Tag - 4QFY20results

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27 May

Demand for home loans will rebound – HDFC

Update on the Indian Equity Market:

On Tuesday, Nifty ended marginally lower at 9,029. Among the sectors, Metal (+2.7%), Auto (+1.5%), and Realty (+1.2%) were the top gainers. IT (-1.9%), Pharma (-1.2%), and Media (-0.2%) were the only losers. JSW Steel (+5.9%), Eicher Motors (+5.7%), and Titan (+5.0%) led the gainers while Bharti Airtel (-5.9%), Bajaj Finserv (-5.1%), and TCS (-3.5%) ended in the red.

Excerpts from an interview with Mr. Keki Mistry, Vice Chairman & Chief Executive Officer, HDFC with BloombergQuint on 25th May 2020:

  • HDFC is offering a moratorium to all the customers. 79 percent of the borrowers have said they do not need it. A higher number of non-individual borrowers have opted for the moratorium compared to the individuals.
  • Since some developers are facing liquidity issues due to the lockdown, HDFC has to give them moratorium. The large developers are able to service their loans, with or without sales. Small and mid-sized developers have asked for the moratorium.
  • HDFC has not slowed down lending and is looking for fresh lending opportunities. In Mumbai and Madhya Pradesh, the offices are not open leading to slower disbursements. The offices which are currently open are working at 33 percent capacity and there will be a slowdown in disbursements during 1Q FY21. HDFC expects that 2Q FY21will be better than 1Q FY21 and consequently, 4Q FY21 will be back to 85 to 95 percent of normal levels.
  • Owning a home continues to be an important aspect of the lives of Indians. The lockdowns imposed in the aftermath of the virus outbreak has forced people to work from home, relying on internet connections and video conferencing apps. This trend could push people to buy larger homes or ones with a separate study room. Joint families could split into smaller units going forward meaning more people will be buying their own houses.
  • In the short term non-performing loans could rise but in the medium-to-long term, NPLs are expected to reduce. They have continued to tweak the credit underwriting model given the current situation.
  • In the affordable housing segment, the average loan size is Rs 17.7 lakh and most of the customers are salaried customers and not self-employed. The risk from job-losses or income cuts and its impact on NPLs is probably higher than in the pre-crisis period. There are co-borrowers to a mortgage, so if one person loses a job or faces a salary cut, they generally still do not default.
  • HDFC will be looking for opportunities to raise money. The liquidity level has been increased from around Rs 6,000 crores last year to around Rs 30,000 crores this year. HDFC has been recently sanctioned Rs 750 crores loan by the National Housing Bank recently.

Consensus Estimate: (Source: market screener website)

  • The closing price of HDFC was ₹ 1,506/- as of 26-May-2020. It traded at 2.8x/ 2.6x the consensus book value estimate of ₹ 531/ 574 for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 2,406/- implies a PB multiple of 4.2x on FY22E BV of ₹ 574/-.

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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