Bank

18 May

Banking sector’s exposure to MSMEs at 12-14%- Amitabh Chaudhary, Axis Bank

Update on Indian Equity Market:

Nifty started the day with a sell-off but closed the week flat at 9,136. The only sectors to close in positive today were METAL (1.6%) and FMCG (0.1%) as all other sectoral indices traded lower with MEDIA (-1.8%), REALTY (-1.5%) and PVT BANK (-1.2%) were the biggest losers. Within the index, VEDL (3.9%), BHARTIARTL (2.8%) and BPCL (2.6%) were the highest gainers whereas M&M (-4.6%), ZEEL (-3.6%) and AXISBANK (-3.3%) were the laggards.

Excerpts from an interview with Mr Amitabh Chaudhary, MD & CEO, Axis Bank aired on CNBC TV18 on 14th May 2020:

  • Mr Chaudhary mentioned that the impact of this lockdown is widespread across all industries and no longer restricted to some. It will take more time for economic activities to pick up. IT will continue to remain tough for some period of time.
  • He mentioned that as a result of all this, non-performing liabilities (NPL) will rise. The economy needs support so that people can come back to business quickly and start producing the cash flow so that the NPLs will be lower.
  • He accepted that there is ample liquidity in the system. The challenge is to be able to deploy it effectively. This is resulting in the excess liquidity being parked with the RBI. There is a negative pressure on the net interest margins (NIMs) across the banking system because the cash which has been there is not getting deployed.
  • Government is slowly coming up with new schemes where the deployment of some excess liquidity will start happening. He is confident that this will help the NIMs positively.
  • He stated that if the NPLs rise and if moratorium is not given or some kind of one-time restructuring is not allowed, this will further lead to negative impact on NIMs. Next three to six months will determine the trajectory of the banking
  • Commenting on the fiscal package announced by the Government, Mr Chaudhary said that the Government further needs to provide support to the economy to prevent non-performing loan formation.

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

  • The closing price of Axis Bank was Rs 403/- as of 15-May-2020. It traded at 1.2x/ 1.1x the consensus Book Value estimate of Rs 324/ 363 for FY21E/ FY22E respectively.
  • The consensus target price of Rs 568/- implies a PB multiple of 1.6x on the FY22E BV estimate of Rs 363/-

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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14 May

Will focus more on secured loans, as it looks to diversify loan book says Bandhan Bank’s Chandra Shekhar Ghosh

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the green at 9,383 (+2.0%). Top gainers in NIFTY50 were ZEEL
(+7.7%), Axis Bank (+7.0%) and ULTRACEMCO (+6.4%). The top losers were Nestle (-5.2%), Sun
Pharma (-2.2%) and Bharti Airtel (-1.1%). Sectoral gains were supported by Banks. Top sectoral
gainers were PSU Banks (+6.1%), Bank (+4.1%) and PVT Bank (+3.9%) and sectoral losers were
Pharma (-1.1%) and FMCG (-0.7%).

Excerpts of an interview with Mr. Chandra Shekhar Ghosh, CEO, Bandhan Bank Ltd with Financial
Express dated 13 th May 2020:

● Bandhan Bank expects around four weeks could be needed for normalisation of its
microfinance collections after the countrywide lock-down is lifted
● For microloan, 100% loan moratorium in value opted for April as they could not meet their
microfinance borrowers for collections due to the lock down.
● Around 79% of their microfinance borrowers have an average deposit balance of around Rs
3,070, which is equivalent to over four weekly instalments.
● Around 87% of their housing loan EMIs had come in April, while 65% (in value) of SME
instalments had come during the month. Around 41% (in value) of NBFC-MFI’s instalments
had been paid.
● They have started operations in microfinance business with opening offices in the green
zones across the country. They have disbursed some microfinance loans, though the amount
is very small.
● They will disburse more loans to micro-credit customers if they need because they know
their credit history for a long time. They have not yet started fresh disbursement in the non-
micro-credit sector (after the lock down is imposed).
● After restarting the operations, customers will look into their cash flow conditions.
Depending on that they will take a call on fresh loans.
● The faster the lock down is lifted, the faster they will get back to the pre-lockdown period in
terms of collections from different sectors. Until that happens there will be requirements for
supports from the RBI and the government. The loan moratorium has helped.
● Going forward, they would like to go for more diversification of their loan book, more
secured loan book than the current book.
● As of now, around 62% of their loan book is micro-credit. They would like to be more focus
on affordable housing and MSME sectors. Also, they would like to go for more geographic
expansion across the country.

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

● The closing price of Bandhan Bank Ltd was ₹ 254/- as of 13-May-2020.  It traded at 2.3x/ 1.9x
the consensus earnings estimate of ₹ 111 /135 for FY21E/22E respectively.
● The consensus price target of Bandhan Bank Ltd is ₹ 316/- which trades at 2.3x the book value of
₹ 135/-

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 advisers to determine the merit, risks, and suitability of the information provided.

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03 Apr

To some extend pain is addressed by RBI- Mr Dinesh Khara, SBI

Update on the Indian Equity Market:

On Wednesday Nifty closed -4.0% lower at 8,253. Among the sectoral indices NIFTY IT (-5.5%), NIFTY Bank (-4.9%), NIFTY PVT Bank (-4.9%) closed lower. None of the sectors closed on a positive note. Tech Mahindra (-9.4%), Kotak Bank (-8.7%), and AXIS Bank (-6.2%) led the losing stocks. Hero Motocorp (+2.5%), Bajaj Auto (+1.0%), Bajaj Finance (+0.5%) were among the top gainers.

Excerpts from an interview of Mr Dinesh Khara, MD- Global Banking and subsidiaries of State Bank Of India with CNBC-TV18 dated 31st March 2020:

  • Speaking on recent measures by RBI Mr Khara said the steps taken by RBI have mitigated the stress which the bank would have seen on account of the 21-days lockdown which has been announced.
  • However, the only thing could be the special mention accounts – SMA-I and SMA-II, which normally has a tendency of seeing the recovery towards the latter half of the month. So there, the bank might face some kind of a situation but that also is being resorted through follow up mechanism.
  • He added the pain has been addressed to an extent of about 90 %.
  • Speaking about the moratorium, he said everybody is entitled to the moratorium unless they opt-out.
  • For the next quarter, on the margin front, the bank has not looked at this point as the issue is evolving.
  • On asset quality, Mr Khara said the bank is in the process of evaluating the impact and it would be too early to say anything.
  • On SMEs, SBI announced an emergency package for SMEs, which is 10 per cent of the working capital for all the accounts which are performing. This package was announced even before the steps taken by RBI.
  • Speaking about loan growth he said after the lockdown is taken off, there would be pent-up demand and to meet that demand, the corporates might go for shoring up their working capital too. Apart from that, there is bound to be some kind of reconstruction effort post COVID-19 and the bank is confident that will also bring in opportunities for credit growth.

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

  • The closing price of SBI was ₹ 187/- as of 01-April-2020.  It traded at 0.7x/ 0.6x/ 0.5x the consensus Book value per share estimate of ₹ 249/277/312 for FY20E/ FY21E/ FY22E respectively.
  • The consensus average target price for SBI is ₹ 384/- which implies a PB multiple of 1.2x on FY22E BVPS of ₹312/-.
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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/-.
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25 Mar

Bottom of pyramid businesses & SMEs are not highly leveraged, says Aditya Puri, HDFC Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY ended up 190 pts up (+2.5%) at above 7,800 level amid Finance Minister Nirmala Sitharaman announcements to move tax deadlines and ease of rules to fight Coronavirus.

Among the sectoral indices, IT (6.1%), FMCG (3.2%) and PHARMA (2. 8%) were among the top gainers while REALTY (-2.0%) was the only sector to close lower. INFY (+14.0%), ADANIPORTS (+13.8%) and BRITANNIA (+11.8%) were the top gainers. M&M (-8.0%), GRASIM (-7.7%) and IndusInd Bank (-6.8%) were the top losers.

Bottom of pyramid businesses & SMEs are not highly leveraged, says Aditya Puri, HDFC Bank

Edited excerpts of an interview with Mr Aditya Puri, Managing Director & Chief Executive Officer of HDFC Bank; dated 23rd March 2020:

  • His views on COVID-19 – He is happy with the lockdown and suggested that we should control this situation and work towards decreasing the number of cases, this will be the best thing that can happen to everyone now.
  • When asked about where he sees the financial market and economy going ahead, he commented that in such crisis financial backing is needed looking at the difficulty we will be going through. A non-schedule rate cut is necessary for both to keep the yields in check as well as to give a clear message to the market that we are willing to go to whatever stake necessary. A forbearance for the cash flow problem that the virus will create is needed as it is not that the companies are going bad, there could be cash flow mismatches and the more liquidity provided will make sure that life after the virus is better.
  • While giving a picture about his bank he said that if the companies survive, the country will survive and the banks will also survive. HDFC Bank has been working on this. They are sitting on the liquidity of USD 5 bn and their total portfolio is rated AAA at an internal risk rating of 4.3. HDFC Bank has lent most of their wholesale to 80% to AAA companies. On the PL side, they have lent to the same fellows for salary and he expects salary cuts. 75-80% of personal loans and credit cards are to the same salaried employees there. It is difficult for the Bank to take a call before laying off starts but he expects salary cuts for sure before that.
  • He stated that as far as SME portfolio is concerned compared to the others, 80% of the portfolio has got additional collateral and they have a self-funding ratio in SME of 85%. He also said that he is more concerned with the health aspect than being concerned about the bank.
  • He further added that their bottom of the pyramid on the businesses is not highly leveraged, so when they went to the ground for the shopkeepers, they are not highly leveraged. A large part of SMEs also is not highly leveraged.
  • Talking about rural India he said that it is functioning in its own world. The only thing we have to do is stop people going back there and spreading. People there have the money and the demand is coming from rural areas.
  • With regards to earnings, he said that there will not be a flat quarter or a drop in profit and investors would be surprised with the numbers. He will also create a corona reserve and come out still okay.
  • On the work from the home structure, he said that ~33% of their people are working from home now and he sees no reason why they shouldn’t continue after corona which gives a further drop in our costs. So, their cost to revenue ratio is going down. HDFC Bank has substantially increased their distribution, they have the technology and USD 5 bn of liquidity and it is still coming in.

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

  • The closing price HDFC Bank was ₹ 774/- as of 23rd March 2020. It traded at 2.5x/ 2.1x/ 1.8x the consensus book value estimate of ₹ 311/ 360/ 420 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price of ₹ 1445/- implies a PBV multiple of 3.4x on FY22E EPS of ₹ 420/-
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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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12 Mar

Deposit figures shot up since the announcement of Yes Bank moratorium: Romesh Sobti, IndusInd Bank

Update on the Indian Equity Market:

Markets seesawed the entire session after a one day break as Nifty closed marginally lower at 10,448. The increasing number of virus infections in the country has created uncertainty over the near term outlook for companies as many states are rushing to close public places to control the spread of the virus. Among the Nifty 50 stocks, YESBANK (36.7%), ZEEL (7.5%) and INFRATEL (6.6%) were the highest gainers whereas GAIL (-10.2%), TATASTEEL (-7.8%) and TATAMOTORS (-6.9%) were the top losers. Within the sectoral indices, MEDIA (1.7%), PVT BANK (0.4%) and FIN SERVICES (0.2%) were few of the gainers while PSU BANK (-3.9%), REALTY (-2.7%) and METAL (-2.1%) were the top losers.

Excerpts from an interview with Mr Romesh Sobti, MD & CEO, IndusInd Bank published in CNBC TV-18 on 9th March 2020:

  • IndusInd Bank has deferred its plans to raise funds through additional tier-1 (AT 1) bonds after a write-down in the AT1 bonds of Yes Bank under the restructuring plan. The bank’s board meeting that was scheduled for 9th March 2020 has also been deferred.  On this development, Mr Sobti said that the bank does not need capital on an urgent basis. He believes that the bank still has got enough fuel in the tank for the next 2 years for loan growth.
  • He said that the capital adequacy ratio of the bank is well beyond 15 percent and another 1 percent to come in from the residual preference share allotment to the promoters as a consequence of the Bharat Financial Inclusion merger.
  • He further said that they did not defer capital raising due to fear around AT1 bonds. The bank decided to defer the meeting as there is a lot of dust flying around the Yes Bank issue and IndusInd bank is still above the threshold level where the board is comfortable.
  • On the write-off of AT1 bonds, he said that the last word is not yet out on the fate of the bonds. He is waiting for the final resolution plan before concluding his remarks.
  • When asked about the Yes Bank fiasco, he said that the moratorium is a standard process that happens whenever this sort of restructuring or merger takes place. He said that the moratorium is going to be lifted sooner than later in the coming 30 days period.
  • Commenting on the behaviour of depositors since Yes Bank moratorium was announced, he said that the deposit figures of IndusInd have shot up since the announcement. As a result, the bank is carrying a huge amount of excess liquidity.
  • When asked if they would be interested in buying 5 percent stake in Yes Bank if they were approached by SBI, Sobti said that it is a very attractive proposition under current valuations.

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

  • The closing price of IndusInd Bank was ₹ 845/- as of 11-March-2020.  It traded at 1.6x/ 1.4x/ 1.2x the consensus book value estimate of ₹ 514/ 613/ 728 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price for IndusInd Bank is ₹ 1,660/- which implies a PB multiple of 2.3x on FY22E BV of ₹ 728/-.
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20 Feb

No problem on the retail front – V. Vaidyanathan, IDFC Bank

Excerpts from an interview of Mr. V. Vaidyanathan, Managing Director, and Chief Executive Officer, IDFC First with CNBC-TV18:

Update on the Indian Equity Market:

On Wednesday, NIFTY ended positive at 12,130 (+1.2%). The top gainers in NIFTY were Bharti Infratel (+7.0%), Grasim (+4.4%) and Coal India (+3.5%). Whereas Tata Motors (-2.2%), JSW Steel (-1.40%) and Sun Pharma (-1.32%) were the top NIFTY losers. All the sectors were in the green. The top sectoral gainers were pharma (+2.32%), Media (+1.94%) and FMCG (+16.4%).

  • Speaking about telecom exposure of the bank, Mr. Vaidyanathan said the total exposure to telecom is ₹ 5,900 crore out of which ₹ 2,700 crores are for Bharti Airtel and Jio together and ₹ 3,300 crore exposure for Vodafone on which the bank has taken 50% provision.
  • He says, out of the names other than Vodafone, there is nothing to worry about. Except for the telecom sector the total exposure on the watch list is roughly ₹ 3,500 crore, which the bank is tracking on a quarterly basis.
  • Out of the ₹ 3,400 crore watch list the bank has taken 51% provisions. The bank has exposure to Reliance Capital, Dewan Housing Finance Ltd (DHFL), and SICAL.
  • The bank has provided 75% provisions to Reliance and DHFL.
  • The bank has got ₹ 825crore on legacy watchlist accounts.
  • Out of the ₹ 51,000 crore book, close to 40% is MSME book, 49-50% is the consumer financing book and close to 11% is housing finance. For the bank, each one of these three segments are behaving very well.
  • Mr Vaidyanathan said people connect anything with anything, there are worries like coronavirus and some trade delays as well but, coronavirus has got nothing to do with secured and unsecured in India.
  • On the retail front the bank is not having any problem.

Consensus estimates:

  • The closing price of IDFC First Bank was ₹ 40/- as of 19-February-2020. The consensus target price for the bank is not available.
  • The bank reported a loss for the year ended 31st March 2019 of ₹ 4.7 per share. The reported loss for nine months ended 31st December 2019 stood at ₹ 6.10, which was ₹ 4.39 for nine months ended 31st December 2018.

 

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18 Feb

‘Opportunities for growth delivery across segments’- Amitabh Chaudhry, Axis Bank

Update on the Indian Equity Market:

On Monday, Nifty 50 closed marginally lower at 12,046. IT was the only sector that ended marginally in the green. PSU Bank (-3.0%), Realty (-1.5%) and Media (-1.1%) were the top losers. Titan (+1.7%), GAIL (+1.6%) and Nestle (+1.6%) were the top gainers while Yes Bank (-4.0%), Coal India (-3.8%) and ONGC (-3.2%) were the top losers for the day.

‘Opportunities for growth delivery across segments’- Amitabh Chaudhry, Axis Bank

Excerpts of an interview with Amitabh Chaudhry, MD, and CEO, Axis Bank published in Mint on 17th February 2020:

  • The market share of Axis Bank is in the 4.5-5 percent range in deposits and loans. Opportunities are there and growth delivery across all businesses is possible. Although the loan growth has been good, the bank has seen some unexpected stress. Now the stock of overall stress has come down which will hopefully be reflected in the slippages.
  • The bank has been one of the most transparent ones in his view, in terms of disclosing numbers. Barring further shocks, from all the metrics, the future looks good, which they need to demonstrate in the coming quarters.
  • The growth is mainly coming from refinancing activity. No significant new activity has been observed. Hence, he is of the view that economic activity will take some time to pick up.
  • The SME side of the business is the first one to get a hit as the economic activity slows. The average realizations are coming down in a very calibrated way. In some sectors, the exposure has been reduced and some new relationships added.
  • The growth has been good in the retail segment, aided by slower lending by Non-banking financial companies (NBFCs) and the slowdown in consumption. Retail estate and some other asset classes also help in adding to the momentum in retail. In terms of the delinquencies and risk metrics, the bank is at historical lows except for CVC and some parts of MFI business.
  • The retail story is the talk of the day. Everyone is either already into the business or entering it. Either way, the probability of the retail cycle coming is increasing as time passes. The government is also trying to offer relief measures to push consumption, RBI also has a loose monetary policy, thus liquidity is there in the system.
  • Despite the rabi harvest being pretty good, there hasn’t been a significant pickup in tier-2 and tier-3. The slowdown has helped inventory stabilization at a reasonable level but there has not been any pickup in consumption as yet.
  • The government is trying to infuse liquidity to benefit both the real estate and NBFC sectors. Some of the troubled NHBCs today have high exposure to the real estate sector. So, if NBFC is okay and can start lending, the money is expected to go to the real estate sector.
  • The banker is of the view that the cleansing process is not over yet and that the government will continue going after people who have taken the system for a ride. So, that means there will be a negative surprise but they have to be prepared for it.
  • In the hindsight, it was a good thing they raised capital when they did. There is enough ‘firepower’ now for continued growth over the next few years, which will be used in a very calibrated manner.
  • The promises made as part of the GPS strategy haven’t changed yet. The aspirational 18% return on equity (ROE) is not possible. However, they have been able to maintain the long- term credit cost below 1 percent and cost to asset ratio below 2%. These promises were made because they believe they have the means to do something very different, digital banking is one of them.

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

  • The closing price of Axis Bank was ₹ 739/- as on 17-February-20. It traded at 2.5x/ 2.2x/ 1.9x the consensus Book Value estimate of ₹ 302/ 342/ 396 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 847/- which implies a Price to Book multiple of 2.1x on FY22E Book value of ₹ 396/-
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