Tag - Capital Raising

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17 Feb

May look to raise funds in 2HFY22E: Federal Bank

Update on Indian Equity Market:

On Wednesday, markets closed lower as Nifty ended the day 0.7% lower at 15,209. Within the index, HEROMOTO (3.5%), BPCL (2.9%), and SBIN (2.8%) were the highest gainers while NESTLEIND (-3.0%), ASIANPAINT (-2.6%), and MARUTI (-1.4%) were the laggards. Among the sectoral indices, PSUBANK (5.9%), MEDIA (2.2%), and AUTO (0.8%) led the gainers while PHARMA (-1.7%), IT (-1.3%), and FIN SERVICE (-1.1%) were the losing sectors.

Excerpts of an interview with Mr Shyam Srinivasan, MD & CEO, Federal Bank (FEDRALBNK) with CNBC -TV18 dated 16th February 2021:

  • Retail business is almost back to pre-COVID levels across category and geographies. He believes that the bank is expected to achieve growth in mid-teen percentage for CY21E in the loan book for this segment.
  • The worst is over from an economic standpoint and the banking industry is expected to deliver YoY growth of 10 percent in CY21E. The bank is expected to deliver above industry growth in the same period. FY21E loan book is expected to deliver 8% YoY growth.
  • The bank is applying conservative approach in capital consumption. The bank is well capitalized at the juncture. There might be an opportunity for a capital raise towards the second half of CY21E.
  • The bank is well placed on asset quality. The continued recovery in the economy is expected to provide better run for the asset quality in the future quarters. All indicators currently suggest that there will be a better outcome regarding asset quality.
  • He mentioned that collection efficiencies have picked up materially as the bank is reporting month-on-month recovery in collections. The bank foresees that trend to continue.
  • The Net Interest Margin (NIM) is expected to be in the current zone of 3.2-3.3% in the coming quarters. The blended cost of funds and yield on new assets resulted in expansion in NIM during 3QFY21 for the bank.

Asset Multiplier Comments:

  • With the pick-up in economic activities, the improvement in collection efficiency augurs well for the banking industry. This will strengthen the asset quality as per the expectation of management.
  • With the recent rally in the shares of banking stocks, the environment is favorable for capital raising as the dilution will be comparatively lesser.
  • The banks are currently getting benefit of lower cost of funds compared to a year ago, resulting in stable or increasing NIMs. Once the interest rates start moving up, banks could either see NIM compression or increase the yield on loans to maintain current levels.

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

  • The closing price of FEDERALBNK was ₹ 88/- as of 17-February-2021.  It traded at 1.1x/ 1.0x/ 0.9x the consensus book value estimate of ₹ 79.5/ 87.2/ 96.7 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 90/- which trades at 0.9x the book value estimate for FY23E of ₹ 96.7/-

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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03 Dec

Yes Bank: $2 billion funding to be key driver when improving economy creates opportunities

Update on the Indian Equity Market:

Following the weak macro data released on Friday, the markets started the week on a negative note with Nifty falling 7.8 points to close at 12,048. Among the sectoral indices, all but one index, METALS (0.3%) traded higher whereas IT (-0.9%), AUTO (-0.9%) and PSU BANK (-0.9%) led the decline. Within the index stocks, BHARTIARITL (4.1%), JSWSTEEL (2.5%) and RELIANCE (2.3%) topped the chart whereas YESBANK (-6.6%), EICHERMOT (-5.2%) and INFRATEL (-3.2%) took the index lower.

Yes Bank:  $2 billion funding to be a key driver when improving economy creates opportunities

Yes Bank on Friday informed exchanges about raising $ 2 billion by selling new shares to a clutch of institutional investors and wealth managers. Key takeaways from the interview of Mr Ravneet Gill, MD & CEO, Yes Bank  dated 2nd December 2019 published in CNBC TV18:

·        On being asked why the bank is raising $ 2 bn instead of an earlier target of $ 1.2 bn, Mr Gill mentioned that given the increase in the authorised share capital which was approved in the board meeting of August, at the current market price, enables the bank to raise a lot more capital.

·        The market is worried about whether the Reserve Bank of India (RBI) will approve the names of investors. He said that the capital raising is taking place on a preferential allotment basis. There are strict guidelines in terms of qualification of investors.

·        According to the norms, any fund that has sold the Yes bank stock in the last six months is not allowed to participate. The one year lock-in period of the offer makes the domestic mutual fund ineligible. As a result, the bank had to work with limited planned universe. According to him, two things were important before finalizing names of investors; size and partners who were in alignment with the strategy of the banks and who could remain long-term partners for the bank.

·        About the investment offer made by Erwin Singh Braich for $1.2 bn, he said that the bank has done enough due diligence about this transaction. The big question is about whether the investor has the wherewithal to be able to bring in investment of that size. According to him, the investor will be able to satisfy the market on that very shortly.

·        He mentioned that although this is a binding offer, there is no bank guarantee attached to it. But the investors have gone to great length to show their resources of funding and whether they can meet the requirement or not.

·        About the voting rights post-dilution; he said that the investors have no desire for controlling the operations of the bank. The investors have invested based on the thesis that they see private banks in India as a very strong investment opportunity. As a result, even if the voting rights of these investors are curtailed by the RBI, it would not matter much to the investors.

·        The investors have asked for board representation. He defended this demand of investors by saying, “if you are making an investment of that size, then board representation makes sense.” He also added that they are not looking for management rights or control functions.

·        The bank has also received interest from the family office of Citax holdings Ltd. & Citax holding group for an investment of $500 mn. This will need the approval of RBI given the fact that the investment is for above 5% stake. The bank plans to take these bids to the regulator for approval.

·        He agreed that the current investments are done on below book value which is not a good idea for the existing shareholder. But the very reason why the bank is trading at a discount is that the market’s view is that it needs more capital. And the moment that capital comes, the market will see the pickup in valuations as well.

·        On the growth opportunities for the bank, he said that the country has hit the bottom in terms of economic macros and from hereon, there will be a pickup. This will create a lot of opportunities for the bank. The dislocation in the whole NBFC space and public sector banks expanded the addressable market for the bank. With the capital that is coming, the bank could grow at a very robust pace.

Consensus Estimate (Source: market screener website)

  • The closing price of Yes Bank was ₹ 64/- as of 02-December-19. The Consensus estimate for Book Value of Yes Bank is not available. 
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