Q1. As I said, we've closed a good asset in NCLT, which will be a six-month, nine-month process to finally close in our ARC in the month of October. So I think there is still a pretty significant balance number, almost INR 1,000-1,500 crores of recovery between real estate and distressed assets to take place. And so the idea is that let's focus. That's next six months, nine months, maybe even right up to March 2027. Make these recoveries happen. This will bolster and make our balance sheet even stronger.
And the idea is then that how, as I've said before, between 1-1.5 debt equity on this private market business, how do we make sure through co-investments, through syndication, through having the right private equity sort of investing as well as credit space investing, we at least are able to generate a mid-teens ROE? So we're working on that plan. Lots of things happening. So right now, as I said, the focus is on recovery. The focus is on ramping up wealth distribution by ramping up some of our asset management products. That distribution will also assist the entire private markets business in terms of syndicating more. So yes, there is a strategy behind it. I think you will see it all coming together in the timeframe of 18 months. Meanwhile, management will continue strengthening the balance sheet even more from where it is today.
Perfect. Perfect. Thank you so much for all the details. Thank you. All the best from my side.
Thank you.
Thank you. Participants, if you wish to ask a question, you may press star and one on your touchstone telephone. The next question is from the line of Mr. Jay Prakash from Karma Capital. Please go ahead.
Yeah. Hi. Hi, sir. Am I audible?
Yes.
Yes. Yes.
Yes. So a couple of questions I have. So in the last year, FY25, I noted that the wealth management business had a profit of INR 133 crores. But in the presentation, you excluded this digital investments you are making. And if you exclude that, the profit would have been INR 200 crores. So can you give us what is the current investment? How much wealth management profits are currently depressed because of this digital app investment? And how will it look in a couple of years? That's the first question.
Sure, so let me highlight that the current level of wealth management's profits include the losses of the investment in the digital businesses, and what we have decided to do is because digital is a core part of our strategy, whether it is BlinkX or JM Pro, we've decided not to disclose numbers ex the losses of that division. But we can share those numbers, what the profits would have been if they were not including the losses of digital. Initially, do you have those numbers handy? You can give it a look.
Basically, for the first half, the profit would have been 91 odd crores compared to 73 crores reported numbers. The gap would be the digital investment.
Understood. And how long this will continue? If you can just give a color on that.
Yeah. So the important thing is that the losses have come down from where they were for the last two, three years. There's approximately between INR 200-250 crores of investments that have been made so far. There was, as you know, change in regulations in terms of options trading, which has obviously reduced volumes considerably in the last four quarters, due to which we slowed down a bit on the marketing spend. And the strategy is being remodeled a bit. So I think we will be careful. Our plan is to reduce the burn as much as we can over the next, again, six months to 12 months and try and bring it to a break-even by FY27. Chirag, anything you want to add on this? Thanks.
Thank you.
Yeah. The point to note is important that, yes, BlinkX digital profits for wealth management are higher. But we are not reporting it that way.
Okay. Not a problem.
Thank you. So just a question. Next question is this pipeline you have, like IPO pipeline, right? Again, how much time does it take to really exhaust this pipeline? Is it one year, six months, nine months? And what is generally the commission which we can earn on that? Just a broad guideline will be helpful.
Yeah. Sonia will answer that question.
Yeah. Hi. So see, usually what happens is we get the regulatory approval, say, in three or four months. And thereafter, then there is marketing. And then depending upon how the market is, we usually try to launch it. So from start to finish, market's allowing the IPOs clear out in a cycle of anywhere around 6-12 months. So on an average, around nine months is a good time from start to finish. And most of these deals are deals where there are three or four book-running lead managers. And the commission usually in this is anywhere in the region of 2%-3% for the BRLMs.
This 2%-3% is basically split between two or three bank managers, right?
Sorry, I couldn't hear your question.
So this 2%-3% commission is basically split between the bankers, right?
That's correct.
The current managers.
Yeah. So if there are three bankers on a deal or four bankers on a deal, it's usually split equally. In some cases, two or three banks make more, and two or three banks make less. It's very sort of deal-defined. But you can assume that on average, we should be making 1% on our sort of pipeline, between 80 basis points to 1%.
Yes. Thank you.
Thank you. The next question is from the line of Mr. Himanshu Upadhyay from State Ford Investments. Please go ahead.
Yeah. Hi. Good evening. Am I audible?
Yes. Yes. Go ahead.
Yeah. So my question was to Manish. I just saw the presentation last night, okay, on the home loans business, okay? And what I see is 20% or a nearly fifth of a book is new-to-credit people, okay? Generally, what is the nature of new-to-credit to the people? And their behavior in the subsequent three years, is it more towards greater than 750 CIBIL score people or 650, 750, or below 600? Any thoughts on that would be helpful.
Yeah. Himanshu, so basically, nowadays, a lot of app-based loans are anyway being taken by a lot of customers in tier two, tier three cities. So new-to-credit is around 30% for us. And after a year, generally, they end up having a CIBIL score of anywhere between 650-700 if they are good. Generally, I have seen new-to-credit customers, they bounce, but they pay. Because of the financial indiscipline, they keep on bouncing, but my six MOB performance is like 99.5% collection efficiency.
And one more thing, Manish. On the portfolio quality, that EMI bounce remains around 20%. So out of 28,000 loans, it seems 5,000 are EMI bounce ratio, okay, or 5,000. So how big is our collection scheme? And out of 1,700 people, will it be a predominantly or a very large proportion will be collection?
No. So, one is I was talking to NHB. The industry-level bounce itself is 22%. Our bounce is also around 20%. That number is around 5,000. And you are right. Out of 1,200 total, we have 1,700 people. In collection department, we have 160 people. So basically, out of 135 branches, every branch has one collection person. And then there is a structure above the branch, which is area and state-level collection person.
Okay, and again, on the product summary, so currently, we are 2 to 1 home loan to LAP ratio, so going ahead, also, do you think the ratios will remain 2 to 1, home loan versus LAP? Or do you think the nature of book might change over a period of time as we progress? Or how has it behaved in the last few years?
So ratio will be like this only. Ratio will be like this only because regulators have to maintain more than 60% HL, home loan, to have that license. That is a principal business criteria as prescribed by NHB. And that is why we are at like two-thirds, one-third. Minimum 65% is HL and balance is lab. That will not change.
Okay. And in terms of so the next slide, when you see, it gives the portfolio cuts, okay, in terms of customer type, sourcing type, LTV, and CIBIL. If I say that out of these four portfolio cuts, which is the most important in terms of understanding the credit nature of the people? Loan-to-value plays a much important role in the ticket size where we are working, or it is single score, or salaried, self-employed. So some thoughts will be helpful here. So the important criteria.
Honestly, three is not one. All the four are important, and that's why we publish. So I'll tell you all the four quickly. Salaried versus self-employed, generally, even in salaried, we get cash salaried, which are not the bank credit salaries. So basically, we are in the assessment-based underwriting affordable housing finance company like others. So that is, of course, important. If your view on the economy itself is very important for this customer to behave, that is first. Second is on LTV. Generally, my LTV is in the range of 55%-60%. Some of the tier one cities where there is a builder purchase, LTV can stretch up to 85% also. But our experience of last eight years, loss given default is 12%. So basically, LTV is an important parameter, but we end up recovering almost 90% of the POS given there is a loss.
CIBIL is, again, one more different way of understanding the business. Anybody above 750 CIBIL is obviously not our customer because we will get easily a credit line or a home loan anywhere in the market. So new-to-credit and 600-750 is a CIBIL where we play a big time.
Okay. Thanks, Manish. And I have a query on asset management also.
Thank you.
The peak of our SIP book was around INR 122-123 crore around end of March, which has come down to INR 115 crore. Any specific reason that we have seen some fall in the SIPs per month? And secondly, even if we look at our AUM, non-liquid at the Q1 end was around INR 12,000 crore. And even at this point of time, or the Q2 end, we are around INR 12,100 crore. So what is the specific reason, and how are we working on those?
So we have done a few fund launches in June, which started accruing slowly. We being a slightly smaller asset management company, we have faced some headwinds, if I may say so. We had a large percentage of our assets in digital. So a large percentage of the fall of the SIPs is from the DIY clients who come from the digital space. So that's where we have lost some ground because of the market volatility, etc. But going forward, I think some of the IFA category clients are coming back, and I think that gives rise to more sticky SIPs and AUM. So I think we'll be able to get over this in the next quarter going forward.
Okay, and there has been some redemption also on digital side because the AUM remains flattish. It is fine.
Yes. That's what I'm saying, that the digital clients have shown some volatility and fickleness as they normally show. And with the markets being turbulent, that behavior has been exhibited. So while we recognize and we continue to assess that channel, but the effort is to increase more SIPs, etc., from the IFA channel.
Okay. Thanks for joining back for further queries.
Thank you. Participants, if you wish to ask a question, you may press star and one on your touch-tone telephone. The next question is from the line of Mr. Rupesh from Long Equity Partners. Please go ahead.
Hello, sir. Thank you for the opportunity. My question, sir, is on private markets. In the annexure, there is one slide, slide number 21. There it shows segment PAT of INR 77 crore, right?
Right.
What I wanted to maybe if you can help me, what in this is kind of like a one-off provision write-back or something? What is like the core earning power of this business?
eight crores of provision write back. The rest is all normal operation.
So this business can do 70 crore profit per quarter?
Yeah. Yeah. It will do more.
So sir, I mean, I'm a little bit surprised. So you have a roughly 4,000 crore of book, and you are saying the business can do 2% ROA per quarter, 8% ROA per year. Is that a fair understanding?
Because you make huge amount of syndication fees as well, right? It's not a business where we are just lending money. Second, we have a lot of recoveries in our ARC, which is also boosting profit because this is consolidated profit of our NBFC and our ARC both combined. So you have a lot of income that is generated in the ARC when assets are resolved, and we don't necessarily book that income on a Q on Q basis.
So annually, what is the ROA I should take for?
The target ROA on this business is not 8%. The target ROA on this business is anywhere between 3% to 4%.
3%-4%. Okay. Okay. And where do you see this book going in, let's say, FY27?
Yeah. So last call also we had talked about it. We expect the book to grow by 20%. Comfortable.
Okay. Okay. Clear. And I mean, I think we were involved in maybe, I don't know, 15, 10, 15 IPOs in Q1 from some fairly large. So the distribution looks pretty much similar for next two, three quarters, or this is kind of near-term best quarter?
No. We are looking at similar momentum for the next two quarters also.
Okay.
In terms of just the filings that we have and the mandates that we have on hand.
Yeah. Yeah. Okay. Okay. Thank you so much.
You are looking for our pipeline or you're looking for a comment on market behavior?
No, no, no. I'm looking for a comment of your book, your visibility. I'm not looking for a comment on market behavior.
Our pipeline is even stronger from last quarter.
Okay. Okay. That is good to know, sir. Yeah. Thank you. Thank you for answering my questions.
Thank you. The next question is from the line of Mr. Himanshu Upadhyay from State Ford Investments. Please go ahead.
Hi. The question is to Vishal. Vishal, the way we expected the private markets, or let's say the loan syndication to start happening, and the AIF structure on the builder loans and all those things, it seems the traction has been much lower than what we anticipated two to three years back. The book growth rate and what we have also seen is last few months, now the market has cooled down. The velocity of new sales has come off. But still, our book has not started growing up. Okay. And any thoughts on that, on the structure and where are we in terms of getting more business syndication?
Yeah. So on the syndication side, we started real efforts only nine months to twelve months back, not two, three years ago. In fact, if you go back three years and you look at the book growth from three years back to two years back, the book had grown 20%-25% or even higher in that year, if I remember correctly. So I think the traction has been very good. It just takes time to do transactions, and we are just being very careful on every single credit risk parameter because we do not want to be in a similar situation ever again where we've made loans just for the sake of growing the book. And here we have to make sure we are making loans with absolutely best standards of credit risk, even better than what we used to have pre the COVID period.
So that is probably one of the reasons why there is a bit of a lull in pickup. On the real estate, AIF, we just got our approval a couple of months ago. So there's full fundraising mode, which we are in right now. And I think we will close the fund by June of next year. That is the timeline for us to close the fund, so first close. So we will achieve a decent first close, and we are seeing very, very good traction on it. And as I've repeatedly said, that we are in no rush to add loans on our books. If the loans merit a good risk-adjusted return, we will add the loans. We will not add risk on our books just for the sake of return, short-term return.
Is the market more conducive now, Mr. Real Estate AIF, in terms of?
Not yet. Not yet. Not yet. See, also understand there is a lot of liquidity in the markets right now, right? I mean, there's a lot of liquidity with the banks. They want credit growth. So I think sales have still been pretty robust. They have slowed down, but we are not seeing any developer who is in any form or manner willing to pay a higher rate for his loans. Those are very, very few. Not that we want to lend to them, but there could be some risk-adjusted decent opportunities which we will factor in the sales. Also, we've already done a lot of syndications, right? I mean, we've done Hotel Horizon. We've done a couple of other syndications in our distressed assets book. And you will see the returns of that coming out in the next 12 months.
It's just not booked income into our P&L in the first half of the year. So we're fairly confident of the returns on the private market side. We do have a REIT and an equity portfolio. That mark-to-market can add some volatility. But luckily for us, it's not a very large portfolio. We disclose that portfolio breakup in the private markets presentation on page 17. Because the equity markets are hugely volatile, that can add some bit of volatility to it. Outside of that, we remain fairly confident of the performance of private markets.
Okay. Thanks from my side.
Thank you.
Thank you. The next question is from the line of Mr. Kishan from Polar Ventures LLP. Please go ahead. Mr. Kishan, are you on the line?
We can get him back.
Hello.
Oh, he's here. He's here. Yeah, Kishan, go ahead.
Yes, sir. You're good.
In the last quarter, you said you will be de-merging some of the part of your company in a later future time. Could you make me understand which is the part that you want to de-merge so that the value gets unlocked for your company and for the shareholders like us? And my second question is, yeah, should I ask the second question together?
No, let me finish the question.
Yeah. Yeah.
So in the last quarter, I said at the appropriate time, we may consider a de-merger of certain of our businesses from the overall JM Financial parent. But we have to keep a few things in mind. One is we need much bigger scale. This de-merger will be in principle for our wealth management business. But we need a lot more scale, number one, in the wealth management business. Second, we don't want a smaller listed entity. There are some benefits of size in terms of a listed company as well as the way we operate. So yes, it is always a thought on our mind, but it's nothing that we are exploring in the short term, nothing that we are going to do in the next 6 months to 18 months.
Okay. My next question is the AUM that we have in our mutual fund division. Yes. That AUM, the problem that what SEBI has just now issued a circular that is on discussion. What will be the impact of that on our business? Or will there be any impact from that?
It's too early to comment. I think it's a consultation paper right now, and the SEBI chairman on various public fora has already said that they will do it in a manner which is not disruptive for either the investors or the AMCs. So I think it's slightly early to comment. Let's get the final numbers in place before we decide that. I think a lot of discussions are happening with the regulator and the industry.
Okay. Thank you. Thank you.
Thank you. The next question is from the line of Mr. Karthik from Profit & Wealth. Please go ahead.
Good evening. My question is regarding the next decade, the structural shift in our industry could make part of your current business model less relevant, and what concrete strategic steps is management taking today to stay ahead of those changes? Is there any?
Sorry, I didn't understand your question.
Okay. So my question is, over the next decade, structural shift in the industry could make part of our current business model less relevant, and what concrete strategic steps is management taking today to stay ahead of those changes?
No, no. I think the next decade in India actually belongs firmly to capital markets, asset management, and wealth management businesses, as a lot of the Indians who are gaining more disposable income and gaining more wealth will look to earn a higher yield on their investments, so the structural shift in the savings and investment pattern in India is actually in favor of companies like us, and it's still in very, very early stages. It requires large, strong, capitalized entities with very good management teams to be able to execute on multiple fronts of this opportunity, which is exactly where we are placed very strongly. We have a good capital base. We have strong management teams, good depth in management, have a brand for over 50 years.
And we are focusing on each of the segments, whether it's corporate advisory, capital markets, wealth management, asset management, private markets, both on the credit side, real estate side, and private equity as part of private markets. And now, with this, there will be investments in technology. There will be investments in physical infrastructure, which we will continuously make. And the idea is to be the banker to all the large corporations and the banker to all the large promoters in terms of wealth management and to be the institution of choice for the entire buy-side to work with.
Okay. And my one more question is that with aggressive provisioning, bringing the provision coverage ratio on probable real estate loan to 94%, right, and the significant de-leveraging with debt equity ratio improved to 1.18%, so how confident are you on that the balance sheet repairs is completed? And additionally, what are your expectations for credit cost and asset quality trend over the next few quarters?
So as we've been highlighting for the last couple of calls, I think the balance sheet, first of all, it's more balance sheet strengthening. It's not really balance sheet repair. I mean, our balance sheet has always been strong the last five years, even through all of the COVID troubles. It's really strengthening and focusing on the right segments and using the balance sheet for the right reasons. So the provision anyway is very high. Please understand that the entire asset portfolio on which we have 84% provision is a secured asset portfolio. Okay? So these are not assets in thin air. These assets are backed by land. These assets are backed by projects. They are backed by factories. They are backed by a lot of physical assets. So recovery will happen.
What we've learned in the last five years is that you can't put a firm timeline on recoveries in India. And that is exactly the reason why we want to move away from wholesale lending on balance sheet to funds and do cash flow-back lending only because we don't want the ROA to slip because of delayed recovery methods. So I think the balance sheet strengthening is a continuous activity, which we will do, and we will keep investing in growth.
Okay. I got my answer. Thank you.
Thank you.
Thank you. The next question is from the line of Mr. Omang Aditya, an individual investor. Please go ahead.
Hello, sir. First of all, steady set of numbers. I have just a couple of follow-up questions. First, on the asset management side, I just want to know regarding profitability. As you know, we have increased 30% YOY mutual fund business, but still, it is showing negative in profitability. Can you just pinpoint the specific reasons for the same?
If I may say, we are still in the build-up phase. We are adding to our teams. We are already, as the presentation says, we are at 211. We will go to somewhere between 250 to 275. That's still a build-up phase. We are building new locations. By God's grace, we are doing well. We are shifting to larger premises in a few of our branches. OpEx is being done carefully, but we are not being pennywise pound foolish. As has been mentioned by Chirag earlier, a few new strategies on our AIF will kick in. Our AUMs will continue to get growth. I think we need to invest while building the business. Most likely, in the next couple of years, we will start seeing break-even and come out of the losses.
One more follow-up question. Where do we see asset management business in the next two to three years? I mean, in terms of AUM, can you just guide a ballpark number or basically anything from your side?
So it's very difficult to do that, but I would be very disappointed if it is not at least double from where we are now. Plus, as I said, a lot of our AIF strategies will kick in, and we'll start reaching scale in those businesses as well. So it's not only the mutual fund. As an AMC, we have mutual fund and an AIF platform. We are looking to grow and attain profitability on both platforms.
Sir, one more last question from my side. On the home loan business, sir, our housing finance arm is looking for IPO in FY 2027 or 2028 and on what AUM?
FY 2028, after we finish 10 years of operational history, we will look to IPO the.
Okay. Okay. Thank you for the question. Thank you for answering my question, sir.
Thank you.
Thank you. The next question is from the line of Mr. Rupesh from Long Equity Partners. Please go ahead.
Yeah. Hi, sir. Thank you for the follow-up. Again, I think my first question is, again, on private markets. Sorry, sorry for getting stuck with this. This is on slide number 24. So I think employee cost, I see, has gone down from INR 50 crore to INR 23 crore. Operating expenses have gone down from INR 38 crore to INR 19 crore. Then I think the impairment is, I think, minus INR 19 crore. So can you explain at least these two: employee costs and operating expenses? And then net revenue of INR 124 crore, can you split it into ARC revenue and non-ARC revenue?
Yeah. We'll have Nishith give you those details, put up those details separately. But employee costs have only gone down because we've reduced lending, right? We don't need to have large teams because we don't need the large monitoring teams and collection teams because we are not growing the real estate book like an institution. We are growing it from a syndication perspective. Also, the reason some of the costs on the asset management side have gone up is because few of the people who helped us build real estate over time, the experienced people, have moved on to the asset management platform to raise the AIF. And therefore, there's been some shift of costs from the private market business to the AIF business. And some because of the natural attrition of the two non-core businesses that we closed down, which is MSME lending as well as FIG financing.
Some lesser number of people required to run a real estate credit and syndication platform and not a real estate growth platform where we are adding assets.
Okay. Split between ARC and non-ARC.
I'll come back to you on the split.
Okay. And Vishal, this is the new base now, right? And from here, we will grow the book growth.
Yeah. Absolutely. Why we give you the numbers of ARC split with Credit Solutions, it doesn't make any sense for us, it doesn't make any sense because we will look at this business from a consolidated perspective. The biggest advantage we have of creating private markets is that this business will run through cycles, and it's not dependent on a single balance sheet to grow. So we will allocate capital where we see the best risk-adjusted return. So we don't have to grow real estate in the JM Financial Credit Solutions balance sheet. We don't have to grow distressed credit in the JM Financial ARC balance sheet. And we don't have to grow bespoke and LAP loans and capital market loans in JM Financial Products balance sheet. It all depends on wherever we get the best risk-adjusted returns, we will grow.
All of these teams will come under one management, and all of these teams will work together to figure out how they can profitably achieve a good ROE with the lowest risk profile across asset categories. It's a very interesting and a very powerful platform, and the entire private equity business, the co-investment business, will be a significant sort of yield improver, if I may use that word, in this business. We have seen a lot of opportunities on the private equity side coming out of the work that we do in credit, which we passed on in the past because of having not an integrated structure under one roof, but this entire integrated structure under one roof creates a lot of synergies and allows us to make much higher returns.
Okay. Okay. That's helpful. The second question, sir, is on affordable home loans. In affordable home loans, can you give SMA 1, 2, 3, DPD 0 to 30, 30 to 90? I think 90 plus you have given. And what would be the gross slippage in Q1, Q2?
Okay.
Yeah. Manish here. I do not have Nishith. If you have that data ready, because actually, I don't have that data ready, but our GNPA is 1.6%, and our 30 plus is around 7%. That's what I remember. Nishith, do you remember? 30 plus is around?
7%.
7%. Okay. So maybe you can just give me some color around how the ROE tree works in this. I mean, I can see the spread is around 4.4%. Half-yearly impairment is roughly, I think, Rs 30 crore, if my number is right, which is roughly 1% for half-year. So it'll be 2%, I guess, annual. No, no. Okay. It's Rs 14 crore. So Rs 30 crore, 1% per year. So you can just walk me through the ROE tree.
Yeah, so I'll tell you ROE target.
Yeah.
Yeah. Total revenue to the total average assets is around 15%. My finance cost to the total asset is around 6%. That means our net, I'm talking about quarter two, net income to the total average asset is around 8.8%, which is what we call NIM. Our OPEX is 6.3% to the total asset. Our credit cost for the quarter is 35 paisa. EBT is 2.89%. ROA is 2.13. That is for the quarter number I'm talking about. ROE is 7.08%.
This will hold more or less for full year, right? This is our model.
Yeah. More or less, it should be okay, except for the credit cost, which was a little bit higher in the first six months. That should come down. Hopefully, that should get controlled in the next quarter.
Okay. Thank you for answering my questions.
Thank you. As there are no further questions, I would now like to hand the conference over to the management for the closing comments.
Thank you. Thank you very much for attending our call for the Q2 . I look forward to seeing you all again after we report our Q3 earnings. Thank you all.
Thank you, sir. On behalf of JM Financial Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.