Bank

24 Sep

HDFC Bank (HDFCBANK): Bank to cash on the festive demand

Update on the Indian market

On Monday, NIFTY continued the rally for the second consecutive trading day after Friday’s announcements of tax measures and revisions in GST rates leading to earnings upgrade of the companies. NIFTY closed 2.9% higher. The sectoral indices’ performance reflected the key beneficiaries of the change in tax rates with NIFTY BANK (+5.4%), NIFTY Financial services (+5.4%) and FMCG (+4.4%) were the biggest gainers while NIFTY IT (-2.9%) and NIFTY Pharma (-2.2%) were the losers. The biggest gainers were BPCL (+13.7%), LT (+9.1%), BAJFINANCE (+9%), EICHERMOT (+9%) while the highest losers were ZEEL (-8%), INFY (-5%).

HDFC Bank (HDFCBANK): Bank to cash on the festive demand

Key takeaways from the interview of Mr Aditya Puri, MD, HDFC Bank; dated 19th September 2019 on CNBC TV 18:

  • HDFC bank has made higher provision for Agri loans but the actual defaults are not high. Agri loan slippages were one-off and will come down post-harvest.
  • HDFC bank created contingency provisions as per RBI norms for NBFCs and for corporates which don’t have unhedged exposure. These provisions are expected to go away this quarter.
  • The cost to income ratio is expected to go down by 5% in the next 5 years for HDFC bank.
  •  Banks are not allowed to lend for land. In the real estate sector, commercial real estate is doing well. The middle, slightly above middle and affordable housing continues to see demand. The concessions announced by the finance minister of India are only for affordable houses. The Luxury flats, are the ones which will not benefit and the prices will eventually be determined by the market.
  •  HDFC Bank is looking ahead to a very good festive season of Diwali. From 27th September 2019 to 31st December 2019; HDFC Bank is coming up with a Diwali Dhamaka offer which will provide lower cost, cashback and discount from the vendor to the customers. HDFC Bank will give ~7-10% cashback over and above the discounts given by the vendor partners. HDFC Bank will maintain NIMS of ~4.3%.
  • On talking about the linking to external benchmark rates, Mr Puri mentioned that HDFC bank doesn’t have many floating loans. He mentioned that floating rate deposits are not feasible. There is a lot of pressure on banks to transmit lower rates, but there is a need for the debt market reforms. 

Consensus Estimate (Source: market screener website)

  •  The closing price of HDFCBANK was Rs 1,255/- as of 23-September-19. It traded at 4.1x / 3.6x / 3.0x the consensus book value for FY20E/ FY21E/ FY22E of Rs 308/ 351/ 413 respectively.
  • Consensus target price of Rs 2,661/- implies a P/B multiple of 6.4x on the FY22E book value of Rs 413/-

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05 Sep

RBL Bank: No Insider Trading worries, Expect growth of ~20-25%.

Dated: 5th September 2019

Update on the Indian market:

After the big fall on Tuesday, NIFTY opened lower on Wednesday but recovered towards the close of the day at 10,845, up 0.4%. Amongst the NSE 50, top gainers were Tata Steel (+2.9%), BPCL (+2.8%) and IOC (+2.8%) while the worst performers were Maruti (-4.0%), Sun Pharma (-3.0%) and Britannia (-3.0%). In the Sectorial Nifty Indices, the Metal (+1.6%), Bank (+1.1%) and Financial Services (+1.0%) were top gainers while Auto (-1.7%) was the worst performer followed by Media (-0.6%).

RBL Bank: No Insider Trading worries, Expect growth of ~20-25%.

Key takeaways from the interview of Mr Vishwavir Ahuja, MD & CEO, RBL Bank; dated 29 August 2019 with ET Now:

·  Some articles hinted insider trading activity led big drop in the RBL Bank stock price after Coffee Day Chief VG Siddhartha had gone missing. Clarifying on these accusations, Mr Ahuja said that the 27 employees who sold RBL shares on 30th July 2019 were mid or junior level staff and it was a routine activity. The transactions were within the stipulated guidelines of SEBI.

·  The company did not receive any request form SEBI asking for clarifications on the above transactions. There was no breach of code. None of the transactions was done by any of the key managerial personnel. ~3 lakh shares were traded which is not a very large volume.

·  On being asked about the banks’ exposure to Coffee Day Enterprises Ltd; Mr Ahuja replied that RBL Bank does not make any comments on any specific exposure or specific clients.

·  The Capital Adequacy Ratio of RBL Bank is healthy at 12.5% and the management doesn’t expect requirement of any capital infusion for the coming 9-12 months even at reasonable levels of growth.

·  The corporate growth will be relatively low in the given environment and other factors; the overall growth for the bank is likely to be in the 20-25% range.

·  Amidst the Agri crises, RBL Bank will remain un-impacted due to low exposure to the Agri loans (to the tune of ~2-2.5% of the portfolio).

Consensus Estimate (Source: market screener website)

·  The closing price of BLSTR was Rs 324/- as of 04-September-19. It traded at 1.6x / 1.3x / 1.1x the consensus book value for FY 20E / FY 21E / FY 22E of Rs 208 / 242 / 287 respectively.

·  Consensus target price of Rs 548/- implies a P/BV of 1.9x on the FY22E book value of Rs 287/-

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21 Aug

Ravneet Gill, MD&CEO, Yes Bank: Wants Yes Bank to retain its corporate character.

Dated: 20th August 2019

Excerpts from an interview published in The Hindu Business line dated 19th August 2019.

  • On the recent QIP: The Yes Bank QIP was oversubscribed over 3 times. This when two other IPOs in the market were undersubscribed.  Yes Bank could raise Rs 1,930 cr as the shareholders’ approval was limited to a dilution of 10%. The QIP impacted the CET-1 ratio positively by 60 bps (8.6% vs. 8.0% prior to QIP). Management plans to add another 20-25 bps through balance sheet rationalization. This will be done by reducing the corporate book.
  • Historically Yes Bank has been a strong structured finance bank.  Eventually, management wants to free up capital to grow on the retail side. Management plans to change the mix of corporate to retail in terms of revenue from the current 67:33 to 50:50 by 2025. But management wants Yes Bank to retain its corporate look, feel and character and not become a retail bank.
  • The stressed asset book is not very granular. There are a handful of entities that are facing illiquidity. If those are resolved, the complexion of the book would be completely different.
  • The sub-investment book (BB and below assets) currently stands at Rs 29,000 cr. Three names account for nearly 80% of the book. 2 out of these 3 that account for around Rs 9,000 cr should be fully resolved in the current quarter. This will release capital for the bank and risk perception around Yes Bank will moderate.
  • There is no other bank as digitally enabled as Yes Bank. The market does not recognize that yet.
  • Best way to lower Risk-weighted assets (RWA) is to try and lend to high-rated corporates. For that, cost of funding needs to be competitive which can be achieved by strengthening of the liability profile.

Share price performance of Yes Bank on 20th August 2019:

Yes bank share price declined by over 7% on Tuesday. Yes Bank holds 12.79% stake in CG Power and Industrial Solutions Ltd. The risk and audit committee of CG Power disclosed Corporate Governance issues in the Company. The issues include but are not limited to the understatement of liabilities, understatement of advances to related and unrelated parties, provision of certain assets of the company as collateral without due authority. These actions were allegedly carried out by identified company personnel (both current and past). Shares of CG Power tanked 20% on Tuesday.

Consensus estimates (Source: Marketscreener website):

  • The share price on 20-08-2019 was Rs 71/- per share. It was trading at a P/B of 0.60x/0.55x its book value per share estimates of Rs 118/127 for FY20E/FY21E respectively.
  • The consensus price target is at Rs 117/- implying P/B of 0.92x for FY21E BVPS of Rs 127.
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06 Aug

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

Dated: 5th August 2019

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

Management commentary:

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

Consensus estimates (Source: Marketscreener website):

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

Axis Bank Ltd (AXS)- 1QFY20 Result update- Operating performance drives the earning momentum.

Dated: 31st July 2019

Key financial performance:
1) Loan book grew of 13% YoY in this quarter led by domestic loan book growth of 19% YoY. The international loan book declined 34% YoY. Retail loan book continued to be the key growth driver- growing at 22% YoY. 
2) Deposit grew 21% YoY in this quarter. The CASA ratio stood at 60%. The deposit growth was led by 37% YoY growth from the term deposits while CASA grew 3% YoY.
3) Net Interest Income (NII) grew 13% YoY at Rs 58,437 mn with Net Interest margin (NIM) of 3.5%. NII for 1QFY19, there was a one-time positive impact of Rs 2,490 mn due to the recovery of a large IBC case. Adjusting this one-off, NII has seen a growth of 19% YoY.
4) Non-interest income for 1QFY20 grew 32% YoY to Rs 38,690 mn driven by fee income that grew 26% YoY to Rs 26,630 mn. Trading profit stood at Rs 8,320 mn driven by G-Sec gains. Miscellaneous income for 1Q stood at Rs 3,730 mn, primarily dividend from subsidiaries and recovery in written-off accounts.
5) PPOP grew 35% YoY, with contribution from all revenue and cost line items. 
6) Provisions for the quarter stood at Rs 38,146 mn, a 14% increase from a year-ago period.
7) Net profit for the year grew 95% YoY at Rs 13,701 mn on the back of an improved performance at the operating level & efficient management of the costs.
8) NPA ratios for the Bank remained stable during the quarter. GNPA ratio stood at 5.25% and the NNPA ratio stood at 2.04% which was slightly lower than the previous quarter. (GNPA at 5.26%, NNPA at 2.06% in 4QFY19)
Management Commentary:
1) Loan Book:
a) The Bank’s strategy on retail assets continues to be centred around existing customers of the Bank. 83% of retail assets originations in 1Q was from existing customers. 98% of the Bank’s credit card and 93% of personal loan originations in the quarter were from existing customers of the bank.
b) The Bank’s Auto Loans business: Auto loans portfolio has grown by 36% YoY. The growth is evenly spread across the country. Auto loan disbursements have grown by 19% YOY in 1QFY20. 
c) SME lending growth was tepid at 8% YoY. Term loans and working capital loans grew by 3% and 9% YoY, respectively.
d) In the Corporate Bank, domestic loan growth stood at 16%, and the international book de-grew 39% YoY.
2) The management expects the domestic loan book of the Bank to grow 5-7% faster than industry.
3) For FY20, AXS expects NIM to remain broadly flat YoY, with an upward bias. They expect NIMs to settle in the range of 3.5-3.8% over the medium term.
4) Cost to the asset to stabilise at the current level of 2.08% in the near term before trending down to 2% level in the medium term.
5) AXS increased provisioning on certain non-banking assets held on their books. This was an additional provision of Rs 5,350 mn during this quarter. This quarter, they made specific provisions for all Non-Fund Based exposures that they have to borrowers that are either already NPA or are in the BB & Below pool. As they transitioned to this new regime, the bank made an additional provision of Rs 4,590 mn during the quarter.
6) The Bank’s Provision Coverage on Non-Performing Assets stands at 78%, compared to 69% in 1QFY19 and 77% in 4QFY19.
Consensus Estimate (Source: market screener website)
• The stock price was Rs 669/- on 31st July 2019 and traded at 2.2x/1.9x/1.6x consensus Book value of Rs 306/346/ 415 for FY20E/21E/22E respectively. 
• Consensus target price is Rs 847.5/- implying PB of 2.4x for FY21E BVPS of Rs 415/-

Note:
NII- Net interest income
NIM- Net interest margins
PPOP- pre-provision profits
NPA- Non-performing assets

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05 Aug

ICICI Bank 1QFY20 Results: Decent growth in advances, Asset quality intact

Dated: 29th July 2019

Result update:

  • Reported NII grew 27% YoY (+2% QoQ) to Rs 77,374 mn from Rs 61,019 mn. NIMs for 1QFY20 expanded by 42 bps YoY 3.61% compared to 3.19% in 1QFY19.
  • PPOP grew 8% YoY (+1% QoQ) to Rs 62,884 mn from Rs 58,083 mn.
  • Provisions were Rs 34,957 mn, 41% lower YoY.
  • Reported PAT was Rs 19,080 mn in 1QFY20 against loss of Rs 1,196 mn in 1QFY19.
  • GNPA and NNPA improved slightly sequentially at 6.49% and 1.77% respectively for 1QFY20 compared to 6.70% and 2.06% respectively in 4QFY19.
  • Advances grew 15% YoY to Rs 59,24,150 mn. Retail and SME segment showed a solid growth of 22% and 24% YoY respectively.

Management commentary:

  • The bank maintained its guidance that credit costs in FY20 would be significantly lower than 2% levels of FY19. Credit costs would be in the range of 1.2-1.3% in FY20. In 1QFY20, credit cost was 1.5%.
  • While provisioning in FY20 is expected to be lower than FY19, management does not expect slippages to come down significantly in FY20 compared to FY19, as it have already come down substantially in FY19.
  • The bank stated it is not looking at raising the PCR from current levels of 74% as they are now at comfortable levels.
  • The bank reiterated its consolidated RoE target of 15% by June’20.
  • Q1FY20 tax rate of 32% is an estimate for the full year tax rate.

 Consensus Estimate (Source: marketscreener website)

• The stock price was Rs 428/- on 29th July 2019 and traded at 2.2x/1.9x  consensus Book value of Rs 199/222 for FY20E/21E respectively. 
• Consensus target price is Rs 485/- implying PB of 2.2x for FY21E BVPS of Rs. 222/-

Note:

NII- Net interest income

NIM- Net interest margins

PPOP- Pre-provision profits

NPA- Non-performing assets

AUM- Assets under management

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05 Aug

HDFC Bank (HDFCBANK IN): Stable performance but higher provisions are worrisome

Dated: 22nd July 2019

1QFY20 Results

  • Net Interest Income (NII) increased 23% YoY to Rs 1,32,943 mn. The NII margins improved by 21 bps YoY to 4.4%.
  • Operating Profit before Provisions and Contingencies (PPOP) increased by 29% YoY to Rs 1,11,472 mn. The provisions other than tax increased 60% YoY to Rs 26,137 mn which included specific loan loss provisions of Rs 24,135 mn (+69% YoY).
  • Reported PAT grew by 21% YoY to Rs 55,682 mn.
  • The advances grew by 17% YoY to Rs 82,97,298 mn driven by 20% YoY growth in the corporate & other loans to Rs 38,16,757 mn. The retail loans increased by 15% YoY to Rs 44,80,541 mn. The domestic loan mix between retail: wholesale stood at 54:46.
  • The asset quality as of 30th June 2019 deteriorated with GNPAs at 1.4% (v/s 1.36% as of 31st March 2019) and NNPAs at 0.43% (v/s 0.39% as of 31st March 2019).
  • HDFC Bank reported 18% YoY growth in deposits with 13% YoY growth in CASA to Rs 37,90,010 mn and 23% YoY growth in term deposits to Rs 57,55,530 mn.

Management Commentary

  • The Capital Adequacy ratio as of 30th June 2019 stood at ~16.9%; as against the regulatory requirement of ~11%.
  • Total provisions (comprising specific provisions, general provisions and floating provisions) were ~115% of the gross NPAs as of 30th June 2019 v/s 117% as of 31st March 2019. The Bank held floating provisions of Rs 14,510 mn as of 30th June 2019.
  • GNPAs ex-Agri stood at 1.17% as of 30th June 2019 v/s 1.09% as of 30th June 2018.
  • The Board of Directors has declared a special interim dividend of Rs 5 per equity share of Rs 2 to commemorate 25 years of the Bank’s operations.

Consensus Estimate (Source: market screener website)

  • The closing price of HDFC Bank is Rs 2,303/- on 22-Jul-19. It traded at 3.5x / 3.1x the consensus book value for FY20E /21E of Rs 650/ 751 respectively.
  • Consensus target price of Rs 2,717/- implies a P/B of 3.6 x on the FY21E book value of Rs 751/-.
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05 Aug

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

Dated: 18th July 2019

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

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

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05 Aug

Axis Bank: Banks aren’t out of the woods yet, but closer to the tail

Dated: 17th July 2019

Interview with Mr Pralay Mondal (the head of retail banking at Axis Bank from ET NOW dated 17th July 2019)

Interview highlights:
 The banking industry is in a perennial clean-up cycle and we are in the midst of an NBFC and real estate crisis. The NBFC model does not work; they cannot compete with banks on pricing. Banks are coming out of a very poor NPA cycle, but according to him, it is not out of the woods yet 
 The good news is that the clean-up is visible, we know what the issues are, it can get worse, but you have a fair understanding of the situation. The bad news is that globally, there are a lot of challenges — the US is not looking very well, we are caught amid trade wars and India is not immune to this. 
 The auto consumption is down, auto dealers are in shambles. There is clear demand destruction happening there. The consumption economy is not doing so well, there is a clear impact on mortgages. 
 The discretionary part, which is the personal loans, credit cards and unsecured loans where we don’t have a full understanding of the end-use, which is growing at a very rapid pace. 
 One segment says that the credit-GDP penetration is very low, so we have big opportunities at the bottom of the pyramid segment. If you look at companies like Titan, HUL, ITC, Hero Honda, consumption is not taking off, so we need to understand that bank is a surrogate of all of this. 
 If the quality of NBFC portfolios being sold is good then the good portfolio is moving. Some of that will play out eventually, but it may not hit the banks hard.

Consensus estimates: (source market screener website)
 The stock price is Rs 754/- as of close price of 17th July 2019. It trades at 2.5x/ 2.2x/ 1.8x the consensus book value for FY20E/ FY21E/ FY22E of Rs 303/ 346/ 419 respectively.
 The consensus price target is Rs 851/- valued at 2.5x FY21E book value of Rs 346/-.

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05 Aug

Kotak Mahindra Bank (KMB standalone) 1QFY20

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

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

Management commentary:

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

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

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