Bank

25 Nov

Bandhan Bank: Assets Under Management in North-East is low

Update on the Indian Equity Market:

The markets ended the weak on a negative note as NIFTY settled 54 points lower at 11,914. Among the sectoral indices, METALS (2.1%), MEDIA (2.0%) and AUTO (0.4%) topped the chart whereas IT (-1.9%), BANK (-0.8%) and PVT BANK (-0.7%) pared the gains. Within the index stocks, TATASTEEL (4.2%), EICHERMOT (4.1%) and ZEEL (3.1%) led the index higher whereas INFRATEL (-4.1%), INFY (-2.9%) and TCS (-2.4%) were the laggards.

Bandhan Bank:  Assets Under Management in North-East is low

Key takeaways from the interview of Mr Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank  dated 22nd November 2019 published in LiveMint:

  • Mr Ghosh started the interview with his remarks on the current situation in Assam. He said that the bank is operating in Assam for the last 13 years. Two out of 30 districts in the state are being protested by some women, backed by political groups for certain demands. 2-3% of the total loan book of the bank is from those districts.
  • He stated that the protests started two weeks ago. They are demanding three things. First, to lower interest rate. The micro-finance industry is totally regulated by the Reserve Bank of India (RBI). The Apex banks cap the interest rates. The interest rate charged by Bandhan is 17.95%. This is low as compared to the cap provided by RBI.
  • The second demand is to have an agreement on loan applications in the local language. On this issue, Bandhan is specific in using language for all applications.
  • Third, they want the government to monitor these types of activities. He mentioned that it is a good step and is manageable.
  • The micro-credit portfolio in Assam is 18% of the total loan book. The bank has experienced such kind of issues in some corners of states. He is confident that everything becomes normal in a few weeks’ time.
  • Bandhan measures its growth based on the number of new customers, not on the basis of AUM. The bank has added 20% new customers compared to last year. He is confident to be able to sustain that growth.
  • On being asked about diversifying in new areas, he said that the bank is already diversified. Bandhan is present in 34 states and union territories (UT) as a bank. By micro-credit, it is present in 29 states and UT.
  • About GRUH merger, he said that currently, GRUH operates through 195 branches that were opened earlier. From day one, 106 out of 1,009 Bandhan branches have opened GRUH housing loan desk. In a similar way, Bank is driving the affordable housing loan to citizens in West Bengal, Bihar, Jharkhand and Assam. This will help the Bank to diversify its portfolio.

Consensus Estimate (Source: market screener website)

  • The closing price of Bandhan Bank was ₹ 526/- as of 22-November-19. It traded at 5.3x/ 4.2 x/ 3.5x the consensus BV estimate for FY20E/ FY21E/ FY22E of ₹ 97.7/ 124.0/ 152.0 respectively.
  • Consensus target price of ₹ 636/- implies a PB multiple of 4.2x on FY22E BV of ₹ 152.0/-.
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22 Nov

Corporation Bank: Margins to expand on recoveries

Excerpts from an interview of Ms P.V. Bharathi, Managing Director, and Chief Executive, Corporation Bank with CNBC-Tv18:

Update on the Indian Equity Market:

On Thursday, NIFTY closed -0.3% lower. Among sectoral indices, NIFTY Metal (-2.2%), NIFTY Auto (-1.0%), and NIFTY FMCG (-0.6%) closed lower. While NIFTY Media (+4.1%), NIFTY Realty (+0.6%) and NIFTY Financial services (+0.3%) closed on a positive note. The biggest losers were BPCL (-6.0%), Coal India (-3.4%), Tata Steel (-3.3%) whereas Zee (+11.7%), Eicher Motors (+2.1%) and Dr Reddy (+1.4%) ended with gains.

  • Speaking about Essar steel judgement Ms P.V. Bharathi said that the Essar recovery which was long pending has now come. The bank expects that by November 2019 around ₹1,300 crore will be coming in.
  • The bank had already targeted recovery of ₹ 6,000 cr, including National Company Law Tribunal (NCLT) recoveries.
  • In the Essar Steel case, the bank has already provided 100% in respect of this account, so the entire amount of recovery will help to improve profit. In this process, the net interest margins (NIMs) will also increase by 40-50 bps.
  • The bank’s exposure to Bhushan Steel is small, it is ₹150 cr. The bank has around ₹2,500 cr exposure to Videocon.
  • The recoveries will increase profit; for the first half of the year net profit was up 24%.
  • Total profit by the end of FY20 would go up to ₹2,000 cr out of which ₹1,300 cr will directly come from recoveries.
  • The NPAs are less than 6%, the bank has been able to bring it down to 5.59% and by the end of FY20, it will be near 5.3%.
  • The targeted loan growth is ₹1,30,000 cr and at the beginning of the year, it was around ₹1,20,000 cr. The bank has targeted 60% growth in RAM (Retail, Agri and MSMEs) and 40% in corporate.
  • Speaking about the merger, Ms P.V. Bharathi said that it is expected to take place from 1 April 2020, once the process of valuation is over then swap ratios will come out.
  • Ms P.V. Bharathi says this is peak period for retail home loan growth as well as vehicle growth.
  • The total exposure to private sector NBFCs is ₹4,000 cr and the  exposure to Dewan Housing Finance Corporation is around ₹500 cr.
  • The bank has factored in around ₹750 cr of slippages in third quarter, last quarter it was ₹950cr.

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20 Nov

SBI: FY20 expected to be the big year of recoveries for the banking sector

Update on the Indian Equity Market:

On Tuesday, NIFTY closed marginally higher at ~11,940 points (+0.5%). In the sector-wise performances, PSU BANK (+3.9%) was the best performing sector while METAL (-0.9%) was the worst-performing sector. Amongst the NIFTY 50 Stocks, INFRATEL (+11.0%), BHARTIARTL (+8.7%), AXISBANK (+3.7%) and RELIANCE (+3.6%) were the top gainers while YESBANK (-2.5%), M&M (-2.1%), ZEEL (-2.1%) and TCS (-2.0%) were the worst performers.

SBI: FY20 expected to be the big year of recoveries for the banking sector

Key takeaways from the interview of Mr Rajnish Kumar, Chairman of State Bank of India (SBI); dated 19th November 2019 on CNBC-TV18:

  • The Supreme Court recently set aside the July 4 order of the National Company Law Appellate Tribunal (NCLAT) approving ArcelorMittal’s Rs 42,000-crore bid for acquiring debt-laden Essar Steel. The bench clarified that financial creditors enjoy primacy and the adjudicating authority cannot interfere with the decision approved by the committee of creditors.
  • Talking about the Supreme Court (SC) decision, Mr Kumar said that it was a big positive and he expects the Essar deal to conclude by the end of November 2019.
  • He is of the opinion that this was a landmark judgement, upholding the validity of the rules, laws, as per the Insolvency and Bankruptcy Code (IBC) Act and the recent amendments carried out by the Government of India (GoI) almost in entirety. SC made only one change; it removed the mandatory 330-day period. In case of unusual circumstances, National Company Law Tribunal (NCLT) can relax or allow the time for a resolution plan to be implemented even beyond 330 days. 
  • Mr Kumar expects FY20 to be the year of recoveries for the banking sector with Essar Steel (~₹ 42,000 cr) judgement and the likes of Bhushan Power and Steel (~₹ 20,000 cr), Ruchi Soya and others (where the banking system’s exposure to each is ~ ₹ 5,000-8,000 cr) being lined up for under IBC.
  • The government introduced rules to resolve cases involving finance companies under section 227 of the IBC.  The Reserve Bank of India (RBI) has been vested with the power and, in consultation with the concerned ministry in the government, they can notify which company to be taken to the NCLT.
  • No financial creditor can take any Non-Banking Financial Company (NBFC), Housing Finance Company (HFC) to NCLT. The power vests with the regulator (the RBI, in this case) to identify in consultation with the central government. It will take the matter u/s 227 to the NCLT and appoint an administrator. Once the NCLT has admitted the case, then the committee of creditors’ concept will come in. The rules also talk of an advisory committee. There will be clarity on this when a case is actually taken up.
  • Coming back to the Essar judgement, Mr Kumar mentioned that SBI has fully provided for the outstanding amount. Thus, any recovery will directly be recorded in the quarters’ profit and loss statement.

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

  • The closing price of SBIN was ₹ 327/- as of 19-November-19. It traded at 1.3x / 1.2x / 1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 251/ 280/ 319 respectively.
  • Consensus target price of ₹ 366/- implies a Price to Book multiple of 1.1x on FY22E Book Value of ₹ 319/-.
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14 Nov

Bank of Baroda: No Further Slippages

Update on the Indian Equity Market:

On Wednesday, NIFTY closed -0.6% lower. Among sectoral indices, NIFTY media (-4.5%), NIFTY PSU Banks (-3.1%), NIFTY Metal (-2.0%), NIFTY Bank (-1.8%), NIFTY PVT Bank (-1.8%) closed lower. None of the NIFTY sectoral Index ended on a positive note. The biggest losers were Yes bank (-5.7%), GAIL (-4.8%), ZEEL (-4.7%), whereas Britannia (+4.9%), TCS (+3.7%) and Reliance (+2.9%) ended with gains.

Bank of Baroda: No Further Slippages

Excerpts from an interview of Mr Murali Ramaswami, executive director, Bank of Baroda with CNBC-TV18:

  • Speaking about slippages, Mr Ramaswami mentioned that slippages during the last quarter were Rs 6,001 cr and 4 accounts constituted 60%-65% of it.
  • He said there is nothing to worry about as the worst is behind. Bank’s provision coverage ratio is adequate and the operating performance is growing continuously.
  • In total watch list of Rs 14,500 cr, DHFL is having exposure of Rs 1,900 cr.
  • Mr Ramaswami doesn’t expect any further slippages in the corporate book. About BBB accounts he says, that those are from quite some time with the bank and there are no new accounts.
  • Total exposure to NBFC’s is Rs 1.05 trillion and Rs 97,000 Cr is outstanding. One of the groups NBFC have slipped last quarter but as of now none of them are showing any sense of overdue.
  • Out of Rs 97,000cr outstanding, around Rs 10,000 cr is non reputed private sector.
  • Speaking about NPA’s he says, Gross NPA has come down from 10.28% to 10.25% on a quarterly basis. It will be sub-10% by the end of December quarter.
  • Net Interest Margin stood at 2.81%. Retail growth is primarily driven by auto and home loans. The current growth rate for auto and home loan is 16% and the expectation is that it will increase to 20%.
  • Retail loan, which is around ₹1.05 trillion is expected to rise to ₹1.3-1.35 trillion in this quarter. But overall advances are flat.
  • Some NBFCS have paid back and the bank didn’t take any additional exposure because of stress in that sector.
  • He added that HR integrations are complete, and the bank has saved ₹150 crores in amalgamation profits.
  • Speaking about MD, he says, that the bank does miss Mr Jayakumar. The government has given power to the ED’s to manage the business so there is no impact.

Consensus Estimate (Source: market screener website & Investing.com)

  • The closing price of Bank of Baroda was ₹ 93 /- as of 13-November-2019. It traded at a price to Book Multiple (P/B) multiple of 0.59x/0.54x/0.48x of the consensus book value estimates for FY20/21/22E of ₹ 157/172/192 respectively. 
  • Consensus target price of ₹ 128 /- implies a P/B multiple of 0.6x on B/V of ₹ 192 for the year ending Mar-22E.
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30 Oct

SBI: Retail Advances drive the Advances growth

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 1.4% higher at 11,787 points on hopes of fresh tax reforms that may lower taxes applicable to capital markets. In the sector-wise performances, Auto (+4.3%) and Metal (+4.0%) were the top gainers while Media (-0.3%) was the only sector to close in the red. Amongst the NIFTY 50 Stocks, TATAMOTORS (+16.6%) , JSWSTEEL (+6.7%), TATASTEEL (+6.4%) and YESBANK (+6.3%) were the top gainers while INFRATEL (-9.0%) and BHARTIARTL (-3.3%) were the top losers.

SBI: Retail Advances drive the Advances growth

Key takeaways from the interview of Mr Dinesh Kumar Khara, MD SBI; dated 29th October 2019 on ET Now:

  • While talking about the State Bank of India (SBIN) 2QFY20 results, the advances grew ~9% YoY and deposits grew ~8% YoY. The retail advances did well. The retail personal advances growth of ~19% drove the overall advance’s growth. Corporate advances reported muted growth.
  • Slippages have come down YoY by ~18% and credit cost are at sub 2% levels.
  • Net Non-Performing Assets (NPAs) at 2.79% and Provision Coverage Ratio (PCR) has gone up to 81%+.
  • Corporate investments are awaited and the utilisation levels are pretty low. Mr Khara expects the utilisations to go up.
  • Personal loans grew by ~19% YoY. There is a lag on the demand on the street and the investment which comes through and the corporate credit demand.
  • The provision for wage increase is a significant component of the cost to income. The PCR is much higher than the Loss Given Default (LGD). This will result in the credit cost to come down going forward.
  • The sale of subsidiary drove the bottom-line growth in 2QFY20. SBIN not looking for any further divestment.
  • The real credit growth and demand pickup in the economy will become from the real economy.  Banks are geared up to meet the demand from the corporate side. Banks have tightened underwriting standards after recent experiences and continue to lend.

Consensus Estimate (Source: market screener and investing website)

  • The closing price of SBIN was ₹ 280/- as of 29-October-19. It traded at 1.11x /1.0x /0.86x the consensus Book Value for FY20E / 21E / 22E of ₹ 253/283/325 respectively.
  • Consensus target price of ₹ 372/- implies a Price to Book multiple of 1.14x on FY22E Book Value of ₹ 325/-.
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25 Oct

SBI chairman: Economy in the transition phase, growth to come back

Update on the Indian Equity Market:On Thursday, BSE benchmark Sensex ended 38 points lower, while Nifty ended below 11,600. Among the sectors, PSU Banks (-3.5%) dragged the most. Bharti Airtel and Reliance Industries were the top gainers. Infratel and Grasim were among the top losers. Maruti Suzuki on Thursday posted a 39% year-on-year (YoY) fall in September quarter profit, which was better than Street expectations. The market was moved by SC decision relating to telecom industry and the trends of Maharashtra and Haryana assembly poll results.

SBI chairman: Economy in the transition phase, growth to come back

Key takeaways from the interview of Mr Rajnish Kumar, Chairman, SBI Bank; dated 24th October 2019: The Indian economy is in a transition phase largely owing to important reforms undertaken in the last few years. Mr. Kumar is exuding confidence that the country’s growth rate will be back on track.

  • Due to a lot of reforms, the economy is in transition. Reforms like GST (goods and services tax) and IBC (insolvency and bankruptcy code) have been implemented in the last three years because of which India is in a transition period. As a result, a lot of cleanup has happened in the corporate sector. He is of the view that disruption is bound to happen in the transition phase.
  • Mr Kumar said that in terms of development, India is still not in the “developed” category. Besides, the per capita income is still low. There is a huge scope for growth in India, and demographics are also not against India. Unlike many other developed countries where they are facing challenges on account of demographics, India does not have that kind of challenge at least for the time being.
  • According to Mr Kumar, the Indian economy is seeing the bottom as far as economic growth is concerned. He expects the market to go up from now because each sector is now starting to perform well. For example, in agriculture, this year’s position is better even in terms of credit. He also mentioned manufacturing and private sector investment in infrastructure is still slow.
  • Observing that the Modi government over the past few years has brought banking to the doorsteps of every household, Mr Kumar said the activation of these accounts have reached almost 90 per cent. Besides, balances of these accounts are now reaching a level where servicing these accounts is “not a loss-making proposition” for the banks.
  • He stated that the average balance in these accounts is touching ₹1,900 and about ₹230 bn in June was the balance in the savings bank account. This itself benefits the economy as such a large population is brought under the banking channels.
  • Noting that the biggest challenge in the banking sector was about the functioning of the public sector banks, Mr Kumar said that recapitalization has happened in a big way but sectoral issues need to be addressed like the power, road and telecom sectors. As these sectoral issues impact the working of the banks, particularly on the asset quality front.
  • He further said that in this government there is no political interference in the banking sector. State Bank of India has been more immune to any pressures because the systems are such that it is very difficult for any Chairman/MD to influence any decision-making process.
  • When asked about cryptocurrency, which has been banned in India, the SBI chairman said that the way the world is moving towards digitisation, at some stage, a regulated cryptocurrency would be a better bet than an unregulated one. He also cautioned about the dark side of the internet as there can be a misuse of the digital currencies. He further added that regulation is a must adding that efforts are on how to bring technologies like blockchain into functioning of the banks.

Consensus Estimate (Source: market screener website) 

  • The stock price was Rs 262/- as of close price of 24-10-19 and traded at 1.03x /0.92x /0.79x the consensus Book Value for FY20E / 21E / 22E of Rs 254/286/331 respectively.
  • Consensus target price of ₹ 275/- implies a Price to Book Value multiple of 0.83x on FY22E Book Value of ₹ 331/-.
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16 Oct

IndusInd Bank says growth will bounce back to mid-20% from 3QFY20

Update on the Indian Equity Market:
On Tuesday, BSE benchmark Sensex gained 291 points, while Nifty ended above 11,400-mark. Nifty Auto was the outperformer, FMCG and private bank stocks were strong while IT stocks dragged. Nifty Bank rose 1.3%, Bandhan Bank jumped 11% while Vedanta, ONGC, Maruti Suzuki were among the biggest Sensex gainers. Railway PSU IRCTC shares closed down 1.6% down at Rs 716.65. Indian Railway Catering and Tourism Corporation (IRCTC) got listed at Rs 644 on Monday on the BSE, more than doubling investor wealth since its IPO.

Key takeaways from the interview of Mr Sobti, MD & CEO, IndusInd Bank; dated 11th October 2019 with CNBC TV18:

  • Loan growth comes in at a multi-year low for IndusInd Bank in 2QFY20 while stressed assets woes added to the bank’s worries. Mr Sobti shared his views and outlook.
  • In terms of the pain in the banking sector, he said that compared to last year, net slippages are lower, gross slippages are the function of some technical issues because there are downgrades and then there are upgrades within a few days. The net figure for gross slippages is Rs 1700 mn. The Bank has had handsome recoveries in the stressed groups which were never non-performing assets (NPAs). The Bank is still hopeful that these stressed accounts will not leave any residual cost which hits the profit and loss (P&L).
  • He clarified that they have been more than transparent on disclosures as far as real estate exposures are concerned, they have remained steady in terms of percentage. Special mention accounts (SMA) data and the SMA-I data has been provided every quarter and the overdue is just Rs 280 mn of the whole lot.
  • In terms of market share, Mr Sobti mentioned that the Bank has gained market share in the vehicle finance area, it has grown 21 percent and in the auto industry, commercial vehicles (CVs) grew around 14 per cent, cars grew 19 per cent, two-wheelers grew 24 per cent. According to him, it’s a very handsome growth in a market which is shrinking.
  • Microfinance grew by 32 per cent; the bank has not lost market share anywhere and has received some repayments towards the end of Sep-19 quarter.
  • Mr Sobti thinks the underlying fundamentals are sound and the bank will bounce back to the mid-20s, if not better, Q3 onwards in terms of growth rate.
  • The total exposure to non-banking financial companies (NBFCs) is around 3.5 per cent.
  • Speaking about IndusInd Bank’s exposure to Indiabulls group, he said that exposure was 0.35% of the bank’s exposure which has come down to 0.27%.
  • Exposure to real estate financers remains steady at 3.8 per cent and has always remained below 4 per cent.
  • On loan growth, he further mentioned that in Q1 the loan growth was 28 per cent. So, for 1HFY20, the bank is in the mid-20s. In 2QFY20, the bank got some nice and strong repayments. For IndusInd Bank to get back to the mid-20s and beyond, might not require doing unusual sort of a stretch. Mr Sobti thinks IndusInd Bank should be ending the full year at least in the 25 per cent range if not better.
  • When asked about the next CEO appointment he mentioned that the next CEO will be appointed sooner than later.

 Consensus Estimate (Source: market screener website)

  • The stock price was ₹ 1,272/- as of close price of 15-10-19 and traded at 15x /12x /9x the consensus EPS for FY20E / 21E / 22E EPS of ₹ 84/108/133 respectively.
  • Consensus target price of ₹ 1,704/- implies a PE multiple of 13x on FY22E EPS of ₹ 133/-.
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07 Oct

IndusInd Bank’s Romesh Sobti: We have seen significant recoveries in stressed accounts

Updates on Indian Market:

On Friday, BSE benchmark Sensex plunged over 434 points, while Nifty slipped below 11,200-mark as growth concerns overshadowed rate cut. Earlier in the day, the Reserve Bank of India cut interest rates for a fifth straight time by 25 basis points to 5.15 per cent, stepping up efforts to kick-start economic growth. In its fourth bi-monthly policy meet for FY20, the monetary policy committee cut FY20 GDP growth forecast sharply to 6.1 per cent from 6.9 per cent, taking into account the lower-than-expected growth rate in Q1FY20. Bank majors, including HDFC Bank (-2.8%), ICICI Bank (-3.1%), Kotak Mahindra Bank (-3.3%), State Bank of India (-1.7%) and Axis Bank (-1.8%) together dragged Sensex by over 340 points. All sectoral indices except BSE IT and Teck closed lower.

IndusInd Bank’s Romesh Sobti: We have seen significant recoveries in stressed accounts

 Excerpts from an interview with Romesh Sobti – Managing Director & CEO, IndusInd Bank

·       Mr Sobti mentioned that because of the heightened speculation and conjecture on a particular account – a housing finance company, the bank was obliged to inform the stock exchanges what was the actual exposure to the entity.

·       He added that one of their big initiatives was the provision coverage ratio (PCR) which had fallen after one large infrastructure relationship they classified as NPA (non-performing asset. INDUSINDBK made large provisions for it and the same was communicated to the market as well. Their aim is to take that PCR back to at least the 60s and there is a good beneficial impact that it has come as a consequence of the tax savings. A large part of tax savings will help them to raise the PCR and is expected to reflect from Sep-19 quarter itself.

·       He clarified that exposures in various sectors have remained constant. There has not been a residual loss because of so-called stressed account. In fact, there have been very significant recoveries in the stressed accounts. They were not stressed in their books as they are not overdue.

·       Mr Sobti said even though there has been some conjecture and speculation on the higher-margin businesses like a commercial vehicle or microfinance institutions (MFIs) these portfolios are performing very robustly and well up to their credit standards seeing no adverse trends.

·       He mentioned that the deposit growth has been strong in the last few quarters and has remained robust in this quarter because of the huge drive to raise retail fixed deposits.

·       Mr Sobti expects deposit growth to show the same trend as seen in the past since INDUSINDBK is getting Rs 50-60 bn of retail deposits every quarter.

 Consensus Estimate (Source: market screener website)

 ·       The stock price was Rs 1282/- as of close price of 04-10-19 and traded at 14x /11x /9x the consensus EPS for FY20E / 21E / 22E EPS of Rs 88/112/133 respectively. Consensus target price of ₹ 1807/- implies a PE multiple of 16x on FY21 EPS of ₹112/-

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03 Oct

Axis Bank: Adequate liquidity in the system now

Update on the Indian Equity Market:

Taking the cues from global markets, Nifty opened positive on Tuesday. The gains were wiped out shortly on the back of the weak economic data released on Monday evening.  The index of eight core infrastructure industries declined 0.5% in September, as compared to 2.7% in the month of August. The Nifty closed the day 115 points lower at 11,359. Among the index, YESBANK (-22.2%), ZEEL (-10.8%) and INDUSINDBK (-5.6%) were the top losers while BPCL (4.9%), M&M (2.2%) and HDFCBANK (1.9%) were the top gainers. All the sectoral indices closed the day in red with Media (-4.3%), Realty (-4.1%) PSU Bank (-3.8%) led the chart.

Axis Bank: Adequate liquidity in the system now

Key takeaways from the interview of Mr Amitabh Chaudhry, Chief Executive Officer, Axis Bank; dated 1st October 2019 in Mint:

  • The Government has taken a lot of steps with a series of announcements in the last few months. As a result, the signs of positive sentiment are visible. In terms of auto loans, the bank is witnessing applications rise 15-20% month-on-month. The same thing is also happening on the mortgage side.
  • The next three to four weeks will be very crucial for the economy as the festive season is on. If these weeks can demonstrate positive momentum, it will continue further in the long run as well. The issue is not that money is lacking but whether the bank can find the right people to lend.
  • While the NBFCs (Non-Banking Financial Companies) have been quite vocal and transparent about their asset-liability situation, a lot of NBFCs have not really come out in terms of sharing and being more transparent about the quality of their asset book. There are question marks around that.
  • About the recently completed Qualified Institutional Placement (QIP) worth ₹ 12,500 cr, he mentioned that the bank went to the market with ₹ 10,000 cr plus ₹ 2,500 cr and got demand for ₹ 13,000 cr. It was a gutsy move in this kind of economic environment.  When asked about the quality of investors, he said that the issue was subscribed by long-term long-only investors.
  • With the completion of QIP, he expects the CET-1 (Common Equity Tier 1) ratio to be closed to 14%. This puts the bank in the same zone as some of the best banks.
  • During the 1QFY20, the bank reported slippages more than expected. It was a combination of two-three factors. First, the bank is trying to be more on a conservative side. Second, there were some assets that have been in the BB and below book for a long time. Given what has been happening in the National Company Law Tribunal (NCLT) and the pressure from regulatory agencies and the economic situation in the country, some of the assets did slip. It will take some time to manage this book.

Consensus Estimate (Source: market screener website)

  • The closing price of AXISBANK was ₹ 679/- as of 01-October-19. It traded at 2.2x/1.9x /1.6x the consensus book value for FY20E/ FY21E/ FY22E of ₹ 305/353/412 respectively.
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01 Oct

AU Small Finance Bank (AUBANK): No liquidity issues with the banks or the large NBFCs

Update on the Indian Market:

On Monday, NIFTY closed 0.3% lower at 11,477 points. NIFTY reported September 2019 gains of over 4%. Amongst the NIFTY 50 Stocks, BHARTIARTL (+6.9%), HCLTECH (+3.6%) and UPL (+3.3%) were the top gainers while YESBANK (-14.4%), INDUSINDBK (-6.1%) with other banks dragged the NIFTY down. In the sector-wise performances, IT (+1.9%) and FMCG (+0.3%) were the only gainers while PSU Banks (-3.5%), Private Banks (-2.7%), Financial Services (-2.1%), Media (-2.1%) and Pharma (1.9%) were losers for the day.

AU Small Finance Bank (AUBANK): No liquidity issues with the banks or the large NBFCs

Key takeaways from the interview of Mr Sanjay Agarwal, MD & CEO, AU Small Finance Bank; dated 26th September 2019 on CNBC TV 18:

  • In the meeting with the Smt. Nirmala Sitharaman, Minister of Finance and Minister of Corporate Affairs, India; Mr Agarwal mentioned that the representatives of the banking fraternity accepted that there are no liquidity issues with the banks or the large NBFCs.
  • AUBANK operates in around 150 districts and 10,000 villages. There are no liquidity crises in any of the areas where AUBANK operates.
  • In 1QFY20, AUBANK reported 44% in growth in Assets Under Management (AUM) and 40% in disbursements v/s RBI financial sector growth rate of ~10%. The deposits increased by 100% YoY.
  • AUBANK has been able to deliver the target they had set. Personal vehicle sales have suffered. The commercial vehicle segment is cyclical and will turn around in due time.
  • AUBANK already has a business strategy in line with the Finance minister’s advice of increasing the presence in the field.
  • Mr Agarwal mentioned that the money is available for customers who meet the requirements of eligibility of credibility.
  • Recent tax reforms from 35% to 25% will lead to growth in the margins.  AUBANK is yet to decide on how it is going to utilize the benefit arising from these reforms; whether for Capex or for improving the Return on Assets (ROA).
  • AUBANK has a small presence in the gold loans segment but is growing at ~80% YoY. Consumer durable loans too, form a very small part of the advances and is expected to grow at ~80-90% YoY.

Consensus Estimate (Source: market screener website)

  • The closing price of AUBANK was ₹ 661/- as of 30-September-19. It traded at 4.7x/3.9x /3.2x the consensus book value for FY20E/ FY21E/ FY22E of ₹ 140/168/206 respectively.
  • Consensus target price of ₹ 699/- implies a PE multiple of 3.4x on the FY22E book value of ₹ 206/-
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