Bank

16 May

Rising interest rates to have a positive impact on NIMs – SBI

Update on the Indian Equity Market:

On Monday, NIFTY ended at 15,842 (+0.4%). PSUBANK (+3%), REALTY (+2.6%), and AUTO (+2.3%) were the sectoral gainers while IT (-0.7%), FMCG (-0.35%), and PHARMA (-0.2%) were the losers.

Among the stocks, EICHERMOT (+8%), APOLLOHOSP (+4.2%), and UPL (+2.8%) led the gainers, while ULTRACEMCO (-3%), SHREECEM (-2.5%), and ASIANPAINT (-1.7%) led the losers.

Excerpts of an interview with Mr. Dinesh Kumar Khara, Chairman, SBI with CNBC-TV18 on 15th May 2022:

  • In terms of advances, SBI has a pipeline of about Rs 4,600 bn worth of proposals. Currently, its corporate book stands at Rs 8,100bn, and if this number fructifies, then it is going to reflect in a healthy corporate book for the bank.
  • There is enough demand in the economy. The growth is coming from the investment demand which is there from the infrastructure projects being led by the government of India. This is going to be the major lever that will bring in more and more spending for investment purposes in the economy.
  • Focus on PLI schemes, and increase in exports are some of the other growth levers that give SBI the confidence and conviction to see decent growth in their loan book.
  • SBI expects ROE (Return on Equity) to be near 15% by FY23 and reach the equivalent level by FY24.
  • It has a Capital Adequacy Ratio that can easily support 10-11% growth in the loan book but it will be closely watching the scenario in terms of growth as it doesn’t want capital to be a constraint when it comes to growth of the bank.
  • SBI expects its slippages to be down but will be closely monitoring them due to the rising interest situation.
  • The asset quality of the bank is expected to be at least at the current levels of 4% if not improved.
  • Normally, there is always a lag between the deposit rates increase and that leads to a situation where the loan interest rates might start moving faster as compared to deposits. This will have a positive impact on the NIMs of the bank.

Asset Multiplier Comments

  • We expect loan book momentum to remain healthy with economic activities picking up and the government’s initiatives to boost infrastructure-related investments.
  • We expect a higher mix of floating loans and CASA mix to contribute to margin expansion in a rising interest rate scenario.
  • We expect moderation in slippages over the subsequent quarters.

Consensus Estimates: (Source: Market screener and investing.com website)

  • The closing price of SBI was ₹ 456/- as of 15-May-2022.  It traded at 1.3x/1.2x the consensus book value per share estimate of ₹ 342/388 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 646/- implies a P/BVPS multiple of 1.6x on the FY24E BVPS estimate of ₹ 388/-.

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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04 Apr

CitiBank acquisition provides access to an affluent client base: Axis Bank

Update on the Indian Equity Market:

On Monday, NIFTY crossed the 18,000 mark to settle at 18,053 (+2.2%) aided by the surge in HDFC twins post the announcement of the merger of HDFC Ltd into HDFC Bank. HDFCBANK (+9.8%), HDFC (+9.1%), and ADANIPORTS (+4.1%) led the stock gainers. INFY (-1.1%), TATACONSUM (-0.4%), and TITAN (-0.2%) led the laggards. Among the sectoral indices, FINANCIAL SERVICES (+4.6%), BANK (+4%), and PRIVATE BANK (+3.9%) led the gainers and there were no sectoral losers.

Excerpts of an interview with Mr. Amitabh Chaudhary, MD & CEO, Axis Bank published in Economic Times on 1st April 2022:

  • Axis bank acquired Enam Financials, which was renamed Axis Capital. It is the number one player in the equity capital markets in India and is expanding business in the brokerage and M&A segments. Axis Capital will also benefit from the One Axis strategy.
  • Axis bank was distributing Max Financials’ products for over 10 years, so its acquisition provided an opportunity to sign up for a long-term deal and strengthened the partnership with Max.
  • Citi bank’s retail portfolio acquisition was in line with Axis bank’s strategy of granularizing retail business and premiumisation of the portfolio. The acquisition will create opportunities and synergies that will accelerate the journey to creating a franchise across the country.
  • The acquisition provides access to one of the best affluent consumer franchises in India and Axis bank will get access to salary accounts, 1600 plus corporate accounts, and Suvidha corporates. Axis bank will also gain 3,600 Citibank employees. There are a lot of interesting parts which will strengthen Axis Bank’s franchise.
  • The CEO believes they have structured a transaction where the Bank is protected from customer attrition.
  • The price paid for the transaction was approved by the Board. The transaction took slightly longer because it was a complex one. As it was a purchase of a portfolio, he believes it was better that some of the complications were discovered upfront rather than during the transition process.
  • It will take about nine to twelve months to get all the regulatory approvals. It will take time to get customer consent, which depends on the agreement customers have with Citibank. From there, it will take 18 months to transition every Citi customer to Axis’ platform.
  • Right now, wholesale banking has been muted due to muted credit growth. Axis bank wants to be careful about giving loans at prices where the NIMs doesn’t make any sense. Overall, he believes there is a lot of work that can be done on the wholesale banking franchise.
  • Axis bank’s balance sheet gives it the flexibility to fund Citi India’s consumer purchase through balance sheet liquidity, external capital, or a combination of both. The impact will be 230bps on the CET ratio. Though the resultant CT-1 ratio will be above regulatory requirements, the Bank may consider raising capital in the future.
  • A very important part of any merger of this size is how to execute that merger. The integration management committee has already been formed and some of the important considerations in that plan would be around customer attrition, staff attrition, technology transition, and also getting benefits in terms of ensuring that Axis bank can cross-sell more to the Citibank customers.

 Asset Multiplier Comments

  • We believe the deal will add to Axis Banks’ competitive positioning across the credit cards and wealth management segments.
  • The value accretion from Citibank’s portfolio in the long term depends on Axis Bank’s ability to retain and continually add customers as well as employees and its ability to up-sell and cross-sell. The deal is fairly small compared to the size of Axis Bank’s balance sheet.

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

  • The closing price of Axis Bank was ₹ 784/- as of 04-April-2022. It traded at 1.9x/ 1.7x the consensus book value per share estimate of ₹ 417/ 474/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 943/- implies a P/BV Multiple of 2x on the FY24E book value per share estimate of ₹ 474/-.

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 Mar

Focus on next stage of digital transformation – HDFC Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY50 ended in its 5 day winning streak and closed at 16,663 (-1.2%). Among the sectoral indices, AUTO (+0.6%), and FMCG (+0.2%) were the only gainers while METAL (-4.1%), IT (-2.6%), and OIL & GAS (-2.5%) were the top sectoral indices that closed in the red. Among the NIFTY50 stocks, TATACONSUM (+3.7%), M&M (+2.4%), and CIPLA (+2.0%) led the gainers while TATASTEEL (-5.2%), HINDALCO (-5.2%), and ONGC (-4.9%) led the losers.

Excerpts of an interview with Mr. Parag Rao, Country Head, HDFC Bank published in Economic Times on 14th March 2022:

  • The bank did face a couple of outages and it impacted the customers. The regulator took notice of this and conveyed that it has no issues with the bank’s growth plans and strategic direction in which the bank is going, but it would like it if the bank reconsiders its investments in infrastructure so that it can sustain this growth.
  • The bank in the interim was not allowed to do two things. One was the credit card ban; it could not issue new credit cards to customers and at the same time, all the new digital initiatives which the bank was planning to launch were put on temporary hold till such time the bank strengthened and demonstrated the capability to manage this kind of growth.
  • The bank’s new motto is technology become the driver and magnet to get business for the bank and that is how it has started the transformation. In this context, the first embargo on the issuance of credit cards was lifted in August-21. Since then, the bank has gotten back to its regular run rates and rapid growth plans on its credit card base.
  • HDFC Bank is a very large bank. It has commitments and responsibility to a very large customer franchise and in that sense, this pause in its growth was for a very good cause and it is now far better prepared for the next five years.
  • The bank’s strategy can be broken up into three core parts; one is reimagining the entire customer experience and building new digital platforms which would take the customer experience that much far into the future. The context has already been set over the last five to seven years with the emergence and explosion of the digital wave.
  • This digital wave has brought about significant changes in the way customers would interact with their principles, banks, and various other categories practically in every industry and so there was a different need for customers in this whole digital world.
  • All of this has expanded the kind of needs and demands that the customer expects from the institution. So reimagining customer experience and building completely new digital platforms to enhance customer value is one leg of the bank’s strategy.
  • One immediate change over the next couple of months will be the relaunch of PayZapp 2.0 on a completely new platform. The Bank aims is to be among the top three payment apps in the country and a significant ramp-up for PayZapp not just by how it engages and provides the services of holistic payments to its existing set of 60 million customers.
  • The Bank’s planned investments into technology are expected to double over the next 3 years as compared to the past 3 years. The bank is focused on expanding its digital infrastructure by bringing new and skilled talent to lead the transformation.

Asset Multiplier Comments

  • After 16 months of restrictions imposed by the RBI, HDFC Bank is all set to leverage its investments in technology to fuel the next stage of growth in customers by expanding its omnichannel presence.
  • While HDFC Bank is a leader in a lot of parameters in the banking sector, it requires significant catch-up to its peers like ICICI Bank and SBI who have already ahead of the curve when it comes to customer acquisition and tech-based infrastructure development.

Consensus Estimate: (Source: Marketscreener website)

  • The closing price of HDFC Bank was ₹ 1424 /- as of 15-March-2022. It traded at 2.7x/ 2.4x the consensus Book Value per share estimate of ₹ 520/600 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1970/- implies a P/B multiple of 3.3x on FY24E BVPS estimate of ₹ 600/-

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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22 Feb

Mutual Fund arm to be listed at a favorable time – SBI

Update on the Indian Equity Market:

On Tuesday, Nifty closed lower at 17,092 (-0.7%) all sectoral indices ended in the red. The top losers were  MEDIA (-3.3%), REALTY (-2.9%), and PSU BANK (-1.5%).

Among the NIFTY components, the top losers were TATASTEEL (-4.1%), BPCL (-3.7%), and TCS (-3.5%) while M&M (+1.7%), BAJAJFINSV (+1.2%), and HEROMOTOCO (+1.2%) were the top gainers.

Edited excerpts of an interview with Mr. Ashwani Bhatia, MD of SBI with ETNow on 22nd February 2022:

  • Globally inflation is becoming a worry. The world has not seen those kinds of inflation rates in the US. They were last seen in the 70s and the early part of the 80s. The Indian economy is slightly different, and SBI plans to wait and watch.
  • The process has started for the listing of SBI Mutual Fund and all the paperwork has begun. The public will be hearing something from the company rather soon. There is no urgency for the bank to go to the market. When it believes that the timing is good, the markets are favorable and the valuations are lucrative, it will go to the market.
  • SBI does not need capital at the moment and the Bank’s capital position right now is quite comfortable. The Asset Management business (SBI MF) is doing extremely well. It has grown more than the market and it continues to gain market share. It has gained customers and right now it is running an NFO where it is garnering a decent response as well.
  • The bank just rejigged some rates in some buckets based on its ALCO requirements. It raised rates in the one to two years bucket a little earlier because that forms the bulk of its deposit base on the fixed deposit side. Recently, it did the same for longer tenure fixed deposits.
  • The Bank is adopting a wait and watch approach, but for the moment, there is no movement on the advances side. But it expects a natural progression on rate hikes on the assets side.
  • The bank believes it is going to be a very gradual way in which RBI will start reversing the policy rates. Starting with changing the stance, then moving on to the reverse repo and repo rates so on and so forth.
  • Currently, there is no thinking on when the bank will do the YONO IPO. Right now, it remains part of the bank’s digital offering and packaging. It understands the potential of value unlocking to shareholders, however, there are no immediate plans for a separate listing of YONO.
  • SBI spends a significant amount both on the opex and capex as far as IT goes and is in line with whatever is happening outside. It started with the YONO quite a few years back but at the same time, it has tried to keep pace with all the new developments that have come in be it UPI or BharatPe or all the other instruments that have been started by the government or by NPCI and others.
  • Going forward, SBI believes the way we are going to transact, the way we are going to get loans is going to become much simpler because there is going to be a digital trail and with CIBIL, with scores, with all the kind of enablement that digital provides, things will become much better as far as lending and banking is concerned.

 Asset Multiplier Comments

  • As India’s largest bank and lender, SBI has managed to leverage its vast branch distribution network for its AMC business to transform SBI MF into one of the country’s largest Asset Management Companies. Its separate listing will provide for a significant value unlocking for all the shareholders.
  • SBI is often considered as a proxy for the Indian Economy, SBI’s plans for digital transformation-driven growth and increased penetration across rural India provide an excellent opportunity for the bank to be one of the best in the country.

 Consensus Estimate (Source: market screener website)

  •  The closing price of SBI was ₹ 498 /- as of 22-February-2022. It traded at 1.5x/1.3x/ 1.2x the consensus BVPS estimates of ₹ 333/ 380/ 426 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 650 /- implies a BV Multiple of 1.6x on FY24E BVPS estimate of ₹ 426/-.

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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08 Feb

Focused on creating organic and inorganic business opportunities – IndusInd Bank


Update on the Indian Equity Market:

On Tuesday, NIFTY closed in the green at 17,266 (+0.3%) near its high of 17,300. Among the sectoral indices, PSU BANK (+0.8%), METAL (+0.8%), and PHARMA (+0.5%) were the top gainers and MEDIA (-1%), REALTY (-0.8%) and IT (-0.3%) were the sectoral losers. TATASTEEL (+3%), CIPLA (+2.0%), and RELIANCE (+1.7%) were the top gainers. ONGC (-2.8%), POWERGRID (-1.8%), and SBILIFE (-1.3%) were among the top losers.

Excerpts from an interview of Mr. Sumant Kathpalia, MD & CEO, IndusInd Bank (INDUSINDBK) with Economic Times dated 07th February 2022:

  • INDUSINDBK had slowed down their microfinance business and hence the disbursements grew only by 3% sequentially. Disbursement growth came at 4.5% without microfinance as always guided by the company.
  • On deposits, they are as good as the industry and are very comfortable with the way the growth is coming back.
  • Microfinance currently holds 12.5% of INDUSINDBK’s portfolio. It has guided about the proportion being limited to 15% of the total portfolio. It has diversified the rural vertical into various other businesses and is growing rapidly in the merchant acquiring business.
  • The deep rural book that is of ₹ 1500 mn currently, is expected to reach a value of ₹ 5,000 mn by the end of FY23E.
  • INDUSINDBK has launched a new platform with a focus on five verticals. Out of these, easy credit for personal loans and credit cards are already launched. It is in the market since January and the company is seeing a rapid increase in disbursements as well as the experience the clients are getting in it.
  • They have launched ‘Indus Wheels’ which specifically focuses on vehicle finance and they expect to see a different used car experience in the market from February end or March onwards.
  • INDUSINDBK has launched one or two commercials about their merchant acquiring business and saw a good response to the same. They have a few launches lined up that will be millennial prepositions, hugely interactive offering personalized user experience.
  • They have created provisions of ₹ 3,328 mn as a protection against any future shocks. They have also done a ₹ 1,400 mn provision on the restructured book.
  • The company will now lend at 230 bps and believes that the credit cost should settle around 120 to 150bps.
  • INDUSINDBK has always been interested in para-banking. They are looking to add a fourth domain which can come out of affordable housing, wealth management, mortgage, or a business like a merchant acquisition. The main objective of this domain is to create a business opportunity that can be organic or inorganic.
  • The promoters of the bank are awaiting the operating guidelines on the 26% promoter limit allowed by the RBI. Once these guidelines are clear and if the bank needs funds, the promoters will be the first ones to infuse capital into the company.
  • Vodafone-Idea business has to start playing out for INDUSINDBK to reverse its provisions. Vodafone is expected to come back to the banker’s consortium wagon with a definitive business plan about how they will raise funds and how the business is going to grow. Once that is finalised, how Vodafone’s business gets executed over two or three quarters will decide if the provisions will start reversing.
  • MSME and SME sectors are growing. On the corporate and on the MSME side, the company is confident about being ahead of the market and not an outlier.
  • Kathpalia expects the central bank will continue to support growth and the increase in rates will not be passed on to the end consumers immediately.
  • Four things to look at in FY23 for INDUSINBK: 1) Now that the balance sheet is stable, they will be focused on the bank’s growth momentum, 2) PPOP margins have been highest or second highest in the industry around 5.9% to 6% and will be maintained between 5.75% to 6%. 3) Credit costs are expected to swing back and land between 120 and 150 bps and 4) The bank’s fourth domain should come into existence in the form of para banking or affordable housing or wealth management.

Asset Multiplier comments:

  • With economic activities picking up, the disbursements in vehicle finance and microfinance are expected to start gaining momentum.
  • The bank has sufficient provisioning which is expected to reduce credit costs and improve its margin trajectory in the subsequent quarters.
  • We expect healthy traction in the bank’s loan book and an increase in disbursements due to the introduction of technology-driven services.

Consensus Estimate: (Source: Market screener and investing websites)

  • The closing price of IndusInd Bank was ₹ 938/- as of 08-February-2022.  It traded at 1.5x/1.3x/1.2x the consensus book value per share estimate of ₹ 611/688/784/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 1,267/- which implies a P/BV multiple of 1.6x on FY24E BVPS of ₹ 784/-.

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 Bank, IndusInd Bank , , 0 Comments Read more...
27 Jan

 Expect NIMs to be in the range of 3.2-3.3% – Federal Bank

Update on the Indian Equity Market:

On Thursday, Nifty closed lower at 17,110 (-1%) in the highly volatile session after Federal Reserve in its policy outcome indicated interest rates hike soon.

PSU BANK (+5.1%), BANK (+0.7%), and MEDIA (+0.6%) were the top gainers and IT (-3.6%), CONSUMER DURABLES (-2.3%), and HEALTHCARE INDEX (-2.3%) were top losing sectors.

The top losers were HCLTECH (-3.9%), TECHM (-3.6%), and DRREDDY (-3.4%) while AXISBANK (+3.3%), SBIN (+2.8%) and CIPLA (+2.3%) were the top gainers.

 Expect NIMs to be in the range of 3.2-3.3% – Federal Bank

Edited excerpts of an interview with Mr. Shyam Srinivasan, Managing Director and Chief Executive Officer, Federal Bank with ETNow on 25th January 2022:

  • In 3QFY22, Federal Bank’s advances grew by 4.5% QoQ and 12% YoY. 3QFY22 showed all-around improvement. The performance was broad-based which is an encouraging sign. Some businesses were driven by economic activity and the bank’s gain in market share.
  • In 3QFY22:
    • Corporate business come back strongly, and
    • Retail, which has been trending well, gathered steam and kept its pace with the developments in the economy.
  • The overall numbers show credit growth and improvement in the quality of the book.
  • The credit quality of the Bank is normally in the top quartile and credit costs have been well managed across lengths of time because of disciplined lending.
  • In 3QFY22, Federal Bank recorded its best-ever net profit and ROA crossed 1%. It crossed the Rs 5,000 mn quarter mark in net profits. So, it has been a diversified, broad-based, and on-target performance.
  • Generally, Bank’s performance is ahead of the industry by a multiple. As the economy picked up pace in 3QFY22, Federal Bank saw a good pick up and its market share gain amplified. The bank is witnessing organic, structural, and holistic growth and it is not one-off bolstering performance.
  • The bank is confident of continuing its momentum in 4QFY22E provided the economy is moderately affected by Coronavirus third wave.
  • The bank believes that green shoots in the economy should play through and if it does, the bank’s market share gain will be even more pronounced.
  • Looking at the last two-three years of the incremental credit in the country, the bank’s share is higher than its normal market share.
  • The bank is gathering momentum across and believes as things improve in the economy, its market share gain should be visible across the spectrum.
  • The credit cost of the bank has reached its bottom at 22 bps and there is no scope for further improvement. Mr. Srinivasan thinks that a normalized credit cost on an annualized basis of around 50-60 bps in a steady state would be a good place to be in. The bank always tries to maintain a balance between the kind of business momentum, and credit cost.
  • Recovery upgrade for 3QFY22 was strong and close to Rs 3,000 mn. Slippages in 3QFY22 were Rs 3,300 mn and almost matched the slippages of the 2QFY22. The incremental recovery upgrades are doing well, and collection efficiency is strong.
  • The CEO expects to see a pick up in capex in 2HCY22 as capacities are getting built-in.
  • Bank’s share gain is visible as it doesn’t have the baggage of any adverse credit and companies are beginning to look at borrowing opportunities. For a greater part of CY21 corporates had other borrowing opportunities to meet their credit requirements but those are turning out to be a little more expensive. So, banking and bank credit are looking more attractive and as that happens, Federal Bank is well-positioned to gain share.
  • Sequentially, the corporate book grew ~7% in 3QFY22. The bank is confident that this will repeat as its strengths, reach out programs and appetite remains strong. Bank thinks as capex picks up, the corporate book will grow even faster.
  • The Bank has been giving NIMs guidance to be in the range of 3.2% to 3.3%. The bank is presently at 3.27% levels and sees room for improvement of another 5 odd basis points.
  • NIMs are impacted by the mix of the book, frequency of credit growth, the quantum of credit growth, and reversals in slippages. Bank has successfully controlled all these variables and demonstrated NIMs expansion. Typically, in a rising interest rate scenario, NIMs tend to expand for banks.

Asset Multiplier Comments

  • We think the Bank’s performance in terms of the advances growth, profitability, and asset quality has been strong.
  • We expect this momentum to continue considering the improving economic condition which will aid higher disbursements and better asset quality.

Consensus Estimate (Source: market screener website)

  •  The closing price of Federal Bank was ₹ 100/- as of 27-January-2022. It traded at 1.08x/0.98x/ 0.87x the consensus Book Value Per Share estimates of ₹ 88.4/ 98.1/ 110 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 118/- implies a PBVPS Multiple of 1.07x on FY24E BVPS estimate of ₹ 110/-.

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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10 Jan

Expect loan book growth of 9.5% in FY22E – SBIN

Update on the Indian Equity Market:

On Monday, NIFTY closed in the green at 18,003 (+1.1%). Among the sectoral indices, PSU BANK (+3.2%), MEDIA (+2.6%), and REALTY (+1.2%) closed higher while none closed in the red. Among stocks, UPL (+4.6%), HEROMOTOCO (+3.3%), and TITAN (+3.1%) were the top gainers while WIPRO (-2.3%), NESTLEIND (-1.0%), and DIVISLAB (-0.9%) were among the top losers.

Excerpts from an interview of Mr. Ashwani Bhatia, MD, State Bank of India (SBIN) with CNBC-TV18 dated 7th January 2022:

  • The management stated that a big part of the stress in the banking system, which mostly consists of the corporate sector, has been reduced and that they are not witnessing any further tension.
  • RBI in their financial stability report talked about some stress buildup on account of COVID, looking at the trajectory of the virus at the moment. But as an industry, the management thinks that things are pretty much in place for decent growth.
  • Management is optimistic about the growth pipeline, the majority of which is expected to result from increased government activity. The national monetization strategy has already taken off, and InvITs are receiving favorable coverage. According to management, more economic activity would benefit the industry. Management expects the loan book to grow at 9.5 percent in FY22E and 7-9 percent in the next 5 years.
  • Mr. Bhatia stated that the retail sector was never a concern. The retail book is generally small ticket, and the housing sector is by far the most important for all banks. In general, delinquencies in the housing industry are quite low. On the personal loan side, some evaluation is done at the backend because the clients are primarily salaried persons or government employees; hence, management anticipates this stress to be managed under 0.5 percent for FY22E.
  • Despite the fact that the RBI has emphasized the stress that the MSME sector is under, as well as the significance of closely monitoring these problematic loans, SBI management, in particular, feels that things cannot get much worse. Today, all public sector banks are well-capitalized, and their high net worth is sufficient to handle loan expansion in the next few years. The bank’s NPA levels are quite constant, and the operating profit and provisions are also adequate.
  • Reliance Industries raised about $400 mn, the biggest issue by any Indian business done overseas, with one of the main reasons being the cheaper cost of financing as opposed to borrowing from a bank. On the subject of whether the trend may lead to a loss of market share for banks, management stated that it is a very beneficial development since it helps local institutions de-risk. Well-managed businesses are gaining access to international funding. After factoring in the hedging cost, the LIBOR, and the spread, the resulting rate would be close to the domestic rate. However, many of the enterprises do not need to hedge since they have a large export book. As a result, the cost of funding is significantly reduced.

Asset Multiplier comments:

  • The asset quality forecast appears to be positive since the worst phase of the corporate cycle appears to be behind the industry. Despite the tough circumstances, it reported good FY21 results. We anticipate that robust loan and deposit growth, as well as continuing recovery, will maintain the earnings momentum.
  • We believe the bank is well-positioned to deliver strong advances and PAT growth on the back of strong retail franchise and recovery in the asset quality, particularly the corporate book. We expect the bank to benefit from economic recovery and recovery of the benign corporate credit cycle.

Consensus Estimate: (Source: Market screener website and Tikr)

  • The closing price of SBI was ₹ 504 as of 10-January-2022. It traded at 1.6x/1.4x/1.3x the consensus Book Value per share estimate of ₹ 300/ 340 / 388 / for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 625 /- which implies a PB per share multiple of 1.6x on FY24E BVPS of ₹ 388/-.

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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08 Dec

Private CAPEX visible as demand came back post 2nd wave – Axis Bank

Update on the Indian Equity Market:

On Wednesday, Nifty ended higher at 17,470 (+1.7%). PSU BANK (+2.6%), MEDIA (+2.5%), and AUTO (2.3%) were the top sectoral gainers and there were no sectoral losers. Among the NIFTY50 stocks, BAJFINANCE (+3.6%), MARUTI (+3.2%), and HINDALCO (+3.1%) were the top gainers while HDFCLIFE (-1.2%), KOTAKBANK (-0.8%), and POWERGRID (-0.3%) were the top losers.

Edited excerpts of an interview with Mr. Amitabh Chaudhry, MD and CEO of Axis Bank with CNBCTV18 on 7th December 2021:

  • After the 2nd wave of COVID-19, the credit demand came back, government spending increased, the festive season also went well, and the reinvestment coming back. RBI data shows corporate growth in October-2021 after the consistent decline in the previous 12 months.
  • The government spending increased across all sectors, especially in Infrastructure and Defence. Mr. Chaudhry said private capex is visible in refineries, renewable energy, data storage, warehousing, logistics, and commodities. He expects in the next 9 to 12 months real capex will resume but it’s dependent on the virus situation.
  • Chaudhry said the bank’s growth is in line and similar to its peers in sectors in which Axis Bank wants to grow.
  • The Bank did not see any growth in the large corporate segment due to the pricing. It sees the rates in this segment are not similar to the one it wants to lend at. As the private capex and risk premium come back then it will start lending again to the large corporates.
  • Overall Axis Bank’s unsecured loan is under control within the risk guidelines. It sees some scope of growth in the credit card segment, as the AUM in the credit card declined post-Covid and is now recovering.
  • On the unsecured personal loan side, Axis Bank sees decent growth and expects that to pick up as the market for personal loans is huge. On the credit card side, it has seen good acquisition momentum, and Axis Bank continues to sign up new alliances and that should reflect on the credit card segment growth.
  • Chaudhry said the granularity of their deposit franchise suffered over the last 5 to 7 years and Axis has been gradually building it back. From 2020 onwards every quarter their CASA deposits growth has been catching up with industry leaders and the transformation that they are undertaking on their liability side will continue to add that growth going forward.
  • Chaudhry further said that the kind of deposits they have, the outflow percentage as decided by RBI are higher and they have a higher proportion of their assets and investments which carry lower interest margins.

Asset Multiplier Comments:

  • We expect margins to improve in the near-term on the back of an improvement in its product mix which is expected to change in favour of retail segments, granular liability franchise, and a reduction in the mix of Rural Infrastructure Development Fund (RIDF) bonds.
  • Stable asset quality, higher recoveries and healthy provision coverage ratio of ~70% coupled with additional provision buffer is likely to support bank’s balance sheet from any potential stress.

 Consensus Estimate (Source: market screener and TIKR websites)

  • The closing price of AXISBANK was ₹ 696/- as of 08-December-21. It traded at 2x/1.6x/1.5x the consensus BVPS estimate of ₹ 369/417/475 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 948/- implies a PB multiple of 2.3x on FY23E BVPS of ₹ 417/-.

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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09 Nov

Expect 9-10% credit growth by end of FY22 – State Bank of India

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 18,044 (+0.1%). AUTO (+1%), OIL and GAS (+0.8%), and PSU BANK (+0.8%) led the sectorial gainers. FINANCIAL SERVICES (-0.7%), FINANCIAL SERVICES 25/50 (-0.6%), and FMCG (-0.3%) were sectoral losers. The top gainers in NIFTY50 were M&M (+5.2%), TATAMOTORS (+2.0%), and HEROMOTOCO (+1.0%). The top losers were BRITANNIA (-3%), HDFC BANK (-2%), and HDFC (-1%).

Excerpts of an interview with Mr. Dinesh Kumar Khara, Chairman, State Bank of India (SBIN) with CNBC-TV18 on 08th November 2021:

  • In two to three broad components the credit growth is seen. One is retail credit, which has grown more than 15% on a YOY basis. Muted growth was seen in corporate credit.
  • SBIN got unavailed limits, both in working capital as well as undisbursed term loans, and both of them aggregate to about Rs 4,500,000 mn. SBI also got the pipeline for the proposals which are being processed of Rs 1,150,000 mn.
  • SBIN expects as capacity utilisation improves, there will be a good credit growth in corporate sector in near term. The numbers are quite good in the month of October for the corporate credit and the bank expects there should be a decent growth will be seen in corporate credit in 2HFY22.
  • SBIN registered a credit growth of more than 6% on YoY. The company’s Retail and International book both performed well, international book growing more than 16% on YoY. But the corporate side is the only one which was pulling down the growth.
  • SBIN expects credit growth to be in the range of 9% to 10% at the end of FY22.
  • SBIN is processing loans of commodity, infrastructure, and FMCG sectors. The commodity sector is expected to reach its full capacity utilization and they are expanding and also the demand was back on track in FMCG sector. As a result of this, SBIN expects good credit growth from these sectors.
  • On NPAs, SBIN does not see any challenges as far as corporate credit is concerned. As far as retail is concerned the quality of retail is quite good. SBIN expects to operate in a range of 3.1% to 3.25% in Net Interest Margins.
  • SBIN witnessed some challenges in end of 1QFY22, but the collection machinery was improved significantly. They started pre-collection calls which means they informing customers well in advance for their EMI due. The customer centricity helped in reducing stress asserts in the retail sector.
  • SBIN has a restructured book of Rs 3,00,000 mn. History suggests about 30% of restructured book has a probability of becoming NPA. The current restructuring has happened essentially on account of the disruption in cash flow due to Covid-19. SBIN has seen an improvement in cash flows.
  • SBIN made the Covid related provisions of Rs 62,000 mn. They have provided well for the potential risk which might emanate from this.
  • SBIN collaborated with many fintech companies when it comes to offering their digital solutions. The Bank is actively engaged in terms of looking at what value addition fintech bring.

Asset Multiplier Comments

  • SBIN has reported a robust performance and has fought off the COVID-19 impact and displayed resilience in asset quality performance. The bank has been reporting continued traction in earnings, led by controlled provisions.
  • The improved credit growth prospects, stable NIMs and improving asset quality with adequate provisioning coverage will help SBIN to achieve its target of delivering 15% ROE through various cycles.

Consensus Estimate (Source: Market screener and TIKR Websites)

 

  • The closing price of SBIN was ₹ 529/- as of 09-November-21. It traded at 2x/1.5x/1x the book value per share estimates of ₹ 302/343/388 for FY22E/ FY23E/ FY24E respectively.
  • The consensus target price of ₹ 620/- implies a price/book value multiple of 2x on FY23E BPS of ₹ 343/-

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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02 Nov

Collection efficiency improved by 16% in 2QFY22 – Bandhan Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY closed flat at 17,890 (-0.2%) led by REALTY (+4.0%), PSU BANK (+2.4%), and MEDIA (+1.0%). Those in red were METAL (-2%), OIL & GAS (-0.8%) and HEALTHCARE (-0.6%). Top gainers in NIFTY50 were MARUTI (+2.2%), NTPC (+2%), and TITAN (+2%). The top losers were TATASTEEL (-3.4%), GRASIM (-2.2%), and JSWSTEEL (-2%).

Excerpts of an interview with Mr. Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank with CNBC-TV18 on 01st November 2021:

  • Asset quality is improving since the last quarter. In Q1, they faced a severe effect of the second wave of COVID-19, but from September it improved in a way that gives comfort to the bank and its future growth is coming
  • From Q1 to Q2, collection efficiency has improved by 16% and the Special Mention Account-0 (SMA-0) has become half, SMA-1 has come 25 percent down and SMA-2 is flat because they made higher provisions in this quarter.
  • Restructured book amount is ₹ 83.3 bn.
  • The second wave was severe than the first wave and the second wave entered the Eastern region which is Bandhan Bank’s core area in May. Hence, the May-June months were affected by that and the impact was seen in Q1FY22.
  • Eventually, August witnessed some improvement and September is when the bank saw a pick-up.
  • The Assam government has informed customers that if they don’t pay their respective dues, their credit history will be affected and they will not get credit in the future.
  • Ground-level customers are returning back and hence collection efficiency improved by 33% from June to September particularly in Assam.
  • Small borrowers are asking for time which is duly provided and it is seen that 66% of these borrowers are paying to the bank and NPA customers are also paying 65% to them
  • As a result, all of these customers don’t belong to the NPA bucket, they belong to the regular bucket.
  • Every day, 14,000 of Bandhan Bank’s customers are closing their loans which means they are coming to the regular category from the restructured and NPA one.
  • If this continues, the bank expects this to normalize in the next couple of months.

Asset Multiplier Comments

  • Bandhan Bank declared 2QFY22 earnings recently and reported a loss, impacted by significantly higher provisions. The Bank has provided for NPA to protect its balance sheet from the potential impact of a 3rd Covid wave.
  • With economic activity picking up ahead of the festive season, we believe credit growth will pick up. The bank is likely to be a beneficiary of this.

Consensus Estimate (Source: market screener websites)

  • The closing price of Bandhan Bank was ₹ 309/- as of 02-November-21. It traded at 3x/2x/2.1x the book value estimate of ₹ 102/130/150 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 310/- implies a Price/book multiple of 2.1x on the FY24E book value of ₹ 150/-.

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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