Focus on profit, not market share
The dealmaker talks to Dev Chatterjee and Niraj Bhatt about the company’s journey from an investment bank to a finance firm and how he plans to more than double its size in three years
We reach K&K restaurant at ITC Grand Central, Mumbai, early and head for a corner table. Our lunch date, JM Financial Group Managing Director Vishal Kampani arrives a few minutes later. He is not feeling too well after having returned from an Ayurveda spa. “A vacation at home would have been better,” he says in hindsight. We decide to order the food first and Kampani, a healthconscious vegetarian, says he would just have dal tadka and rice. After some persuasion and negotiation, the second-generation investment banker agrees to share pudina paneer tikka and roomali roti with us, and insists we have ITC’s signature dish dal bukhara. Kampani adds that dal-rice is staple diet for him and that he rarely eats food heavy on spices.
With ordering out of the way, we ask how his journey as JM Financial MD has been after his father Nimesh Kampani, the renowned investment banker, stepped down a year ago. “The last year has been crazy. Now three more businesses — retail broking, wealth management and asset management — are reporting to me. I have been on the institutional business side for most of my career, and my training was as a dealmaker. So I had to work hard on these new businesses,” says the 40-year-old, who started working with the firm in his second year of college. Recalling his early days, Kampani says, “I spent three years learning the basics and was never introduced to clients for the first few years.” His initial training was in accounts and then in equity research, a back-office function, where he read annual reports. He completed his masters in commerce and went to London Business School (LBS) for a one-year MBA course; one of his recommendation letters was from Kumar Mangalam Birla, an LBS alumnus and JM’s client.
The restaurant starts filling up and just before our starter arrives, a table nearby is taken over by the team of Hindi movie Golmaal Again, which is obviously celebrating the film’s success. There are no other tables we can move to, so we reconcile ourselves to the fact that our lunch isn’t going to be quiet. Kampani raises his volume by a few decibels and says he went to work at Morgan Stanley, New York, after his MBA. JM Financial and Morgan Stanley were already in a joint venture (JV) in India, and he built a strong relationship with Vikram Pandit, who headed the equity team. After 16 months, Kampani returned to India and worked in the corporate finance team at JM Morgan Stanley. In 2007, the JV parted ways, with JM keeping the investment banking business and Morgan Stanley taking over stockbroking. The senior Kampani asked his son to set up the equity and fixed income business from scratch. “The split between JM and Morgan Stanley was the most challenging time for us. I still think that the joint venture format was bringing the best of both worlds,” Kampani says. A client would get JM’s local strengths and Morgan Stanley’s global reach in one place.
The 600 or so employees it had then were a worried lot: What would happen to them. “Luckily for us, our i-banking team remained intact and we are leaders in investment banking league tables.” However, he says, he is “highly profit-minded and not market share-minded”. An investment bank can improve its ranking in league tables by increasing public sector issuances, which are typically large in size but low on fees. However, this causes a compensation challenge as a bank would need to put the best resources on these mandates, and the employees working on the mandate would expect a higher bonus at the end of the year.
As the main course is served, Kampani tells us that he still spends a third of his time on mergers and acquisitions (M&A), where relationships and trust are crucial. “You may go wrong by 5-10 per cent in pricing shares of an equity issue, but in M&A the margin of mistake can be huge. Since capital allocation is large, a decision can make or break your next decade. If a company ends up paying 30-40 per cent more than fair valuation, it could end up working 10 years for payback.” Why are there so many wrong decisions, we ask. Kampani says CEOs often look at the sunk cost, the time they have invested in negotiation and convince themselves to pay that extra amount. But why is M&A activity slow at the moment? “There are virtually no opportunities — consumer-focused businesses have become expensive, while there is no capex in manufacturing, so why would anybody pay a premium? Pharma companies, which typically buy abroad, don’t have the currency at the moment as their stock prices have fallen.” However, he adds that his pipeline is decent, though it is taking time to close deals. He admires his father’s ability to build and maintain relationships and says his clients trusted him because he has a “deep stomach to keep secrets”.
After the split with Morgan Stanley in 2007, JM decided to expand beyond investment banking and build new businesses such as broking, lending and asset reconstruction — businesses that have all become large today. Real estate loans, mainly to builders, have now become the biggest business for JM’s loan book at ~7,500 crore on its total book of ~13,000 crore. About four years ago, JM Financial also set up a separate joint venture with Pandit for lending to real estate companies, which has grown to ~5,500 crore, and JM Financial’s exposure on its balance sheet is another ~2,000 crore. The asset reconstruction company is the second largest in the country.
We try to ignore the noise around us and ask his views on the real estate sector. He says demonetisation, the introduction of the Real Estate (Regulation and Development) Act, 2016, and the roll-out of the goods and service tax have all had an impact. “I do not foresee the industry picking up for the next 18 months,” Kampani says. “There is too much supply, sales are not picking up and builders are not reducing rates in bigger cities.” If sales don’t improve, the real estate sector could go through a non-performing loan cycle in the same way as infrastructure and corporate loans. He adds that regulatory permissions get delayed in big cities and cites an example of a large central Mumbai project, which is nearly complete but is still awaiting municipal permissions. “Imagine a buyer who is paying interest on the loan and is also shelling out rent for his existing house! Do you think this consumer will ever buy a house again?” JM is now getting into affordable housing and will give loans of under ~40 lakh to retail customers in smaller towns. “We opened our first office in Kalyan and are going to interior India where prices are still low,” Kampani says.
JM is not in a hurry to apply for a banking licence and plans to grow the company by two and a half times over the next three to four years. Lunch is coming to an end, both for us and the team from Golmaal Again, a movie the Kampani family enjoyed a few days ago. He says he is an avid watcher of TV shows, Game of Thrones being his all-time favourite. He’s currently watching The Tudors, a show on the reign of Henry VIII, on Netflix.
“We worry about the risks in the world but it was way crazier then! The monarch could do anything to you,” he says as we leave the restaurant.
After the split with Morgan Stanley, JM decided to expand beyond investment banking and build new businesses, which have all become large today