Author - Maitreyee Vaishampayan

  • Maitreyee Vaishampayan
15 Jun

Insurance sector at an inflection point: HDFC Life

Update on the Indian Equity Market:

The equity index, Nifty recovered from day’s low to end higher at 9,973 (+0.7%). Among the sectoral indices, Auto (+2.9%), Realty (+1.2%), and PSU Bank (+0.8%) led the gainers while IT (-1.5%), and Media (-0.9%) were the only losers. M&M (+7.6%), INFRATEL (+6.5%), and SHREECEM (+5.8%) were the highest gainers while ZEEL (-4.5%), ONGC (-3.4%), and TECHM (-3.1%) led the laggards.

Excerpts of an interview with Ms. Vibha Padalkar, Managing Director (MD) and Chief Executive Officer (CEO), HDFC Life published in Economic Times on 9th June 2020:

  • People are adjusting to the new normal and becoming more resilient and the need for life insurance is becoming more and more apparent, from just one metric.
  • HDFC Life has written more than one lakh policies in the first two months of FY21. Having settled over 500 death claim settlements, over 10,000 maturity claims, and close to a lakh annuity payout, the roadmap to customer servicing in the new normal is being laid.
  • The life insurance sector piggybacks 2-2.5x GDP. If some recovery is seen toward the end of H1FY21, then the insurance sector could show low single-digit growth. In her opinion, the recovery could more likely be W shaped.
  • There is certainly risk-averse sentiment in the market.
  • The online distribution channel has shown growth in YTD May against overall decline for the company and the sector. The Bancassurance channel in May has done significantly better versus April. As banks open their branches, and they adjust to the new norm of digital-based selling, this channel will also see growth.
  • As protection continues to do well, double-digit growth is being observed in that part of the business. The turbulence in the markets has led to reduced demand for unit-linked products for now.
  • Risk-based products are doing very well and the other end of the spectrum like the non-participating products are not doing so well.
  • It is extremely difficult to predict the growth estimates for FY21 and they are taking it on a rolling quarter basis. They have already witnessed a 100 bps increase in the market share and are number one in terms of new business growth in the private sector. They will continue to retain and grow the market share, but it will be a function of overall market pickup as well.
  • The medium-term outlook for the sector is positive since insurance will become more relevant. This is the inflection point for the insurance sector and will start seeing an uptick more than pre-Covid.

Consensus Estimate: (Source: market screener website)

  • The closing price of HDFC Life was ₹ 503/- as of 12-June-2020. It traded at 76x/ 57x the consensus EPS estimate of ₹ 6.6/ 8.8 for FY21E/FY22E respectively.
  • The consensus average target price of ₹ 544/- implies a PE multiple of 62x of FY22E EPS of ₹ 8.8/-.
  • In the case of life insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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05 Jun

Not looking at a huge change in distribution : Britannia

Update on the Indian Equity Market:

On Thursday, the indices ended lower after a six-day gaining streak. The Nifty ended slightly lower at 10,029. Among the sectors, Media (+4.1%), Pharma (+2.2%), and IT (+1.9%) were the top gainers. Private Bank (-3.1%), Financial Services (-2.6%), Bank (-2.6%) led the losers. VEDL (+7.7%), BHARTIARTL (+5.7%), and ZEEL (+5.5%) led the gainers while ASIANPAINT (-4.6%), BAJFINANCE (-4.0%), and HDFC (-4.0%) ended in the red.

Britannia recently declared its fourth-quarter results. In a post-result interview, Britannia Industries MD, Mr. Varun Berry discussed distribution network, market share, and margins. Here are the edited excerpts of his interview with ET Retail on 4th June 2020:

  • Britannia has a reach of about 5.5 million outlets. During the lockdown period, e-commerce has witnessed a massive 300% growth, which is about a percentage of their total sales. In the time to go, it is expected to grow from 1% to 2% to 5%.
  • Though e-commerce is growing exponentially, there is a huge base of the supply chain pyramid which has to be kept serving. Hence, he does not believe that distribution strategies are going to change in a hurry.
  • It will remain to be a situation where you will have to service kirana stores because they are so entrepreneurial in their way, they operate that they service their own markets wherever they are in a way e-commerce would do in a large city. As long as they have the infrastructure, kirana stores will be serviced by companies like Britannia.
  • There are some strong brands where they will prefer taking a pull strategy, rather than a push strategy. A couple of years back, they had adopted a modified pull strategy which has a disastrous impact.
  • Since they are not looking at adopting the strategy in a hurry, they will continue to have direct distribution to 2.5 million-odd retailers. The strategy of servicing the wholesalers will continue. There will be a disproportionate focus and nurturing of modern trade, e-commerce, and alternate channels, but the base strategy will not change.
  • A lot of freebies have been cut out due to the lack of availability. A lot of costs from the sales and marketing system have been cut down. They will continue doing that going forward.
  • Ad spends have been cut till now. Once a normal stocking of brands starts, normal ad spends will resume. This month itself, they will get back to advertising for some of the brands once they have enough product, which will be a temporary phenomenon.
  • They will continue to nurture and build brands for the future. Since it seems everyone is sitting at home and watching television, Mr. Berry is of the opinion that it is the right time to advertise and they will start doing that.
  • Investments will be made in creating new brands and launching new products. But there is the labor shortage issue. Since migrant workers have gone back, Britannia is operating at a lower capacity in every factory. Due to this, prioritization has become important and thus they are staying away from innovations. As soon as there are sufficient workers, they will start unleashing some of the innovative products.
  • Britannia is at the operating leverage cusp and has witnessed a disproportionate jump in margins in the last quarter results. However, its sustainability after a period of time will have to be looked at. The focus will be on unearthing opportunities and making the business efficient going forward.
  • From a 4% margin seven-eight years ago to around 15% now, operating margins have certainly improved. There will certainly be progress on the margin but in a slow and steady fashion.

Consensus Estimate: (Source: market screener website)

  • The closing price of Britannia was ₹ 3,458/- as of 4-June-2020. It traded at 51x/ 45x the consensus earnings estimate of ₹ 68.0/76.8 per share for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 3,540/- implies a PE multiple of 46x on FY22E EPS of ₹ 76.8/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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27 May

Demand for home loans will rebound – HDFC

Update on the Indian Equity Market:

On Tuesday, Nifty ended marginally lower at 9,029. Among the sectors, Metal (+2.7%), Auto (+1.5%), and Realty (+1.2%) were the top gainers. IT (-1.9%), Pharma (-1.2%), and Media (-0.2%) were the only losers. JSW Steel (+5.9%), Eicher Motors (+5.7%), and Titan (+5.0%) led the gainers while Bharti Airtel (-5.9%), Bajaj Finserv (-5.1%), and TCS (-3.5%) ended in the red.

Excerpts from an interview with Mr. Keki Mistry, Vice Chairman & Chief Executive Officer, HDFC with BloombergQuint on 25th May 2020:

  • HDFC is offering a moratorium to all the customers. 79 percent of the borrowers have said they do not need it. A higher number of non-individual borrowers have opted for the moratorium compared to the individuals.
  • Since some developers are facing liquidity issues due to the lockdown, HDFC has to give them moratorium. The large developers are able to service their loans, with or without sales. Small and mid-sized developers have asked for the moratorium.
  • HDFC has not slowed down lending and is looking for fresh lending opportunities. In Mumbai and Madhya Pradesh, the offices are not open leading to slower disbursements. The offices which are currently open are working at 33 percent capacity and there will be a slowdown in disbursements during 1Q FY21. HDFC expects that 2Q FY21will be better than 1Q FY21 and consequently, 4Q FY21 will be back to 85 to 95 percent of normal levels.
  • Owning a home continues to be an important aspect of the lives of Indians. The lockdowns imposed in the aftermath of the virus outbreak has forced people to work from home, relying on internet connections and video conferencing apps. This trend could push people to buy larger homes or ones with a separate study room. Joint families could split into smaller units going forward meaning more people will be buying their own houses.
  • In the short term non-performing loans could rise but in the medium-to-long term, NPLs are expected to reduce. They have continued to tweak the credit underwriting model given the current situation.
  • In the affordable housing segment, the average loan size is Rs 17.7 lakh and most of the customers are salaried customers and not self-employed. The risk from job-losses or income cuts and its impact on NPLs is probably higher than in the pre-crisis period. There are co-borrowers to a mortgage, so if one person loses a job or faces a salary cut, they generally still do not default.
  • HDFC will be looking for opportunities to raise money. The liquidity level has been increased from around Rs 6,000 crores last year to around Rs 30,000 crores this year. HDFC has been recently sanctioned Rs 750 crores loan by the National Housing Bank recently.

Consensus Estimate: (Source: market screener website)

  • The closing price of HDFC was ₹ 1,506/- as of 26-May-2020. It traded at 2.8x/ 2.6x the consensus book value estimate of ₹ 531/ 574 for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 2,406/- implies a PB multiple of 4.2x on FY22E BV of ₹ 574/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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15 May

Full impact assessment after clarity on stimulus – Mr Uday Kotak, Kotak Mahindra Bank

Update on the Indian Equity Market:

On Thursday, Indian shares erased the gains of the previous day after the initial stimulus announced by the government to aid Covid-19 hit businesses was poorly received. The gloomy outlook from the head of the U.S. Federal Reserve did not help the market sentiment either, as Nifty ended 2.6% lower at 9,143. Among the sectoral indices, IT (-3.5%), Financial Services (-3.4%), and Bank (-2.9%) led the losers. FMCG (+0.7%) and Pharma (+0.3%) were the only sectoral gainers. INFRATEL (+4.9%), HEROMOTOCO (+2.9%), and ZEEL (+2.2%) led the gainers. TECHM (-5.4%), INFY (-5.2%), and HINDALCO (-4.8%) ended in the red.

Full impact assessment after clarity on stimulus – Mr. Uday Kotak, Kotak Mahindra Bank

Excerpts from an interview with Mr. Uday Kotak, Executive Vice Chairman & MD, Kotak Mahindra Bank published in Financial Express dated 14th May 2020:

  • Kotak Mahindra Bank (KMB) recently declared its 4QFY20 results. The bank has divided the stress tests to assess the full impact of Covid-19 into two sets- up to March 31 and after March 31. Gross provisioning done toward a specific account gives a net NPA of 0.71%. A look at standard provisioning plus Covid provisioning and others independent of direct provisioning led to total provisioning being greater than the total net NPA.
  • Starting FY21 with a clean slate in terms of the balance sheet and from the point of view of all provisioning, which was felt necessary.
  • In terms of FY21, the bank is in uncharted territory. While work has been done in different sectors, a lot will depend on how the lockdown opens up, and how the stimulus is given. Impact assessment of the virus’ impact on the bank’s loan book will be possible after there is some clarity on government fund flows to various sectors.
  • In regard to unsecured retail lending, the bank had become conservative on advances well before the pandemic started. Thus, growth in advances was more calibrated in design. He believes that retail unsecured is where pressure is going to come at some point in time. Hence, KMB’s portfolios on unsecured consumer retail have been far more conservative than earlier.
  • The post-Covid era will help reduce the impact of the potential burden which may come out of stress, particularly in unsecured retail which is pretty sensitive to the lockdown and the slowdown in the economy. So, they are waiting for the stimulus.
  • Talking about the credit growth, they have received wide estimates by expert economists on growth for FY21. KMB will be getting out there and supporting the economy provided they are comfortable with the risks.
  • They will continue to be cautious on unsecured consumer lending to make sure that the consumer is well-protected. He is of the opinion that if many companies start retrenching people, which is something we can assume may happen, then even unsecured lending to salaried customers will come under pressure.
  • They will watch out for sectors directly affected by Covid like tourism, hospitality, or retail malls.

Consensus Estimate: (Source: market screener website)

  • The closing price of Kotak Mahindra Bank was ₹ 1,177/- as of 14-May-2020. It traded at 3.0x/ 2.6x the consensus book value estimate of ₹ 398/450 for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 1,399/- implies a PB multiple of 3.1x on FY22E BV of ₹ 450/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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06 May

Entry into service industry for sanitization for the long haul: Amit Syngle, Asian Paints

Update on the Indian Equity Market:

For the second consecutive day, the Nifty closed lower at 9,206 on Tuesday amid reports of stress among lenders when millions of borrowers are facing pandemic induced income loss. As a result, there were no sectoral gainers. PSU Bank (-3.3%), Realty (-2.9%), and Bank (-2.4%) were the top losing sectors. Among the stocks, the biggest gainers were Infratel (+3.6%), M&M (3.2%), and Powergrid (+2.9%). SBIN (-4.2%), Bajaj Finance (-3.8%), and Britannia (-3.6%) led the losers.

Entry into service industry for sanitization for the long haul: Amit Syngle, Asian Paints

Excerpts of an interview with Mr. Amit Syngle, MD & CEO, Asian Paints which aired on CNBC TV18 on 4th May 2020:

  • For the last 3-4 weeks, Asian Paints were under a complete lockdown. The lockdown 3.0 has offered some relaxation.
  • Some of the plants and warehouses have opened as shops for non-essential goods have been allowed to open. Most of their plants have opened but work at slightly reduced capacity.
  • Asian Paints has given buyers 45 days of credit and asked vendors for an extension as well. Talking about the liquidity position, he said stringent cost-cutting measures are being undertaken to preserve cash. There is comfortable liquidity going ahead and they do not foresee any problems in the coming period.
  • Asian Paints had announced their foray into the hand and surface sanitizer with the Viroprotek range of products. Talking about the development of this range, he said they have worked on the range in the last 10-15 days at the behest of the government and the Ministry of Health, and Ministry of Chemicals.
  • As a responsible and caring brand, they wanted to help the government and community and the shortage in the market was the motivation for entering this segment. They already have the Royal Health Shield, a range of antibacterial paint that ensures hygiene and bacteria control. So entry into the sanitizer range aligned with their objective.
  • They have been in the Health and Hygiene space for some time and have products in that range. In the near future, Viroprotek will be a part of the overall range.
  • To ensure reach to the right outlets and ensure adequate supply, their distribution segments will be activated.
  • Though initially entire production will be directed to the Government and NGO initiatives, sanitizers & surface cleaners will be part of Asian Paint’s portfolio in the future. They are looking to enter the service industry for sanitization in a very big way.
  • On the business plans going forward, he said they are watching and devising scenarios as to what will happen in these exceptional circumstances. There is no clarity in terms of how the situation envelops, and what is going to happen. Thus, depending on how the situation clears up and the market opens, plans will be made accordingly. It is difficult to give concrete plans as the entire environment is uncertain.
  • Talking about the top line, no action will be seen in 1QFY21. As per indications coming in, it will be a wipe off quarter. It is difficult to say how revenues will come in for the entire year.

Consensus Estimate: (Source: market screener website)

  • The closing price of Asian Paints Ltd was ₹ 1,618/- as of 05-May-2020.  It traded at 49.5x/ 41.6x the consensus EPS estimate of ₹ 32.7/ 38.9 for FY21E/ FY22E respectively.
  • The consensus average target price of ₹ 1,822/- implies a PE multiple of 46.8x on FY22E EPS of ₹ 38.9/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Asian Paints, Paints , , 0 Comments Read more...
24 Apr

Continued government and RBI intervention till cure or vaccine available: Sanjiv Bajaj, Bajaj Finserv

Update on the Indian Equity Market:

The market ended higher for the second day on expectations of a fresh stimulus package from the government to reduce the damage caused by the ongoing pandemic. IT (4.4%), Private Bank (+3.2%), and Banks (+2.9%) were the top gainers while the losers were FMCG (-1.4%) and PSU Bank (-0.4%). The gainers were led by Kotak Bank (+8.3%), TCS (+5.5%), and Infy (5.2%) while the top losers were Titan (-3.7%), Hindustan Unilever (-2.7%), and Power Grid (-2.5%).

Continued government and RBI intervention till cure or vaccine available: Sanjiv Bajaj, Bajaj Finserv

Excerpts of an interview with Sanjiv Bajaj, Chairman and Managing Director, Bajaj Finserv published in Business Standard on 22nd April 2020:

  • The timely lockdown to control the spread of the covid-19 pandemic helped prepare medical capacity. To kick-start investments, the gradual opening of economic activities in the non-hotspots needs to be done.
  • The lockdown situation has resulted in both, the demand and supply being stopped, which we have never experienced. It is vital for the government and RBI to instill confidence, especially with small businesses, migrant workers, and individual consumers.
  • The measures announced to provide food and some money to the poor section of the society are commendable. Now, working capital and term loans to restart enterprises are needed to kick-start the economy.
  • Banks, though flush with liquidity are playing too safe by not lending funds to NBFCs, HFCs, and micro-finance institutions to avoid credit risk. It could help if the government covered initial losses.
  • With a large domestic consumption base, our economy can restart faster than many other countries, provided the necessary help is provided. We will need to balance opening up the economy with the spread of the virus and any new information about its fatality. Hence, the government and RBI support will be required until a cure or vaccine is available.
  • The measures announced by RBI are welcome though Mr. Bajaj would like to see a direct liquidity line extended by the RBI for larger NBFCs with assets over ₹ 10,000 crores.
  • Public sector banks are not yet extending back-to-back moratorium to smaller NBFCs that are offering moratorium to their customers. Such anomalies, which will prevent the economy from recovering fast must be quickly removed.
  • Smaller NBFCs must shore up their capital requirement, keep additional liquidity, and maintain conservatism in lending practices, to survive the lockdown.
  • The finance and insurance companies of the group have adapted quickly and reasonably efficiently to the work-from-home regime. Productivity is understandably lower, which impacts response times.
  • A reasonable amount of new insurance business is done, completely digitally. A number of processes will be reoriented to work from home even after the lockdown ends.
  • Bajaj Finserv will be ready to offer the different kinds of loans customers might need, once the economy restarts. The loans and insurance products take care of a large number of essential requirements- loans to buy groceries, for medical procedures, to insuring car, factory, shop, and life.
  • Due to the global economy being under stress, there could be some short-term reallocation of global capital towards developed markets. India, which has a large domestic consumption base and a young population, will end up growing faster and eventually attract global capital.
  • In the past few years, our domestic capital has moved from being invest in non-productive assets to financial assets, which is expected to continue and provide an important and dependable source of money.
  • India can emerge as a strong alternative to China and it is important to leverage this once-in-a-lifetime opportunity.

Consensus Estimate: (Source: market screener website)

  • The closing price of Bajaj Finserv was ₹ 4,717/- as of 23-April-2020. It traded at 2.2x/ 2.2x/ 1.8x the consensus book value estimate of ₹ 2,111/ 2,173 / 2,583 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price is ₹ 8,304/- which implies a PB multiple of 3.2x on FY22E BV of ₹ 2,583/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

By Bajaj Finserv, NBFC , , 0 Comments Read more...
15 Apr

Testing times with zero revenue and major fixed costs – Sandeep Kataria, Bata India

Update on the Indian Equity Market:

On Monday, the Nifty closed 1.3% lower at 8,993 amid reports that the 21-day lockdown to contain the spread of the virus which ends on Tuesday might be extended. Pharma (+2.8%) and Metal (+1.9%) were the only sectoral gainers. Realty (-4.9%), Media (-3.3%), and Financial Services (-3.1%) were the top losing sectors. Among the stocks, the biggest gainers were Larsen & Toubro (+6.4%), Hindalco (+6.0%), and Bharti Airtel (+4.5%). Bajaj Finance (-10.3%), ZEEL (-8.4%), and Bajaj Finserv (-6.9%) led the losers.

Testing times with zero revenue and major fixed costs – Sandeep Kataria, Bata India

Excerpts of an interview with Mr. Sandeep Kataria, CEO, Bata India published in Mint on 13th April 2020:

  • As per the Union and State government guidelines, Bata India has closed both, the retail and online stores and factories. As a result, they are looking at a zero-revenue situation for the entirety of the lockdown period.
  • In the short-term, the revenues will be impacted but will recuperate slowly once the markets are allowed to open. Should the lockdown continue, it would be a difficult time for the company as there are major fixed costs to be paid. A government stimulus is needed soon, else managing the costs without revenues would become very difficult.
  • They have refrained from layoffs and are ensuring timely payment of salaries. This cannot continue for a long time. Landlords and mall owners have their own problems too. Hence, Bata is requesting the government to allow a moratorium on its debts in the short term. This might help the landlords pass some relief to the company as well.
  • Second, they request a wage subsidy from the government. The leather and footwear industry employs approximately 4.5 million people and Bata wants to make sure that there is no job loss as a result of the crisis. Hence, they are seeking a job support subsidy at 50 percent of the minimum wages from the government for at least four months.
  • Additionally, the industry has sought relaxation of statutory payments such as the goods and service tax (GST), provident fund and income tax.
  • Bata India has started production of masks and face shields at their Batanagar factory in Kolkata and donates these to the local hospitals, Police authorities, and communities. Additionally, the washable shoe range can help essential services staff stay safe.
  • They request the policymakers to classify footwear in the essential category of items and allow them to operate e-commerce delivery, and stores for limited hours to begin with.
  • Bata employs more than 10,000 people and salary cuts and layoffs are something they are looking to avoid. They need government support to ensure it does not come to that.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of Bata India was ₹ 1,198/- as of 13-April-2020.  It traded at 40x/ 34x/ 29x the consensus EPS estimate of ₹ 30.1/ 35.4/ 40.7 for FY20E/ FY21E/ FY22E respectively.
  • The consensus average target price of ₹ 1,767/- implies a PE multiple of 43x on FY22E EPS of ₹ 40.7/-

 

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31 Mar

Merged entity will help face the lockdown better- Rajkiran Rao, Union Bank

Update on the Indian Equity Market:
On Monday, NIFTY closed around 4.4% lower to end at 8,281 as coronavirus cases rose to over a thousand in India, which has raised concerns about the impact to businesses and growth. Pharma (+1.4%) and FMCG (+0.7%) were the only gainers amongst the sectoral indices. Realty (-7.8%), Financial Services (-7.4%), and Private Bank (-6.2%) led the losers. Cipla (+6.7%), Tech M (+4.7%), and Nestle India (+3.8%) were the top gaining stocks whereas Bajaj Finance (-11.9%), HDFC (-10.8%), and Kotak Bank (-8.4%) led the losers.

The merged entity will help face the lockdown better- Rajkiran Rao, Union Bank

Union Bank of India will become the fifth-largest state-run bank after Andhra Bank and Corporation Bank merge with it on April 1.

Edited excerpts of an interview with Mr. Rajkiran Rao, CEO, Union Bank published in the Economic Times on 30th March 2020:

  • Six banks are being merged with larger peers to get economies of scale. Postponing the merger after having completed the legal process would not have been a good thing. Stalling it in March, once the share swap ratios were announced was not advisable.
  • As a merged entity, the bank is better capitalized and take-off wouldn’t be an issue. A combined entity is better positioned to handle this unprecedented event because of its larger capital base, branch network and better teams to handle.
  • Changes due to the merger will happen gradually. Thus, there is no difference for the frontline staff or for the customers. The extent of damage caused by the Covid-19 breakout will be done only after it is over. Capital raising from the market will also be assessed only after the outbreak is over.
  • More than 700 branches have been identified, which can be rationalized. In cities, there are branches next to each other or in the same building. This will take three years. In the first year, more than 300 branches will be rationalized. Fresh branches will also be opened. Regional offices in new centers like Amritsar, Bhagalpur, and Mau will be opened.
  • The acquisition will make Union Bank one of the strongest banks in Southern India, with more than 30 percent market share in Andhra Pradesh and Telangana. There will be more than 2,000 branches in these two states, thus enabling them to leverage their presence in the South which complements their strengths in the North and West India.
  • Post the merger, they are looking to strengthen their gold loan business, which is something they have not done before. There will be an addition to the MSME portfolio in the South with a better underwriting process. They are looking to deepen corporate relationships because of the stronger capital base and larger size. Places to open mid-corporate branches have already been identified.
  • Mr. Rao is of the opinion that branch rationalization will not lead to job cuts. Their recruitment is on track and every year, they are recruiting new people to replace the ones retiring. The total strength post-merger will be 75,000 compared to Union Bank’s 38,000. The rationalization of administrative offices and branches will give some manpower to be redeployed in other verticals.
  • Talking about the impact of the merger on the customers, he said they have normalized the interest rates across the three banks. On the advances side, new borrowers of Andhra and Corporation Bank will get a 20bps lower rate in some slabs. RBI’s rate cut announcement on 27th March will further bring down the rates from April 1. Customers will gradually migrate to Union Bank’s centralized platform which will help in faster turnaround time.
  • To fully integrate the IT systems of Corporation Bank, which has the same Finacle 10 platform as Union Bank, but with a slightly older version, it will take six to nine months. For Andhra Bank, which is on the Finacle 7, it will take nine to twelve months. There will be no change in the account numbers after the platforms merge, and credit and debit cards will be issued by Union Bank only after they expire.

Consensus Estimate: (Source: market screener, investing.com websites)

  • The closing price of Union Bank of India was ₹ 29/- as of 30-March-2020. It traded at 0.3x / 0.3x/ 0.2x the consensus book value estimate of ₹ 110/ 115/ 127 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 67/- implies a PB multiple of 0.5x on the FY22E book value of ₹ 127/-.
By Bank, Union Bank , 0 Comments Read more...
19 Mar

RBL Bank financially strong, well-capitalized & profitable: Vishwavir Ahuja, MD & CEO

Update on the Indian Equity Market:

The sell-off continued on Wednesday and Nifty fell from 8,967 levels on Tuesday to end at 8,469. All sectoral indices closed in the red except Media (+0.4%). Private Bank (-6.9%), Financial Services (-6.7%), and Realty (-6.2%) bore the brunt of the sell-off. The top gainers for the day were Zee Entertainment (+26.2%), Yes Bank (+4.2%), and ITC (+1.5%) while the losers were IndusInd Bank (-24.6%), Infratel (-22.5%), and Kotak Bank (-11.2%).

RBL Bank financially strong, well-capitalized & profitable: Vishwavir Ahuja, MD & CEO

Excerpts from an interview with Mr. Vishwavir Ahuja, MD & CEO, RBL Bank published in Mint dated 18th March 2020:

  • Although the moratorium announcement on Yes Bank has raised concerns around certain private sector banks’ stability, RBL bank has been maintaining a very significant liquidity surplus position. The bank had previously announced they were running a very high level of liquidity coverage ratio (LCR). Even other liquidity buffers are in place in terms of cheap refinance lines, other lines of credit.
  • In the last few days, one- two state government organizations have been pulling out some money and that’s across all private sector banks. That’s perhaps why the RBI formally reached out to them and said they should not be doing that. The RBI governor has emphasized that the private sector banks should be the recipients of government deposits and that is required for the development and stability of the entire financial system.
  • He further said that they did not see any withdrawals on March 16, 2020. Their retail deposit base has been very stable over the past few days. He feels that the 3 % reduction in the previous one week is not material as they enjoyed extreme liquidity comfort.
  • Liquidity is not flowing into the system for many reasons but they have not seen any account closures. According to him, institutions are trying to play safe and they take the money out for one or two days and then it comes back to the bank.
  • The overall impact has been insignificant. On the retail side, there is significant stability and in the last week, the proportion of retail to total deposits has improved.
  • RBL Bank is a technology and digitally focused bank and very active in the fintech and cash management space. As a result, they have been able to pick up many mandates in the corporate cash management and digital payment space.
  • Without naming the clients, he said that as many as six very high-profile marquee names, on the national side have moved their corporate cash management accounts to the bank. There is a big opportunity in the corporate sector for the bank.
  • In terms of financial parameters such as capital adequacy, asset quality, business engines of the bank, all are intact.
  • The total percentage of state government deposits in the overall deposit number is in single digits, and not very significant.
  • He added that Covid-19 will certainly vitiate the economic activity in the country and will also need a response at all levels, including the government and central bank.

Consensus Estimate: (Source: market screener website)

  • The closing price of RBL Bank was ₹ 167/- as of 18-March-2020. It traded at 0.8x/ 0.7x/ 0.6x the consensus book value estimate of ₹ 207/ 232/ 266 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price for RBL Bank is ₹ 387/- which implies a PB multiple of 1.5x on FY22E BV of ₹ 266/-.
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11 Mar

Covid-19 advisories may impact footfall, but could be 30-60 day phenomenon: Ajay Bijli, PVR

Update on the Indian Equity Market:

On Monday, Indian shares followed a slide in global peers as fears over the spread of the Covid-19 outbreak intensified and oil prices plunged. The Nifty hit its lowest since February 2019 and the sell-off triggered by the economic fallout of the virus outbreak worsened by the turmoil at Yes Bank.

Among the Nifty 50 stocks, Yes Bank (+32.2%), BPCL (+5.5%), Infratel (+2.9%) and Eicher Motors (0.7%) were the only stocks which ended the day in the green. ONGC (-16.0%), Vedanta (-15.3%), and Reliance (-13.1%) were the top losers of the day. All the sectoral indices too ended in the red. Metal (-7.7%), Media (-6.7%), and PSU Bank (-6.1%) were the top losers.

Covid-19 advisories may impact footfall but could be 30-60 day phenomenon: Ajay Bijli, PVR

Excerpts from an interview with Mr. Ajay Bijli, Chairman and Managing Director, PVR Cinemas published in Mint dated 06th March 2020:

  • The release of the latest Bond film has been postponed. Talking about the US movie collections, he said that China, Japan, and South Korea are the big markets. India is a significant market, but not as big as these markets. So, he believes that the Indian film industry will not get impacted. Baaghi 3, which is a big franchise released on Friday. The advances are good so no delay in release was announced.
  • The Covid-19 advisory can impact footfall but it is an aberration because nobody has experienced anything like it. The safety, health, and security of the patrons are more important than the business. It is difficult to pinpoint if there has been an impact on the footfall because the content was not good in the past two weeks or is it the Covid-19. Mr. Bijli believes that this is a tide that will go away and the fundamentals of the business are very strong.
  • When asked about the pre-emptive action to combat the virus, he said that they have put sanitizers and disinfectants everywhere. PVR employees are wearing marks everywhere. They are ensuring the box office, and the seats are disinfected and cleaned thoroughly.
  • In terms of consumer spending outside the virus impact, PVR’s business has not been impacted. Before the virus issue, movies were releasing and people were coming out and watching movies, eating more.
  • Even the Q3 results were comparable to last year’s Q3. During recessionary times, people eliminate a lot of things from their discretionary spending. Since watching a movie is a small ticket item, and the content has been good, people are going out to watch a movie. Smaller films or sleeper hits as they are called, have done very well. He believes, it is a lifestyle need gap to go out and entertain oneself in India.
  • Studies show a positive correlation between OTT and cinema-going. He calls what is happening on Netflix and Amazon- long-form storytelling which is like Narcos -13 episodes, The Crown-26 episodes. The same people who consume long-form storytelling are going out and watching movies. People are consuming a lot of content but short-form storytelling is more experiential.

Consensus Estimate: (Source: market screener website)

  • The closing price of PVR Ltd was ₹ 1574/- as of 09-March-2020. It traded at 43x/ 31x/ 23x the consensus earnings estimate of ₹ 36.9/ 51.4/ 68.1 for FY20E/FY21E/FY22E respectively.
  • The consensus target price is ₹ 2060 /- which implies a PE multiple of 30x on FY22E EPS of ₹ 68.1/-.
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