Bank

23 Feb

Slippages and Credit cost to remain within guidance: State Bank of India

Update on Indian Equity Market:

Markets bounced back from Monday’s steep decline as Nifty closed the day 32 points higher at 14,708. Within the index, TATASTEEL (7.2%), TATAMOTORS (6.6%) and HINDALCO (5.7%) charged the index higher while KOTAKBANK (-3.9%), ADANIPORTS (-1.7%) and MARUTI (-1.6%) lagged the index. Among the sectoral indices, METAL (3.9%), REALTY (2.7%) and AUTO (0.8%) led the winners while FIN SERVICE (-0.5%), PVT BANK (-0.5%) and BANK (-0.4%) led the losing sectors.

Excerpts of an interview with Mr Dinesh Khara, Chairman, State Bank of India Ltd (SBIN) with CNBC -TV18 dated 22nd February 2021:

  • The bank is currently using data analytics to have more effective control over the quality of the loan book. All the measures have resulted in an improvement in the asset quality for the bank.
  • The quality of unsecured loan book depends upon the underwriting of the book. In the unsecured loan portfolio held by the bank, the majority of borrowers are salaried employees either from Government, the public sector or well-rated corporates. To that extent, although it is unsecured, there are no challenges in this book.
  • The corporate loan to working capital book ratio stands at 70:30 at present. He expects working capital utilization to improve with improving capacity utilization. 
  • The bank is not looking at the divestment of any subsidiary at the moment. He said that the bank will evaluate various options available for capital raising in the next financial year and could look at investment in the mutual fund business.
  • The bank is keeping a close watch on the stressed assets’ book and is making efforts via one-time settlement and other means to recover the loans as soon as possible. The slippages and credit cost is expected to remain within the guidance given by the bank.  
  • Digital transactions have gone up significantly in the current year. It has gone to the extent of 64% of the total transactions. The bank is trying to reduce its operating costs to improve cost to income ratio.

 Asset Multiplier Comments:

  • The focus on asset quality and the use of data analytics to keep watch on the quality of the book will lead to prompt decision making regarding the health of the loan book. With this, the confidence to achieve credit cost and slippages as per guidance reflects well for the company.
  • 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.
  • The intent of taking efforts to monetize the stressed assets’ book will help the bank to strengthen the balance sheet over the period of time.

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

  • The closing price of SBIN was ₹ 397/- as of 23-February-2021.  It traded at 1.5x/ 1.3x/ 1.2x the consensus book value estimate of ₹ 269/ 301/ 340 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 385/- which trades at 1.1x the book value estimate for FY23E of ₹ 340/-

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 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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29 Jan

In liquidity surplus, better to have secured retail loans – Bank of Baroda

Update on the Indian Equity Market:

On the last trading day before the Union Budget is presented, Nifty 50 ended at 13,635 (-1.3%) dragged by auto and IT stocks. Among the sectoral indices, PSU BANK (+1.7%), PRIVATE BANK (+0.9%), and BANK (+0.7%) led the gainers. AUTO (-2.9%), IT (-2.6%), and METAL (-1.9%) ended the day with losses. Among the stocks, INDUSINDBK (+6.1%), SUNPHARMA (+4.3%), and ICICIBANK (+2.0%) led the gainers, while DRREDDY (-5.3%), MARUTI (-4.8%), and HEROMOTOCO (-3.7%) led the index losers.

Excerpts of an interview with Mr. Sanjiv Chadha, MD, and CEO, Bank of Baroda (BANKBARODA) with CNBC TV-18 aired on 28th January 2021:

  • The bank recently reported its 3QFY21 results with a strong domestic loan growth reported quarter on quarter (QoQ).
  • Domestic advances have grown by 8.2% percent YoY and a large portion has come from retail secured loans. The bank plans to increase the share of retail advances to ensure more risk mitigation, and secured retail loans giving better yield than high-rated coupons.
  • The CASA growth for the bank had been good and deposit growth had been in sync with the business strategy. Within CASA, current accounts are growing 18%. This is very important to protect the margins when liquidity is surplus.
  • In a liquidity surplus situation, the highly-rated corporates are able to command price which is almost unprecedented. They are borrowing at rates which are never seen before. To grow the loan book and protecting interest rate margins, while on the liability side ensuring a large proportion of book comes from CASA, on the asset side it is secured retail loans which give the combination of being good quality, low loss giving default, and giving better coupon. This is the strategy they are following in coming quarters as well.
  • The bank witnessed 6.5% YoY growth in its deposits. As the bank wants to closely align the deposit growth to where the advances growth is, and ensuring good quality of deposits growth. The growth in deposits is in line with the previous quarter.
  • The credit cost of the corporate book should start looking better. On the retail and MSME, there still is some uncertainty.
  • When it came to restructuring, a very small percentage of borrowers opted for restructuring which would seem to suggest that they are comfortable in terms of paying loans.
  • The bank is launching a QIP of Rs 200– 400 bn later in the year.

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

  • The closing price of BANKBARODA was ₹ 68/- as on 29-Janaury-2021. It traded at 0.5x/ 0.4x/ 0.4x the consensus book value estimate of ₹ 147/ 154/ 168 for FY21E/ FY22E/FY23E respectively.
  • The consensus target price of ₹ 65/- implies a PB multiple of 0.4x on FY23E BV of ₹ 168/-.

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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11 Jan

Concluded the issuance of bonds to fund overseas business- SBI

Update on the Indian Equity Market:
On Monday Nifty closed 1% higher at 14,485. Among the sectoral indices, IT (+3.3%), Auto (+2.6%), and Realty (+0.6%) closed higher. Media (-1.5%), PSU Bank (-1.5%), and METAL (-1.0%) were the sectoral indices that closed lower. Tata Motors (+12.6%), HCL Tech (+5.9%), and Infosys (+4.8%) closed on a positive note. Tata Steel (-2.6%), Bajaj Finance (-1.9%), and Adani Ports (-1.9%) were among the top losers.

Excerpts from an interview of Mr. Ashwani Bhatia, MD, SBI with CNBC-TV18 dated 8th January 2020:
● State Bank of India (SBI), has concluded the issuance of USD 600mn from bonds to fund the expansion of their overseas business.
● Mr. Ashwani Bhatia said there was a funding gap on the overseas side and this was the right time to fill it.
● SBI is the first bank to raise money post the Covid crisis. The spreads are better as compared to the last 6-7 years.
● Speaking about asset quality on the domestic side, he said the bank has not seen the gloom that was anticipated on slippages.
● On credit growth, he said there could be 8-9% growth in 2HFY21. The demand is coming back and, retail has been a good surprise.
● The decision taken by the central government, RBI, and tax cuts in Maharashtra has helped the bank.
● On loan growth, he said the bank is sitting on excess SLR and it can be used for the economy in the next 3 months. The bank reported a growth of 8% and the expectation is to touch double digits.
● In terms of recovery, he said Rs 7,000-10,000 cr of recovery is expected.
Consensus Estimate: (Source: market screener and investing.com websites)
● The closing price of SBI was ₹ 283 as of 11-January-2020. It traded at 1x/ 0.9x/ 0.8x the consensus BVPS per share estimate of ₹ 262/286/318 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for SBI is ₹ 312/- which implies a PB multiple of 0.9x on FY23E BVPS of 318/-.
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.”

By Bank, SBI 0 Comments Read more...
18 Dec

Hopeful of double-digit credit growth in FY22E- Karnataka Bank

Update on the Indian Equity Market:
On Thursday, Nifty ended 0.4% higher at 13,740. The top gainers for Nifty 50 were Divis Labs (+3.0%), HDFC (+2.7%), and Bajaj Finance (+2.4%) while the losing stocks for the day Hindalco (-2.2%), Coal India (-1.8%), and Maruti (-1.7%). Top gaining sectors were Financial Services (+1.2%), Realty (+0.6%) and Pvt Bank (+0.5%). The losing sectors were Media (-1.9%), PSU Bank (-1.4%) and Metal (-0.4%)

Hopeful of double-digit credit growth in FY22- Karnataka Bank

Edited excerpts of an interview with Mr Mahabaleshwara MS, Managing Director & CEO, Karnataka Bank Ltd; dated 16th December 2020 from CNBC TV 18:

Karnataka Bank has no plans of raising capital right now but will consider it at an appropriate time.
The bank is comfortable with the current capital position and is at a comfortable position of 13.08% capital adequacy ratio (CAR).

Going forward the Bank has also assessed the impact of COVID-19 and there will not be any negative impact, according to him. Karnataka Bank has been maintaining a CAR varying in between 12-13.3%. So, considering that, the position is comfortable. But at the appropriate time, all banks are evaluating to take a stand in further strengthening the capital. So, the Bank will also take an appropriate stand going forward if required. The growth capital & stress capital both are in comfortable space according to the Bank’s internal assessment.

On asset quality, Mr Mahabaleshwara said that he had estimated about 2-4% of the Bank’s loan book to be converted under the one-time restructuring (OTR) scheme. So this is on the expected lines because the Bank has to identify all those accounts by December 31. That exercise is going on and he is sure that it will be within that range itself. The moratorium book will be somewhere around 1% by the end of December-20 as estimated earlier from 11.6% in September-20 of the total loan book.

The Bank’s strategy is to conserve, consolidate & emerge stronger. It would be focusing on the bottom line rather than the top line. Mr Mahabaleshwara does not expect credit growth to be more than 2-4% for FY21E. However, he said that for FY22E, the credit growth could be in double digits.

Mr Mahabaleshwara expects the average net interest margins (NIMs) to be more than 3%. Comfortable margins will be ensured with an increase of retail loans and a reduction in corporate exposure in loans. Digital sanctioning is in focus currently for the loans.

Post moratorium stress is much lower than the pre-Covid level for the bank. Slippage ratio is expected to be at 1-2% levels, he added.

Consensus Estimate: (Source: market screener website)
The closing price of The Karnataka Bank was ₹ 58/- as of 17-December-2020. It traded at 0.30x/ 0.28x the consensus Book value per share estimate of ₹ 191/204 for FY21E/ FY22E respectively.
The average consensus target price of 50/- implies a PB multiple of 0.2x on the FY22E book value of ₹ 204/-.

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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04 Dec

Demand for loans coming back – SBI

Update on the Indian Equity Market:
On Thursday, Nifty 50 ended at 13,134 (+0.2%). Among the stocks, MARUTI (+7.3%), NTPC (+4.2%), and ONGC (+4.2%) ended with gains while SBILIFE (-2.0%), HDFCBANK (-1.8%), and TCS (-1.4%) ended the day with losses. Among the sectoral gainers, PSU BANK (+4.8%), MEDIA (+2.8%), and METAL (+2.5%) led the gainers and IT (-0.5%), PRIVATE BANK (-0.5%), and FINANCIAL SERVICES (-0.3%) led the laggards.

Excerpts of an interview with Mr. Dinesh Khara, Chairman, State Bank of India (SBIN) published in Business Standard on 3rd December 2020:
• The bank is cautious about loan demand from vaccine manufacturers given the huge investments which may turn sour if central approvals are not forthcoming. Proposals worth Rs 1,000 crore have been received from the pharmaceutical segments.
• When there is unlocking, there is demand revival, which is going to be the main growth engine in the current scenario. He expects the demand to be back with a vengeance after covid.
• There has been a significant improvement in sanctions and disbursements to unsecured personal loans and express credit loans. In September, in the personal loans space, there was 55% growth year-on-year. Disbursements went up as high as 61 percent. In the home loans segment, there was a 49% growth.
• SBIN has taken stock of the special mention accounts (SMA) 1 and 2 and there is time till March 31 for carrying on the restructuring exercise. There is an internal target of completing 50% of restructuring by December, and the rest by February.
• They have given unsecured loans to customers who have been maintaining their salary accounts, employed with either the government or well-rated private sector corporates.
• Recovery is ensured through the Insolvency and Bankruptcy Code, restructuring, and the non-discretionary one-time settlement schemes. One major resolution went through in the early part of this quarter.
• There has been a delay in big accounts in financial sectors looking for resolution due to litigation. In such cases, an elaborate process is laid out, and timelines given for such accounts are stringent.
• In the recent past, they have raised tier I and tier II capital with prices set at the benchmark.
• SBIN had the work-from-home policy in 2017 and the pandemic has helped SBIN leverage this policy. They have reframed this policy to ‘work from anywhere’ and digitised some of the non-customer facing activities as well. They can’t have a work-from-home policy for everyone as they are a customer-facing organisation and need to engage with customers.
• When YONO, SBIN’s digital banking app was put in place, it was to be a distribution platform for the bank’s products. The definite and concrete plans in terms of listing it will be shared in some time.
• In the post-Covid world, some in-person meetings will probably come back. There will be a paradigm shift when it comes to the way SBIN has been conducting themselves in the past to the way they will conduct themselves in the future.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of SBIN was ₹ 256/- as of 03-December-2020. It traded at 1x/ 0.9x/ 0.8x the consensus book value estimate of ₹ 262/ 286/ 318 for FY21E/ FY22E/FY23E respectively.
• The consensus target price of ₹ 276/- implies a PB multiple of 0.9x on FY23E BV of ₹ 318/-.

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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29 Sep

Economy going through a transitory phase, we may witness more changes – SBI

Update on the Indian Equity Market:
On Monday, Nifty ended 1.6% higher at 11,228 on the back of positive global cues and domestic factors like possible stimulus package from the government and capital support to some PSU banks. The top gainers for Nifty 50 were IndusInd bank (+8.0%), Bajaj Finance (+6.4%), and Axis Bank (+5.5%) while the losing stocks for the day Wipro (-0.8%), HUL (-0.5%), and Nestle India (-0.1%). All the sectors were in the green zone. Top gaining sectors were Media (+4.8%), Pvt Bank (+3.6%) and PSU Bank (+3.3%).

Edited excerpts of an interview with Mr Dinesh Kumar Khara, MB, State Bank of India Ltd; dated 27th September 2020 from Economic Times:

• There are certain sectors in the economy seeing some positive traction. The way things have emerged in terms of the health and hygiene issues, it has led to a situation where there was a fear psychosis in the mind of everybody and also a buzz where people started conserving cash. But in some of the sectors like FMCG, steel sectors having demand-led growth opportunities, are seeing very good traction.
• In the auto sector, small cars are something which is on the upside as far as demand is concerned.
• People are willing to come out and contribute to the economic activity, but at the same time, they have got some fear psychosis in terms of health and hygiene.
• The credit growth according to him is around 7%. Slicing it further, Consumer credit is actually on the growth cycle. But the corporate credit has a tendency to deleverage. This is because they are in a bit of uncertainty. They are not yet into the investment cycle. But there is some kind of traction when it comes to certain sectors like the road sector where improvement is seen.
• People are looking for the right signals or some bit of positivity and once it is seen, they will go all out to support the economic activity. That is how he reads the situation.
• When the pandemic kicked in, people had not visualised how they would be in a position to carry out their business continuity plans (BCPs) and reinvented their BCPs. In about six months from then, it has come to a situation where the new realities in terms of working from home have come in, leading to a situation where there could be challenges in lease rentals. Thus, he expects some kind of consolidation to happen.
• In terms of the lease rentals for offices, the high-quality buildings are not facing any challenge whereas the ones which were not of as good quality are facing some challenges. The new cost norms are emerging as social distancing will require even more space in the office and that is also a reality.
• Towards the end of this financial year, when things start improving, they will improve at a very fast pace. It is not likely to be a normal secular trend which has been witnessed in the past.
• If the unlock of activities continues and the Country is in a position to address the health and hygiene issues more effectively in terms of living with the pandemic, there is a possibility that India may get to see better performance as compared to what is being seen now. This is because the most important component here is the confidence of the consumers and that is a function of how people are in a position to navigate this particular problem relating to corona.
• RBI is keeping the liquidity in a fairly easy position and that is something which is ensuring that all these instruments which are there should remain liquid and there should not be any setback to the economy.
• SME funding has been envisaged through the GCL kind of a concept wherein the government is giving the guarantee to financiers and is ensuring that there is no unduly strain on the capital of the banks.
• There is a very clear effort on the part of the government to ensure that there is an amicable resolution of the problem related to GST dues.

Consensus Estimate: (Source: market screener website)
• The closing price of State Bank India was ₹ 187/- as of 28-September-2020. It traded at 0.7x/ 0.7x/0.6x the consensus book value estimate of ₹ 258/279/307 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 265/- implies a PB multiple of 0.9x on FY23E Book Value of ₹ 307/-.
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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09 Sep

COVID-19 has led to a delay in recovery – Yes Bank

On Tuesday, Nifty ended 0.3%, lower than the previous close at 11,317. The top gainers for Nifty 50 were BPCL (+2.8%), HCL Tech (+2.0%), and Infy (+1.4%) while the losing stocks were Infratel (-8.1%), ZEEL (-4.7%), and Tata Motors (-4.5%). The only sector in green was IT (+1.2%). The top losing sectors for the day were Media (-3.0%), Realty (-1.7%), Pharma (-1.6%) & PSU Bank (-1.6%).

Edited excerpts of an interview with Mr Prashant Kumar, MD & CEO, Yes Bank Ltd; dated 07th September 2020 from CNBC TV 18:

The recovery target would be for the entire stressed book; it is an issue about the timing. Due to COVID, the targets which the bank was expecting during FY21E have slowed down a bit. But he thinks that the bank is absolutely on track and during the current year and going forward he is confident that they will be able to recover.
Yes bank has seen a 22% cost reduction in 1QFY21. Yes Bank is targeting cost reduction of at least 10% year-on-year (YoY), but because of COVID, everything is not working in the way it used to work in the past. So, he thinks that is helping them to reduce costs further. They are working on the current situation. The Bank has launched a programme which allows a sizeable portion of the workforce to work from home which will be convenient for the younger generation & women associated with the bank.
Yes Bank already has provision coverage of almost 76% on their loan book. This loan book with 76% coverage where the estimates of loss given default (LGD) is something around 60-65%. So, that kind of loan assets can very easily move to SPV.
Talking about Dish TV stake of 24% with Yes Bank, Mr Kumar said that every case has its own merits and reasons for taking a specific course of action. In the case of Dish TV, they are evaluating the different options. He further added that there are a number of suitors for Dish TV and that they are looking for the best deal.
Deposits have seen 11% QoQ growth in 1QFY21. Going forward, he sees good progress on deposit front. There is deposit accretion seen. As of March 2020, the corporate & retail contribute is 50:50. The bank is also able to protect their margins accordingly.
Loan Book recoveries rate elongated due to COVID situation.
Yes bank looking for three partners on life as well as non- life.

Consensus Estimate: (Source: market screener website & investing.com)
The closing price of Yes Bank Ltd was ₹ 14/- as of 08-September-2020. It traded at 0.8x/0.5x/1.0x the consensus book value estimates of ₹ 17.0/29.0/13.5 for FY21E/FY22E/23E respectively.
The consensus target price of ₹ 28/- implies a PE multiple of 2.1x on FY23E EPS of ₹ 13.5/-.

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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02 Sep

Growth not constrained by availability of either capital, geography or liquidity – Federal Bank

Update on the Indian Equity Market:
On Tuesday, Nifty50 ended 0.7% higher at 11,470 after the Supreme Court ordered telecom companies to pay their pending Adjusted Gross Revenue (AGR) dues to the Department of Telecommunications (DoT) over 10 years. Among the Nifty50 stocks, BHARTIARTL (+7.1%), JSWSTEEL (+6.5%), and HINDALCO (+5.3%) led the gainers. INFRATEL (-4.6%), ONGC (-2.9%), and AXISBANK (-2.0%) led the losers. METAL (+3.2%), PHARMA (+2.3%), and MEDIA (+1.4%) led the sectoral gainers. IT (-0.6%), PSU BANK (-0.2%), and PRIVATE BANK (-0.1%) were the only sectoral losers.

Excerpts of an interview with Mr. Shyam Srinivasan, MD & CEO, The Federal Bank with ET Now on 31st August 2020:
• Since the moratorium ended on August 31, 2020, no material changes are expected in September and the real picture would become clearer as they go into 3QFY21.
• The net moratorium at the end of 1QFY21 was 24%. Despite banks calculating moratorium in different ways, the Federal bank has been very strict with defining moratorium. If three or more payments were received, those borrowings were out of moratorium. All indications so far suggest the impact of the moratorium end would be as per planned and provided for by the bank.
• The gold loan performance is quite well. 1Q saw 9.5% growth in this segment and that growth is going to be very strong in the year. Gold being anti-cyclical and people resort to gold borrowing when there are any challenges in the economy.
• Businesses like auto loans in select geographies Karnataka, Kerala seem to have picked up in terms of monthly volumes while parts of Maharashtra are not doing as well.
• Typically, the NIMs (Net Interest Margin) are influenced by the margin of businesses, and reversals and low-cost funds. Strong growth in low-cost funds coupled with no material slippages helped, good growth in gold loan helped achieve good NIMs.
• The slippages in September are predictable. The NIMs for 2Q would be around the same levels as 1Q. 3Q and 4Q would depend on the slippages. The guidance for the full year remains at ~3.1%.
• They have an enabling provision for Rs 10bn of equity raise. Right now, they are not looking at raising any money and capital adequacy is looking reasonably good.
• It would be wise to see how 3Q pans out before plunging into any M&A and portfolio expansion opportunities. The growth is not constrained by the availability of either capital, geography, or liquidity, all of which are in abundance with the bank.
• Mr. Srinivasan’s term as the bank’s CEO & MD ends in September 21. With a well-thought-out succession planning in place, there is not a lack of continuity or lack of candidate and by April 21, there will be clarity on his successor.
• There is a high CASA flow from Dubai and the Middle East where oil prices have moved and job losses have happened. Whenever there is any kind of dislocation in these geographies, the bank has been a net beneficiary due to physical presence, large diaspora base, and the client base are not great shoppers and must send money home. It is not a singularly large destructive area. In the last 10 years, they have been able to diversify their business across geographies and product streams.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of The Federal Bank was ₹55/- as of 01-September-2020. It traded at 0.7x/ 0.7x/ 0.6x the consensus book value estimate of ₹ 77.4/83.8/90.4 for FY21E/ FY22E/FY23E respectively.
• The consensus target price of ₹ 66/- implies a PB multiple of 0.7x on FY23E BV of ₹ 90.4/-.

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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31 Aug

It will be a long road to recovery from Covid-19 – Axis Bank

Update on the Indian Equity Market:
On Friday, Nifty ended 0.8%, higher than the previous close at 11,655. The top gainers for Nifty 50 were Indusind Bank (+12.1%), Axis Bank (+7.9%), and UPL (+4.7%) while the losing stocks were JSW Steel (-3.0%), Hero MotoCorp (-2.6%) and Dr Reddy (-1.6%). The sectoral gainers for the day were PSU Bank (+5.2%), PVT Bank (+4.7%), and Bank (+4.2%) while the losers were Auto (-0.8%), Metal (-0.4%), and FMCG (-0.2%).

Edited excerpts of an interview with Mr Amitabh Chaudhry, MD, Axis Bank; dated 26th August 2020 from Economic Times:

The macro situation has improved quite a bit, but the economy is nowhere out of the woods.
The economy today is operating at 70-75% levels. The recovery remains uneven with a faster rise in supply than demand. The RBI annual report published also suggests that they remain extremely worried about consumer demand and that it would take some time to recover.

India is in a long haul before the economy recovers to pre-COVID levels partly driven by the fact that consumption patterns have been debilitated in many ways. People are conserving cash, and localised lockdowns continue. All this hurts demand and the notion that things are coming back to normal.
Increasingly corporates are saying that things should get better by the third quarter. But, he thinks that the improvement is spotty where recovery is visible in some sectors while some other sectors continue to get hurt quite badly.

Once the customer is assured that they are the fag end of the crisis, things will change dramatically and the economy should revive much faster.

The RBI Governor has been warning banks to be careful with their money, and to raise capital.
The banks have learnt their lesson after the last crisis, they are not going to be out there lending in a hurry. This applies to public sector banks as well.

Government has indicated that once the unlock process continues, they will come back with more support for the economy. The government has to play a very important role.

To revive and support the economy, the Government has categorised into 3 buckets. For the people who need it they are doing the cash hand-outs, the second is supporting MSMEs for incremental lending, and the third category is about long-term reforms. These long-term reforms include working with the RBI to towards refinance schemes, moratorium, and restructuring to support the other sectors of the economy.

Axis Bank will continue to adopt a conservative approach; they will do an intense credit screening before allowing any restructuring and will be much more prudent in provisioning for such loans.

There is a disproportionate restructuring share coming from sectors which are severely impacted due to COVID like airlines, tourism, and real estate. But, there is no sector that would be able to escape this severe economic shock and the vulnerable ones in every sector will need help.
For restructuring in Axis Bank portfolio, one will find loans from practically every sector because there will be some corporates who were in vulnerable state and COVID pushed them into a state where they may need restructuring help.

Lose of job & salary cut will have a bigger impact on the retail portfolio, followed by MSMEs and then wholesale.
Axis Bank is planning several schemes for the festive season and working with various manufacturers to see what they can offer to customers so that they start consuming again.
Max Life deal will add a lot of value on both sides.

Consensus Estimate: (Source: market screener & investing.com websites)
The closing price of Axis Bank Ltd was ₹ 510/- as of 28-August-2020. It traded at 1.6x/1.4x/1.3x the consensus Book Value estimates of ₹ 325/359/408 for FY21E/FY22E/23E respectively.

The consensus target price of ₹ 541/- implies a PB multiple of 1.3x on FY23E Book Value of ₹ 408/-.

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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