Digital Adoption And Rising Indian Savings Will Expand Markets

Key Takeaways

• Strong market share gains, technology investments, and distribution reach position the company for accelerated revenue growth, margin expansion, and industry outperformance.
  
• Expanding wealth management productivity and treasury investments provide powerful long-term profit drivers and a robust capital buffer for sustained growth.
  
• Rising digital disruption, regulatory scrutiny, and reliance on volatile, low-margin segments threaten profitability, margins, and market share for Motilal Oswal Financial Services.

Catalysts

Offers financial services in India.

• While analyst consensus already highlights strong AUM growth and recurring fee-based revenues, this may still significantly understate Motilal Oswal's upside, as its multi-year best-in-industry decadal operating profit CAGR of 31% and robust distribution capability position it to substantially outpace the industry in capturing new flows amidst surging financialization of Indian household savings, likely leading to outsized long-term revenue and net margin expansion.
  
• Analysts broadly agree that market share gains in capital market businesses will support earnings, but with MOFSL growing both broking and asset management market share for five consecutive years, supported by aggressive talent and digital investment, the company could see a step change in profitability as it consolidates its position as the leading full-service intermediary in an increasingly consolidated and regulated Indian market.
  
• Recent heavy investments in technology-including a 100 basis point rise in tech spend, a new Group Head of AI, and ongoing platform upgrades-will deliver structural improvements in scalability and client experience, dramatically reducing cost-to-income ratios and supporting sustained margin expansion well beyond that currently assumed by the market.
  
• The group's treasury investments, which have delivered compounded IRRs of 18% and grown at 42% CAGR over the last decade, are poised to become a far greater contributor to group net worth than operating profits, providing an increasingly powerful, undervalued buffer to profits and capital base in the coming years.
  
• The ongoing expansion and strengthening of the wealth management and private wealth relationship manager (RM) base, where only 33% of current RMs have reached full productivity, creates long-term operating leverage, setting the stage for accelerating revenue and profitability growth as the newer RM cohort matures over the next two to three years.

Motilal Oswal Financial Services Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Motilal Oswal Financial Services compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Motilal Oswal Financial Services's revenue will grow by 21.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 35.3% today to 35.1% in 3 years time.
• The bullish analysts expect earnings to reach ₹44.0 billion (and earnings per share of ₹73.35) by about July 2028, up from ₹25.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 24.4x on those 2028 earnings, up from 22.3x today. This future PE is lower than the current PE for the IN Capital Markets industry at 25.1x.
• Analysts expect the number of shares outstanding to grow by 0.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.56%, as per the Simply Wall St company report.

Motilal Oswal Financial Services Future Earnings Per Share Growth

Risks

• The rise of low-cost, passive investing options and direct mutual fund platforms is likely to erode the appeal of Motilal Oswal's traditional brokerage and wealth management services, which could compress revenue streams and reduce their long-term profitability.
  
• The company's over-dependence on cyclical capital market businesses such as broking and investment banking exposes net profits to sharp volatility during periods of low market activity or adverse market sentiment, making long-term earnings less predictable.
  
• Increasing price competition and rapid digital adoption driven by fintech disruptors may result in the commoditization of advisory and broking services, putting sustained pressure on Motilal Oswal's margins and market share, thereby negatively impacting EBITDA and net income.
  
• The significant contribution from retail broking, which is a low-margin and highly competitive segment, makes Motilal Oswal especially vulnerable to customer attrition to discount brokers, adversely affecting its revenue and operating margins over time.
  
• Heightened regulatory scrutiny across financial services, including new rules impacting products such as F&O and wealth management, will increase compliance costs and could reduce overall profitability and net margins for the company.

Valuation

• The assumed bullish price target for Motilal Oswal Financial Services is ₹1150.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Motilal Oswal Financial Services's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1150.0, and the most bearish reporting a price target of just ₹763.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be ₹125.5 billion, earnings will come to ₹44.0 billion, and it would be trading on a PE ratio of 24.4x, assuming you use a discount rate of 15.6%.
• Given the current share price of ₹931.25, the bullish analyst price target of ₹1150.0 is 19.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.