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17 Jun

Provisions for slippages will affect short term outlook – LIC Housing Finance

Update on Indian Equity Market:

On Thursday, markets ended lower with Nifty losing 76 points to close at 15,691. ULTRACEMCO (+1.7%), TCS (+1.6%), and INFY (+1.4%) were the top gainers on the index while ADANIPORTS (-9.0%), INDUSINDBK (-3.0%), and HINDALCO (-3.0%) were the top losers for the day. Among the sectoral indices,  METAL (-2.3%),  REALTY (-1.7%), and PSU BANK (-1.4%) were the top losers, while IT (+0.6%) and FMCG (+0.1%) were the only gainers.

Excerpts of an interview with Mr Y Vishwanath Gawd, MD and CEO of LIC Housing Finance on CNBCTV18 dated 16th June 2021 :

  • Retail stress was the leading cause of slippages in non-performing assets (NPA). Substantial new provisions were needed to be made due to the Supreme Court Order last year, which compelled the company to make provisions in 4QFY21.
  • Project Finance and Developer Loans form just 7% of the loan book, so not much issue of NPAs there as the company has made adequate provisions for the loan book.
  • The One-time restructuring facility was provided last year by the government. Around 1.5-2% of the portfolio was restructured using the same facility, this year the company expects a similar restructuring process to be followed, the only concern will be an expectation of a longer repayment structure.
  • The disbursements grew over 97% YoY however the same was not reflected in the order book growth due to faster and larger repayments, consumers shifting their loans to other companies for better terms and restructuring offers during the pandemic.
  • Substantial reduction in the cost of funds has seen the margins improve to around 2.3-2.4% but the company expects margins to stabilise at these levels due to bottoming out of lending rates.
  • As far as the capital infusion is concerned, the company promoter LIC is investing through preferential allotment of 45.4 mn of equity shares which will further shore up leverage and provided much-needed cash impetus. 
  • The focus in FY22 will be to increase market penetration and further improve all the ratios to deliver better value and post incremental growth in the loan book portfolio.

Asset Multiplier Comments:

  • LIC Housing Finance has seen its NPA Provisions bottoming out due to the Supreme Court order. A substantial loan book growth, and improving margins will be the cause of higher growth rates going ahead.
  • As the stress from the Covid-19 pandemic subsides, the affordable housing industry will gather pace which promises better days for the company.

Consensus Estimates (Source: market screener website): 

  • The closing price of LIC Housing Finance was ₹480/- as of 17-June-2021.  It traded at 1.03x/ 0.92x the BVPS estimate of ₹ 462/ ₹ 518  for FY22E/23E respectively.
  • The consensus price target is ₹ 507/- which trades at 0.95x the BVPS estimate for FY23E of ₹ 518/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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08 Jun

Expect retail stress to reduce by September; MSME stress by Q3 or Q4– Punjab National Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY ended at 15740 (-0.1%) as it could not sustain the intraday highs. Among the sectoral indices, IT (+1.2%), PHARMA, REALTY and MEDIA (+0.9%), ended higher while PSU BANK (-1.5%), METAL (-1.1%), and BANK (-1.0%) led the losers. Among the stocks, TATAMOTORS (+3.2%), TECHM (+2.3%), and BHARTIARTL (+2.1%) led the gainers while HINDALCO (-1.8%), TATASTEEL (-1.7%), and JSWSTEEL (-1.3%) led the losers.   

Excerpts of an interview with Mr. Mallikarjuna Rao, MD, and CEO, Punjab National Bank (PNB) with CNBC TV18 on 7th June 2021:

  • On an outstanding basis, the gross NPA and net NPA are flat, but the credit outstanding for the quarter ended March 2021 is down by 3%, which is why the gross NPA numbers seem elevated at 14%.
  • Due to the covid-19 second wave, the proforma NPA has become worse across the banking industry, including PNB. The NPA composition consists of retail and MSME clients, whereas there are no corporates.
  • As collections from clients are improving, the stress of retail clients would be adjusted to a great extent by September, and of MSMEs by Q3 or Q4 of FY22. The collections were at 91% in May 2021, and around 84% in April 2021.
  • The net NPA has gone from 4% to 5.7% in Q4FY21 on a QoQ basis. Write-offs in Q4FY21 are at Rs 72280mn, whereas the recovery and upgrades are at Rs 69990 mn respectively in Q4FY21 on a QoQ basis.
  • During FY21, the credit cost was at 2.5%. During FY22, the profit is expected to not be less than Rs 60,000 mn and the credit cost is expected to be at 1.5%.
  • PNB is expecting a recovery of Rs 6,000 mn from DHFL, with no specific date of recovery mentioned.
  • PNB is well capitalized, having a capital adequacy ratio of 14.2%

Asset Multiplier comments:

  • With the various states throughout the country unlocking and recovering from the impact of the covid- 19-second wave, the collections will improve in 1HFY22 and will become better in the second half. Improving asset quality and lower credit costs will be a feature of many Indian banks in FY22E. 

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

  • The closing price of PNB was ₹ 42/- as of 8-June-2021.  It traded at 0.51x/ 0.48x the consensus book value estimate of ₹ 80.8/86.4 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 39/- implies a PB multiple of 0.45x on FY23E BVPS of 86.4/-.

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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17 Sep

Will not need to dip into capital for provisioning –Indiabulls Housing

Update on the Indian Equity Market:

On Wednesday, Nifty closed with0.7% gains at 11,605. Within NIFTY50, DRREDDY (+4.4%), M&M (+4.0%), and HINDALCO (+3.9%) were the top gainers, while INDUSINDBK (-2.0%), NTPC (-1.6%), and INFRATEL (-1.1%) were the top losers. Among the sectoral indices, REALTY(+2.3%), PHARMA (+2.1%), and AUTO (+1.5%) gained the most. MEDIA (-1.6%) andPSU BANK (-0.5%)ended with losses.

Will not need to dip into capital for provisioning –Indiabulls Housing

Excerpts of an interview with Mr. Gagan Banga, Vice Chairman and MD, Indiabulls Housing Finance (IBULHSGFIN), aired on CNBC-TV18dated 15th September 2020:
• Indiabulls Housing has raised Rs 6,830 mn via QIP and Rs 5,220 mn through stake sale in OakNorth bank to build capital buffer. This will be used as growth capital. With this capital raise, the capital adequacy has gone up to 31%.
• Higher capital buffer will also help as a positive affirmation for credit rating agencies. Indiabulls Housing has been on a downward rating trajectory from AAA to AA. Management wants to get it back atleast to AA+ levels.
• Management has plans to increase capital further by about Rs 10,000 mn and increase capital adequacy up to 32%.
• In 1QFY21, AUM was flattish and similar trend persists for 2QFY21. Management expects growth from 2HFY21.
• Indiabulls Housing continues its strategy of reducing the real estate developer book. The gross developer book has reduced by Rs 180 bn in the last 2 years. In 1QFY21 and 2QFY21 the sell down has been about Rs 30 bn and 21 bn respectively. These developer loans are being refinanced by Indian PSU and private banks, as well as through a few securitization transactions with foreign institutions.
• Of the Rs 180 bn sell downs so far, there has been no discount required as the properties are prime with good LTVs of ballpark 50%.
• As a result of reduction in developer loans book, Indiabulls Housing is getting converted into a retail lending focused company.
• As Indiabulls Housing pursues growth in retail book, management expects AUM growth of 10% for FY21E. True to the adopted asset light model, the balance sheet growth will remain lower at 5%.
• Within retail book, the ratio of home loans to Loan Against Property (LAP) is 60:40.LAP segment on a risk adjusted basis has attractive RoA. On the asset quality front, this product has a 50% LTV and monthly principal amortization and the product is performing well.
• Through the last few months, initially 50-55% of LAP borrowers had taken moratorium but by August the number had declined to 20%. By September, the EMIs are getting backed and there is no significant increase in people who are not able to pay.
• Indiabulls Housing also raised Rs 15 bn to put into completion of projects which is a positive for the industry. Over the last 60-90 days, apartments across the board are selling at a strong momentum.
• Indiabulls Housing is now at a quarterly pre-provisioning operating profit (PPOP) level of about Rs 6,000 mn. Like in 1QFY21, material portion of the PPOP will be used to make provisions throughout FY21E. Indiabulls Housing will not need to dip into capital for provisioning.

Consensus Estimate (Source: market screener and investing.com websites)
• The closing price of IBULHSGFIN was ₹ 187/- as of 16-September-2020. It traded at 0.5x/ 0.5x/ 0.4x the consensus BVPS estimate of ₹ 392/408/ 445 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 160/- implies a PE multiple of 0.3x on FY23E EPS of ₹ 473/-.

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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17 Jul

Existing book has been taken care of – Yes Bank

Update on the Indian Equity Market:

On Thursday Nifty closed +1.2% higher at 10.740. Among the sectoral indices, IT (+2.8%), Pharma (+1.7%), and Auto (+1.2%) closed higher. Media (-1.7%) was the only sector to close lower. Infosys (+9.5%), BPCL (+6.9%), and CIPLA (+5.6%) closed on a positive note. Bharti Infratel (-7.0%), TechM (-2.7%), and ITC (-2.4%) were among the top losers.

Excerpts from an interview of Mr Prashant Kumar, CEO, Yes Bank with ET dated 14th July2020:

  • His view on the current capital raise: the current CET (common equity Tier 1) is 6.3% and this capital raise will take it to 13% giving a buffer of 500 basis points over the regulatory requirement.
  • This will also take care of the growth requirements for at least two years. Even after two years of growth CET would be around 12% to 13%.
  • On usage of funds: the existing book has already been taken care of and the provision on account of future slippage will be taken care of by the pre-provisioning operating profit. So, this capital will not be used for any provisioning. In the worst-case scenario 100 basis points of capital may be used for provisions mainly due to Covid19.
  • On the loan book post Covid-19: three sectors which have been impacted by coronavirus are hospitality, aviation and real estate. The bank is not seeing any recovery in these three sectors. Except these sectors, recovery is happening. Second, all term loans have been extended by 6 months.
  • He expects things in these sectors to normalize within 2-3 months. The impact on book could be around Rs 10,000 crore, which could be at risk out of total book of Rs 1.71 lakh crore as of March 2020.
  • On the liability side: there has been a net addition in deposits and in the last two months the bank has been able to reduce 100 basis points on saving bank rate and 50 basis points on term deposits, which is a good thing.
  • The targeted CASA ratio is 40% in next three years from 27% in march20.
  • On corporate lending: the bank will not do incremental lending on the corporate side at least during the current financial year, and repayments would reduce the corporate loan book. The bank expects corporate book to come down to 50% from 55% now and further to 40% in FY22.
  • On Return on Assets (RoA) front: RoA is expected to be at 1% by 2023 through improved margins and also lower costs from our branch network, outsourced employees, vendor contracts, lease rentals.
  • He says, rural and semi urban branches will be converted into business correspondent model and some 30 to 35 branches will be merged.
  • On the retail side, the existing book is largely secured. Going forward, the bank will look at secured loans to salaried customers, equipment finance, vehicle finance, gold loans, two-wheeler finance. On MSME, the bank is present in the entire ecosystem of dealer financing but most of it is secured by collateral.
  • Now the challenge is to generate profits. Deposit part has been taken care and the bank is moving towards profit direction. Once capital is there, it would be only to look at growth without having NPAs. The bank’s pre-provisioning profit is improving and when provisioning requirements lessen, there will be a net profit.
  • On technology front, investments have been made. Even today the bank has 40% market share on UPI.

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

  • The closing price of Yes bank was ₹ 19/- as of 16-July-2020.  It traded at 1.5x/ 0.5x the consensus Book value estimate of ₹ 12/32 for FY21E/ FY22E respectively.
  • The consensus average target price for Yes Bank is ₹ 30/- which implies a PB multiple of 0.9x on FY22E BV of ₹32/-.

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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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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11 Nov

Indiabulls Housing Finance: Maintains healthy cash balance on the balance sheet

Update on the Indian Equity Market:

On Friday, NIFTY closed ~104 points lower at 11,908 points. International rating agency Moody’s Investors Service downgraded India’s outlook to negative from stable on concerns that the country’s economic growth will remain materially lower than in the past. The negative sentiment led to a selloff in the stock market. Amongst the NIFTY 50 Stocks, YESBANK (+4.8%), INDUSINDBK (+2.9%), ICICIBANK (+2.4%) were the largest gainers; while INFRATEL (-4.9%), SUNPHARMA (-4.3%) and GAIL (-3.9%) were the top losers. The government’s announcement to set up an Alternative Investment Fund (AIF) in aid of the stalled housing projects kept the sentiment positive for the NIFTY REALTY index which closed higher by 1.7%. PRIVATE BANK was the only other sector in the NIFTY sector indices, to close in the green. NIFTY Pharma (-2.2%), PSU BANK (-1.9%), FMCG (-1.8%) were amongst the top losers for the day.

Indiabulls Housing Finance: Maintains healthy cash balance on the balance sheet

Key takeaways from the interview of Mr Gagan Banga, MD Indiabulls Housing Finance; dated 8th November 2019 on CNBC TV-18:

  • Indiabulls Housing Finance (IBHFL) maintains 20% of the balance sheet in cash; covering around the next 12 months liabilities. The cash balance is monitored on a daily basis. IBHFL continues to carry cash at similar levels as Sept-2019 less the amount of buyback done in October and early November 2019.
  • Mr Banga mentioned that in the last 13-14 months, the Housing Finance Companies (HFC) suffered because of the liquidity crisis. The market lost confidence in HFC. IBHFL’s suffering got exaggerated because of the various allegations and the attempt to merge with Lakshmi Vilas Bank.
  • IBHFL’s stakeholders are confident about the solvency with 20% of the balance sheet as cash and a capital adequacy ratio of 29%. Risky perception of the book is due to wholesale lending. However, for the last 10 years; IBHFL’s business has been in line with what the HFC charter permits.
  • In the event of various allegations, IBHFL has subjected itself to diligence. Multiple regulators and agencies have looked at the transactions in question and the overall book of IBHFL.
  • Talking about the governments’ announcement to set up an Alternative Investment Fund (AIF) to help complete the stalled housing projects, Mr Banga mentioned that it is a positive development in the right direction. It may take a couple of months for implementation with the setting up of the fund and the money to start flowing. The lenders and developers are content to see the government thinking of de-clogging the real estate sector.

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

  • The closing price of IBHFL was ₹ 242/- as of 8-November-19. It traded at 0.6x / 0.5x / 0.5x the consensus Book Value for FY20E / 21E / 22E of ₹ 437 / 487 / 475 respectively.
  • Consensus target price of ₹ 467/- implies a Price to Book multiple of 1x on FY22E Book Value of ₹ 475/-.
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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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