Author - Mrunmayee Jogalekar

  • Mrunmayee Jogalekar
08 Aug

Indiabulls Housing Finance 1QFY20 result update: Asset quality deteriorates sequentially.

Dated: 7th August 2019

  • Loan assets declined 10% YoY to Rs 1,131 bn. The decline is primarily due to efforts taken for reduction in the Commercial Real Estate (CRE) book.
  • NII at Rs 14,750 mn was 13% lower YoY. Pre-provisioning operating profits at 12,536 mn were 15% lower YoY.
  • Provisions were at Rs 1,476 mn compared to Rs 649 mn and Rs 1,645 mn in 1QFY19 and 4QFY19 respectively.
  • PAT at Rs 8,020 mn was lower by 24% YoY.
  • Asset Quality worsened sequentially from GNPAs and NNPAs of 0.88% and 0.69% respectively in 4QFY19 to 1.47% and 1.10% respectively in 1QFY20.

Management Commentary:

  • IBHFL reduced exposure to CRE loans amounting to Rs 60 bn in 1QFY20. Efforts to reduce CRE exposure is in anticipation of the proposed merger with Lakshmi Vilas Bank (LVB).
  • Management has guided to quarterly disbursements of Rs 100 bn from 2QFY20. Guidance for loan book growth for FY20E is in mid-teens.
  • Management expects spreads to remain stable in 300-325 bps range.
  • IBHFL recovered Rs 7 bn from Palais Royale in 1QFY20 against earlier guidance of Rs 2 bn. Against the recovery, Rs 4.5 bn was used to make additional voluntary provisions. Under ECL norms, companies cannot make floating provisions. Hence IBHFL has proactively classified certain accounts as Stage 3 (including Zee group, CCD group) and provided against them.

Consensus estimates (Source: Marketscreener website):

  • IBHFL closing price (as on 07-08-2019) was Rs 446/- per share. It was trading at a P/B of 1.1x/ 0.9x its book value per share estimates of Rs 417/ 493 for FY20E/ FY21E respectively. Consensus target price over next 12 months is Rs 910/- implying P/B of 1.85x for FY21E BV of Rs 493
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06 Aug

SBI 1QFY20 result update: Profitability sequentially better, pace of improvement disappoints.

Dated: 5th August 2019

  • Advances grew by 14% YoY to Rs 21,347 bn. Indian retail book growth was 17% while corporate book growth was 12%. Foreign advances book grew by 16%.
  • NII was Rs 229 bn, 5% higher YoY. Overall NIMs at the Bank level marginally improved to 2.81% from 2.78% in 4QFY19.
  • Total operating expense was 7% higher YoY. The increase was due to higher employee provisions on account of decline in bond yields.
  • Provisions were 52% lower YoY and 44% lower QoQ. The total provisions number was lower due to provision write backs of Rs 24 bn. NPA provisions were Rs 116 bn in 1QFY20 vs. Rs 130 bn in 1QFY19 and 173 bn in 4QFY19.
  • Reported PAT was at Rs 23 bn vs Rs 48 bn loss reported in 1QFY19 and Rs 8 bn profit in 4QFY19.
  • Asset Quality was stable on a sequential basis with GNPA and NNPA at 7.53% and 3.07% respectively.

Management commentary:

  • Slippages were high in 1QFY20 at Rs 162 bn compared to Rs 99 bn and Rs 75 bn in 1QFY19 and 4QFY19 respectively. Reasons for this jump include Rs 20 bn exceptional agri slippages in one state on account of farm loan waiver, higher SME slippages due to absence of RBI dispensation which was available in 1QFY19, Rs 20 bn due to some technical issues in an account that is being serviced regularly.
  • Out of Rs 116 bn NPA provisions made in 1QFY20, Rs 23 bn was provided against 2 accounts that are standard but need proactive provisions as per a recent RBI circular.
  • Management has guided to credit costs of 140 bps for FY20E. This includes any additional provisions that may be required for the 2 specific currently standard accounts (DHFL and one renewable energy account). This credit cost guidance is higher than the previous guidance of 100 bps.
  • Management is expecting loan growth of 12% and NIMs for the overall business of 3.15% in FY20E.
  • In the current scenario, management expects to achieve core RoA of 0.5-0.6% in FY20. Gains from recoveries or subsidiary stake sale will be over and above this return guidance. This is lower than previous comparable guidance of 0.70-0.75%

Consensus estimates (Source: Marketscreener website):

  • The stock price was Rs 300/- as of 5-Aug-19 and traded at 1.17x/ 1.04x the consensus Book Value for FY20E/21E BV of Rs 256/286 respectively.
  • Consensus target price is Rs 376/- implying P/B of 1.31x for FY21E BV of Rs 286
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05 Aug

Asian Paints 1QFY20 result highlights: Performance beyond street estimates, uncertain about sustainability.

Dated: 25th July 2019

1QFY20 result:

  • Consolidated Revenue was Rs 51,306 mn, 17% higher YoY.
  • EBITDA was Rs 11,563 mn, 24% higher YoY. EBITDA margin reported at 22.5%, an improvement from 21.1% in 1QFY19.
  • Net Profit was Rs 6,721 mn, 18% higher YoY.

Management Commentary:

  • Asian Paints saw double-digit volume growth across segments. Lower value products like distemper and putty continue to grow faster than premium products. In 1QFY20, decorative paints segment in the Indian market grew in high double digits.
  • Asian Paints undertook aggressive channel push in 1QFY20 contributing to the higher revenue growth.
  • Growth in smaller towns has been much higher than metros.
  • EBITDA margin improvement came from benign raw material prices and a decrease in freight cost from the new plants in Vizag and Mysore.
  •  Employee costs in 1QFY20 fully reflect the incremental costs from new plants. Other expenses will grow as production ramps up.
  • Advertisement costs are generally lower in the 1st quarter. Some of the ad costs shifted from 1QFY20 to 4QFY19 due to IPL season.
  • Management is cautious about the growth going forward. Economic conditions remain challenging and may result in a negative impact on the coatings business. Uncertainty also exists in the International business due to developments in the Middle East.

Consensus Estimate (Source: market screener website)

  • The closing price of Rallis is Rs 1,496/- on 25-Jul-19. It traded at 55x / 48x the consensus EPS for FY 20E / FY 21E EPS of Rs 27.3 / 30.9 respectively.
  • Consensus target price of Rs 1,516/- implies a PE of 49x on FY21E EPS of Rs 30.9.
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05 Aug

Yes Bank 1QFY20 result highlights: Return to Profitability, Asset Quality worsens.

Dated: 18th July 2019

• Yes Bank reported a 10% YoY growth in Advances. Advances declined by 2% sequentially over 4QFY19. Share of retail advances increased to 18% in 1QFY20 from 14% in 1QFY19.
• NII was reported at Rs 22,809 mn, 3% higher YoY and 9% lower QoQ. NII was lower by Rs 2,230 mn on account of interest reversals on slippages.
• Pre-provision operating profits were 20% lower YoY but improved by 48% QoQ. The sequential improvement was due to lower operating cost-to-income ratio and Rs 6,561 mn of treasury gains. 
• Yes Bank made provisions of Rs 17,841 mn in 1QFY19. Provisions included Rs 11,100 mn of MTM provisions on investments due to ratings downgrade. 
• Yes Bank returned to profitability with Net Profit of Rs 1,138 after a loss of 15,066 mn in 4QFY19. 
• Asset Quality worsened sequentially to GNPAs and NNPAs of 5.01% and 2.91% respectively in 1QFY19 from 3.22% and 1.86% respectively in 4QFY19. The share of sub-investment (BB and below) grade book in total advances increased to 9.4% from 7.1% in 4QFY19 due to exposure to 2 large financial players.

Conference Call highlights:
• Management expects to raise capital in 2QFY20. 
• Management maintained their Credit Cost guidance for FY20 at 125 bps. This is excluding MTM provisions on investments that may be required. 
• Yes Bank’s CET1 (Common Equity Tier 1) ratio has depleted to 8.0% by the end of 1QFY19 from 8.5% in the previous quarter. The CET1 ratio of 8% is the minimum regulatory requirement to be maintained by 31st March 2020. 
• Management said the sub-investment grade book has bottomed out and they expect material reductions in the book due to resolutions.
• According to the management, this was a quarter of consolidation and they expect to regain momentum from this point.

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05 Aug

Incentives for EVs: Push in the right direction by Government. Excerpts of an interview with Mr Rajiv Bajaj, MD, Bajaj Auto published on 11th July on the CNBC website.

Dated: 11th July 2019

• Views on incentives for promoting electric vehicles (EVs): One must be cautious as incentives that come today can go just as easily tomorrow. Manufacturers or entrepreneurs must be fixated on delivering a sustainable solution. EVs are becoming an attractive option considering the urban pollution and in that sense, the government’s push in the direction is a good idea.
• Incentives provided in the budget for EVs are significant. GST at 5% for EVs compared to 28% for IC engines, Faster Adoption and Manufacturing of Electric Vehicles (FAME) benefit of Rs 10,000 per kw and some of the reductions in the import duties will help. The government has put its best foot forward in offering a very significant package to those who are interested in putting out good quality electric vehicles. FAME benefit will be for those who are going to make EVs that meet certain quality standards, certain minimum standards in terms of various performance parameters.
• The positive side of the equation is the Government has been generous with the incentives and now it is up to the manufacturers to respond by leveraging this to put products into the market place. The negative is the draft notification that suggests that all three-wheelers and most two-wheeler should become electric by banning internal combustion (IC) engine scooters, motorcycles and three-wheelers. These two things should not be coupled in this manner that in order to encourage or promote one thing you have to artificially bury another thing which is world-class.
• Every member of the Society of Indian Automobile Manufacturers (SIAM) is developing EVs and everyone will be in the market with their own EVs in the very near future, in the next 12 months or less.
• It should be a phased transition to EVs as making 25 million two-wheelers and three-wheelers is not a switch that can be switched on or off overnight. The Government might be overestimating what can be done in the immediate term and underestimating what can be done in a medium-term future like 10-years.
• Bajaj Auto is working toward launching EVs (both 2-wheelers and 3-wheelers) just before implementation of BS-VI norms in April 2020. It would be a good time for EVs to make their way to market because people will be very sensitive to the subject of the environment at that time and current vehicles will get much more expensive because of BS-VI norms.
• Bajaj Auto is part of an industry that is experiencing great difficulty in terms of demand. Nobody knows exactly why the demand is low, nobody knows how this can be resolved or by when things will settle. Everybody is also concerned with what will happen when the next step of BS-VI comes into place and prices go up even further. These are very volatile, very uncertain, very difficult times where one has to just stay the course and wait it out.

Consensus Estimate (Source: www.marketscreener.com) 
• The stock price of Bajaj Auto is Rs 2,740/- as of close price of 11th July 2019 and trades at 15x / 13x the consensus EPS for FY 20E/21E EPS of Rs 186/214 respectively. 
• Consensus target price is Rs 2,831/- valued at 13x FY21E EPS of Rs 214.

By Auto, Bajaj Auto 0 Comments Read more...
05 Aug

Budget 2019-20 highlights that matter for individual investors

Dated: 5th July 2019

Impacting individuals:

· Income tax slab rate unchanged

· Additional deduction of Rs 1.5 lac on interest payment on the loan is taken for purchasing electric vehicles.

· Additional deduction of Rs 1.5 lac on interest payment on home loan under the affordable housing category. This deduction is applicable for loans taken before 31st March 2020.

· TDS of 2% on cash withdrawal exceeding Rs 1 crore in a year from a bank account.

· Surcharge for individuals earning Rs 2-5 crore a year and individuals earning more than Rs 5 crore will increase by around 3% and 7% respectively.

· Pension benefit to be extended to around Rs 3 crore retail traders and shopkeepers with an annual turnover less than Rs 1.5 crore under Pradhan Mantri Karam Yogi Man Dhan Scheme.

Impacting Banking, NBFC and HFC sectors:

· Rs 70,000 cr will be provided to Public sector Banks to boost capital and increase credit.

· Regulating authority over housing finance companies to be returned from NHB to RBI

· Government will provide one-time 6-month partial credit guarantee for the purchase of high rated pooled assets of financially sound NBFCs up to Rs 1 lac cr in FY20. This measure is in response to the funding issues faced by the NBFC sector.

Impacting Capital markets:

· Asked SEBI to consider raising the threshold of public shareholding in listed companies from 25% to 35%. If the change is made, listed companies will have to issue fresh equity or undertake stake sale to comply with the new rules.

Other highlights:

· Special Additional Excise duty and Road and infrastructure cess raised by Re 1/litre each on petrol and diesel.

· Import duty to be hiked on gold and precious metals to 12.5%, from the current level of 10%.

· Corporate tax rate of 25% for companies with an annual turnover below Rs 400 cr. The previous threshold was Rs 250 cr.

· Proposed GST rate cut for Electric Vehicles from 12% to 5%.

What the market did not like:

· No relief on the Long term capital gains tax.

· Corporate tax reduction is proposed for companies below Rs 400 cr turnover. Larger corporates get no benefit.

· Special Additional Excise duty and Road and Infrastructure Cess each by one rupee a litre on petrol and diesel. This might have negative implications for the already weak auto demand.

By Macro 0 Comments Read more...
05 Aug

Kotak Mahindra Bank (KMB standalone) 1QFY20

Kotak Mahindra Bank (KMB standalone) 1QFY20: Moderation in Advances growth, stable asset quality

  • KMB reported advances at Rs 2,080 bn, 18% higher YoY.
  • NII at Rs 31,730 mn was 23% higher YoY.
  • NIM for 1QFY20 was 4.49% compared to 4.28% in 1QFY19.
  • Provisions were Rs 3,168 mn, 33% lower YoY.
  • PAT at Rs 13,602 mn was 33% higher YoY
  • GNPA and NNPA were relatively flat at 2.19% and 0.73% respectively for 1QFY20 compared to 2.14% and 0.75% respectively in 4QFY19.

Management commentary:

  • Advances growth in corporate and business banking segments has been low. Consumer and commercial advances have reported strong growth of 20%+ in FY20.
  • Management expects to continue around 20% growth in advances.
  • NIM expansion is likely due to pricing power and lower cost of funds.
  • Interest rate on Savings accounts below Rs 1 lac is reduced to 4% from 5% earlier. Benefit of the rate reduction will reflect in 2QFY20.
  • Provision for retirement benefit has been significantly higher YoY due to lower interest rates.

Consensus Estimate (Source: marketscreener website)
• The stock price was Rs 1,494/- on 23rd July 2019 and traded at 5.8x/3.7x  the consensus Book value for FY20E/21E of Rs 258/404  respectively. 
• Consensus target price is Rs 1,499/- implying PB of 3.7x for FY21E BVPS of Rs. 404/-

By Bank, Kotak Mahindra Bank 0 Comments Read more...