NBFC

Seeing demand uptick for second-hand CVs- Shriram Transport Finance

Update on the Indian Equity Market:

On Thursday, NIFTY closed in the red at 17,746 (-1%) near its high of 17,795. Among the sectoral indices, MEDIA (+0.9%), AUTO (+0.5%), and CONSUMER DURABLES (+0.5%) closed higher while IT (-1.5%), REALTY (-1.5%), and FINANCIAL SERVICES (-0.9%) closed in the red. Among stocks, UPL (+2.2%), INDUSINDBK (+1.8%), and BAJAJ-AUTO (+1.7%) were the top gainers while JSWSTEEL (-3%), ULTRACEMCO (-2.7%), and SHREECEM (-2.6%) were among the top losers.

Excerpts from an interview of Mr. Umesh Revankar, Vice Chairman & Managing Director, Shriram Transport Finance Corporation (SRTRANSFIN) with CNBC-TV18 dated 5th January 2022:

  • The demand for CV is increasing but not at the expected levels as the economy is not recovering as much as it was expected to. As a result, new CV (commercial vehicles) sales are lower than expectations.
  • Light Commercial Vehicles (LCVs) are showing good demand but it’s not as expected for heavy vehicles. However, demand for used vehicles is good.
  • The resale values have gone up significantly by 15-20% over the year and this reflects that people prefer to buy used vehicles in the current market situation rather than choosing a new vehicle. This eventually works for SRTRANSFIN and they are confident that as the market heats up, as the resale value goes up beyond 20%, eventually demand will come back.
  • The Omicron spread has increased in the last one week but they are not seeing any impact as such even though the city traffic has slowed down a bit. SRTRANSFIN hasn’t seen any downfall in Commercial Vehicle transportation even though mobility had come down in December. Overall, the long-distance movement has increased and hence the CV transportation has not seen any challenge as compared to what was seen in wave 2.
  • Revankar doesn’t expect many challenges as the covid variant is not supposed to be as strong and more people are getting vaccinated.
  • Marginal growth in disbursement can be expected on a QoQ basis and the AUM will be around 10% for FY22E. Larger growth in AUM is expected in FY23E because economic activities will reopen and demand for infrastructure will lead to a huge demand for heavy commercial vehicles and construction equipment.
  • As far as freight rates are concerned, margins for customers have improved because there was some decrease in the excise duties and the fuel prices had come down. Hence there were temporarily higher margins for customers. However, freight rates got corrected as they are linked to fuel prices and are a contractual obligation. But overall margins for truckers have remained strong.
  • Collections have been more than 100% in December. Hence, this shows that business is viable.
  • Revankar doesn’t look at GNPAs of 8% as a problem since the kind of customers they are lending to are individual operators who have to earn and pay. Hence there will be some delay in their collection. Individuals depend on corporates or entities for timely payments.
  • Credit cost for the long term is 2% on average and they are comfortable as long as it stays around 2%. So the GNPA is not an indicator for stress levels in their portfolio.
  • In terms of Net Interest Margin (NIM), SRTRANSFIN has always been eyeing a rate of 7% which has come down to 6.45% due to the higher liquidity they are carrying on their balance sheet due to the ongoing uncertainty in the market. Margins will move towards 7% once there is more certainty in the market.
  • Credit costs have been hovering around 2.5% due to the higher provisioning done in the last year. By March FY22, SRTRANSFIN hopes to bring down credit costs from last year’s mark of 2.48%

Asset Multiplier comments:

  • The company delivered good results in the impacted part of 1HFY22.
  • CV demand is gaining momentum and the company is the largest player in this space.
  • Appropriate provisioning, improving asset quality and strong growth strategy may contribute to the SRTRANSFIN’s topline.

Consensus Estimate: (Source: Market screener website and Tikr)

  • The closing price of Shriram Transport Finance Corporation was ₹ 1,216 as of 5-January-2022. It traded at 1.3x/1.1x/0.9x the consensus Book Value per share estimate of ₹ 968/ 1,087/ 1,219/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 1,660/- which implies a PB multiple of 1.4x on FY24E BVPS of ₹ 1,219/-.

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.”

Clocked 100% collection efficiency in December-21 – M&M Financial Services

Update on the Indian Equity Market:

On Wednesday, the domestic market witnessed a recovery following a mild dip. Increasing covid cases leading to stricter restrictions pressurized market volatility. NIFTY closed at 17,925 (+0.7%).

BANK (+2.3%), PRIVATE BANK(+2.1%), and FINANCIAL SERVICES (+2.0%) were the top gainers and IT (-1.9%), MEDIA (-0.4%), and HEALTHCARE (-0.3%) were the top losing sectors.

The top losers were TECHM (-2.8%), INFY (-2.7%), and HCLTECH (-1.7%) while BAJAJFINSV (+5.0%), BAJFINANCE (+4.4%), and KOTAKBANK (+3.5%) were the top gainers.

 Edited excerpts of an interview with Mr. Ramesh Iyer, Managing Director, M&M Financial Services with ET on 4th January 2021:

  • A turnaround was seen in rural India in terms of vehicles and tractors. Growth across all categories was witnessed by the company and that has registered the growth in disbursements.
  • Rural demand continues to be buoyant. The yields have been good because of the good monsoon. Therefore the sentiments are continuing to remain positive across the country.
  • Good growth momentum was seen by the company and the recoveries have been good for the company.
  • In tractors, volume growth and gain in market share were witnessed by the company. M&M Financial Services have gone deeper and has covered more dealerships. It has put people across various dealerships which have aided the volume growth in tractors.
  • Productwise Performance:
    • M&M Financial Services has gained market share in tractors and Mahindra auto products.
    • Cars are witnessing volume growth.
    • Pre-owned vehicles have been a very buoyant segment.
  • There had been temporary pressure since 1QFY22 because of the market conditions. As the consumers come back to the market and start earning, a rollback is expected which was witnessed in 2QFY22. The company continues to see recovery in 3QFY22 and is confident that this momentum will continue going forward. It has clocked 100% collection efficiency in the month of Dec-21 and is improving on a month-on-month basis.
  • The NPAs are steadily reducing from 1QFY22 and the company is confident of bringing it below 4% levels by end of FY22E. The second half is always good for the rural market and the post-harvest quarter is always the best.
  • The company is seeing a turnaround in economic activity. Tourism has picked up substantially which is contributing to people earning better and being able to repay well.
  • Collections from every segment and every geography have been witnessed by the company. It seems to be the trend going forward and therefore M&M Financial Services is confident to bring net NPA to below 4% by Mar-22E.
  • On the latest norms by RBI on asset quality, Mr. Iyer commented that regulatory requirements are under the IRAC norms and not under the Ind-AS norms. Therefore, as far as the P&L is concerned, a major impact on the P&L might not be seen. However, under the IRAC norms, one would see an increase in NPA due to the approach that would now have to be adopted going forward. But the ground reality is that these consumers earn and pay and therefore adhering to a particular due date is difficult for them and there will be a little pressure point for the retail industry. This will cause a little increase in NPAs so far as IRAC norms are concerned.
  • The company doesn’t see any substantial change in the loan mix as far as AUM is concerned. AUM growth for FY22E is expected to remain range-bound because it is difficult to catch up with the business lost in one quarter. But the sentiments are positive and growth is expected from FY23E.

 

Asset Multiplier Comments

  • We think strong buoyancy in demand, particularly in rural centers, driven by healthy farm cash flows and a pickup in Infrastructure spending by the Center and state governments will help aid revenue growth.
  • With a recovery in collections, M&M Financial Services seems to be well-positioned to accelerate its disbursements and gain market share.

 

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

  • The closing price of M&M Financial Services was ₹ 154/- as of 05-Jan-22. It traded at 1.22x/1.12x/1.00 x the consensus BVPS estimate of ₹ 125/136/154 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 202/- implies a PBVPS multiple of 1.31x on FY24E EPS of ₹ 154/-.

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.”

 

Real Estate demand growth driven by rising income levels – HDFC

Update on the Indian Equity Market:

On Monday, markets plunged sharply in continuation to Friday’s fall. After the flat start, weak global cues and updates on the new COVID variant started weighing on the sentiment as the day progressed.

NIFTY ended 1.7% down at 16,912. IT (-2.7%), HEALTHCARE(-1. 9%), and PHARMA (-1.9%) were the top losers and there were no sectoral gainers. The top losers were INDUSINDBK (-3.7%), TATACONSUM (-3.4%), and BAJAJFINSV (-3.3%) while UPL (+0.4%) was the only stock in green.

Real Estate demand growth driven by rising income levels – HDFC

Edited excerpts of an interview with MR. Keki Mistry, Vice-Chairman and Managing Director of Housing Development Finance Corporation (HDFC Ltd) with CNBCTV18 on 3rd December 2021:

  • On new norms on recognition of Non-Performing Assets for Banks and NBFCs issued by RBI: He stated that a few years back NPA were recognized on a 180 days basis that got changed to 90 days. According to the new guidelines published by RBI, once the account is recognized as NPA, Banks won’t be able to upgrade it to standard assets till the whole loan has been repaid. Earlier, an NPA account, after payment of 1-2 installments could be categorized as a standard asset. Temporarily, there will be limited impact on Profit and Loss Account for most of the companies including HDFC but the reported Gross NPAs number will look higher for next 3-4 quarters.
  • The real estate market has steadily picked up after the slowdown in the 1HCY21 due to the COVID-19 pandemic and the resultant lockdowns.
  • Mr. Mistry thinks that the interest rates have been bottomed out but he doesn’t see that having a significant impact on the market.
  • He thinks that the runway for growth is across the country. In the period from CY17-CY20, the demand was largely focused on the tier-II tier-III towns in the outskirts of big cities. In the last one or two years, cities like Delhi, Mumbai, Bangalore, Pune, Hyderabad, and Chennai are reporting strong growth. A pickup in demand in the metro cities has been witnessed recently.
  • Mr. Mistry attributed the rise in demand to
    • Income levels rising in the past few years. He explained that the real estate prices have been stable but the income levels grew on an average by 8% per annum in the last 4 years resulting in cumulative 34-35% growth in income levels.
    • Low-interest rates
    • Feel good factor: He stated that the malls, hospitals, shops, hotels, and restaurants are full as the feel-good effect is driving and keeping people motivated.
    • The myth that there is oversupply in Mumbai and Delhi markets has disappeared, so people are not waiting for property rates to subside anymore.
  • The HDFC chief believes that affordability has increased in the market and it is an opportune time to buy real estate. To supplement this, he said that October-21 saw the highest level of loan disbursements by HDFC. This indicates strong demand and he expects it to sustain for a long time.
  • Mr. Mistry also believes that the lending rates have bottomed out but he does not expect the RBI to start raising rates in a hurry. But throughout the next 6-12 months rate hike is possible. It depends a lot on global factors like inflation, oil prices, and other factors which are not within our control.
  • The yield curve, according to him, has been steep due to excess liquidity in the system. This has been reflected in the demand seen in the high-end market which has seen a pickup after being subdued from CY17 to CY20.

Asset Multiplier Comments

  • Looking at the macro growth drivers, well-diversified loan portfolio, and adequate liquidity on hand our outlook over the long term remains positive on HDFC Ltd.
  • We think the new rule would impact in the near short term but in long term we expect the NPA levels to normalize. Stable collection efficiency and provisions higher than regulatory requirements will help support the company to maintain a healthy Balance Sheet.

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

  • The closing price of HDFC Ltd was ₹ 2,769/- as of 06-December-21. It traded at 4.2x/3.9x/3.5x the consensus BVPS estimate of ₹ 659/705/781 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,251/- implies a PBV multiple of 4.2x on FY24E BVPS of ₹ 781/-.

 

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.”

 

Good Momentum seen in Asset and Wealth Management segments- IIFL Wealth

Update on Indian Equity Market:

On Thursday, markets were in the red, with Nifty declining 124 points to close at 14,906. CIPLA (2.4%), M&M (2.3%), and BPCL (2.1%) were the top gainers on the index while TATA STEEL (-5.1%), HINDALCO (-4.2%), and COALINDIA (-3.4%) were the top losers for the day. Among the sectoral indices, REALTY (1.0%), and PSU BANK (+0.4%) were the only gainers, while METAL (-3.2%), BANK (-1.0%), and PRIVATE BANK (-1.0%) lead the losers.

Excerpts of an interview with Mr. Karan Bhagat, CEO of IIFL Wealth aired on CNBC TV-18 on 19th  May 2021 :

  • The revenue recognition on a trailing basis instead of upfront basis has seen a strong cyclical recovery over the past 8 quarters. The Wealth Management business is poised to grow from here on.  
  • The Asset Management business has seen a stellar recovery over the past year with an increase in both listed and unlisted equity segments. 
  • NBFC business is seeing a difficult recovery due to the pandemic. The Loan against Shares segment is fairly collateralized and thus the company hasn’t seen any rise in impairment costs. The stable Net Interest margins and lower operating costs are good tailwinds going ahead.  
  • AUM growth is expected in the low teens with organic growth and around 20% on a Mark to Market basis.
  • The company has improved its revenue mix to Annual recurring revenue contributing to around 70-80% as opposed to the brokerage-centric business model over the last 2 years. The management expects this to stabilize at these levels going forward.

Asset Multiplier Comments:

  • India is in the midst of a transformation in its savings and investing habits, going forward Asset and Wealth Management are going to see manifold growth as market penetration increases.
  • The company is well poised to reap the rewards of compartmentalization and operating efficiencies going ahead in both the Asset and the Wealth Management business.

Consensus Estimates (Source: market screener website): 

  • The closing price of IIFL Wealth was ₹1,100/- as of 20-May-2021.  It traded at 23x/ 19x the consensus EPS estimate of ₹ 48/ ₹ 59 for FY22E/23E respectively.
  • The consensus price target is ₹ 1360/- which trades at 23x the EPS estimate for FY23E of ₹ 59/-. 

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.”

Rural demand is still strong, vehicle availability an issue – M&MFIN

Update on the Indian Equity Market:

 

On Thursday, Nifty closed 0.2% higher at 14,895. Within NIFTY50, JSWSTEEL (+9.6%), TATASTEEL(+6.6%), and BAJAJFINSV(+6.5%) were top gainers, while HEROMOTOCO (-2.4%),EICHERMOT(-2.3%), and BAJAJ-AUTO(-1.8%) were the top losing stocks. Among the sectoral indices, METAL (+4.5%), PHARMA (+0.3%), and FINANCIAL SERVICES 25/50 (+0.2%) were the highest gainers, while PSU BANK (-1.1%), AUTO (-1.0%), and FMCG (-0.4%) were the top losers.

 

Rural demand is still strong, vehicle availability an issue – M&MFIN

 

Excerpts of an interview with Mr. Ramesh Iyer, MD&Vice Chairman, M&M Financial (M&MFIN), aired on CNBC-TV18 on 26th April 2021:

  • M&MFIN represents the rural and semi-urban vehicle markets. Non-availability of vehicles has led to a lower growth in disbursements for M&MFIN.
  • MHCVswere a growth story for M&MFIN earlier and this segment has also been under pressure leading to lower growth.
  • Collections are good while disbursements are slower, again contributing to a slower growth on the balance sheet.
  • Iyer expects 2HFY22E to be strong once the availability of vehicles is smoothened. The demand in rural India is still strong.
  • Iyer thinks that they have sufficient provisioning for current book. As the 2nd Covid-19 wave is spreading to the rural areas unlike the 1st wave, M&MFIN will take a very cautious approach in 1HFY22E.
  • M&MFIN had GNPA of about 9% in 4QFY21. The seasonality of agriculture means that there is a tendency for GNPAs to go up in the 1st half of the financial year, even without Covid disruption. So 1HFY22E will be the correct period to watch out for in terms of asset quality trends.
  • Iyer is positive on the agri cash flow on back of good monsoon forecast. Infra projects were ready to start which have again faced disruption due to the second wave of covid-19. But as those projects also start post monsoon, the asset growth should be back in 2HFY22E.
  • Industry players are seeing customers wanting smaller EMIs and extended period- i.e. restructuring, which again seems necessary from customer perspective. Regulators’ decision on the same remains to be seen.

Asset Multiplier Comments

  • Several states have imposed lockdowns or restrictions to curb the rising Covid-19 cases. Vehicle demand could see further slowdown due to restricted public mobility, leading to slower disbursements for vehicle financiers.
  • Several banks as well as NBFCs that have reported 4QFY21 results have commented that current provisioning seems adequate. But the situation is still developing and any stress in the loan book will only be visible by the end of 1QFY22E.

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

  • The closing price of M&MFIN was ₹ 165 as of 29-April-2021. It traded at 1.3x/ 1.1x the consensus BVPS estimate of ₹ 131/145 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 186/- implies a PE multiple of 1.3x on FY23E BVPS of ₹145/-.

 

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.”

 

Expect more stability hereon: Indiabulls Housing Finance

Update on Indian Equity Market:

Markets started the first week of FY22E on a negative note as Nifty closed the day 230 points lower at 14,638. The fresh restrictions amid rising COID-19 cases might be the reason behind the move. Within the index, HCL TECH (3.2%), TCS (2.4%),and WIPRO (2.3%) were few of the gainers while BAJFINANCE (-5.7%), INDUSINDBK (-5.5%), and SBIN (-4.5%) led the losers. Among the sectoral indices, only IT (2.0%) and METAL (0.9%) led the winners while PSU BANK (-4.1%), BANK (-3.5%), and PVT BANK (-3.4%) led the losers. 

Excerpts of an interview with Mr. Gagan Banga, Vice-chairman & MD, Indiabulls Housing Finance (IBULHSGFIN) with CNBC -TV18 dated 1st April 2021:

  • CRISIL has upgraded the rating outlook for IBULHSGFIN. This is the first rating upgrade for the company in two years. The asset-light model is now stabilized and is now starting to scale up. The ample amount of liquidity buffers created by the company is appreciated by CRISIL.
  • He said that the macro picture in the country is improving and favorable. Home sales continued to inch up through the month of March-21. The current month (April) is looking much better compared to last year. The company expects more stability from hereon.
  • There is a lot of work to be done on the collections front. The company is very careful about improving the collection efficiency of the company.
  • IBULHSGFIN has raised a total of Rs 210bn capital through shareholders. The company continues to operate by investing in a corporate governance framework. 
  • Some of the borrowers are paying ahead of the schedule. The company is also witnessing pick-up in sales in all realty markets including Delhi, NCR, Bengaluru, Hyderabad, etc.

Asset Multiplier Comments:

  • Post IL&FS era, the rating upgrade is the first relief for the company in two years. This highlights the recovery of the quality of fundamentals aided by the asset-light model and may aid in building confidence in investors. The recent capital raising also highlights the same.
  • The focus on improving collection efficiency will lead to a reduction in gross stage 2 & 3 assets in the coming months for the company. This will improve the quality of the loan book. 

Consensus Estimates (Source: market screener):

  • The closing price of IBULHSGFIN was ₹ 194/- as of 5-April-2021.  It traded at 0.47x/ 0.48x the consensus Book Value estimate of ₹ 412/ 407 for FY22E/23E respectively.
  • The consensus price target is ₹ 155/- which trades at 0.38x the BV estimate for FY23E of ₹ 407/-

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.”

 

Disbursement growth will be higher than AUM growth– CHOLAFIN

Update on the Indian Equity Market:

 

On Monday, Nifty closed 0.1% higher at 14,956. Within NIFTY50, UPL (+7.1%), GAIL (+4.3%), and LT (+3.4%) were the top gainers, while INDUSINDBK (-2.2%), SHREECEM (-2.2%), and BAJFINANCE (-2.1%) were the top losing stocks. Among the sectoral indices, PSU BANK (+1.6%), MEDIA (+1.0%), and METAL (+0.8%) were the top gainers while REALTY (-1.1%), FMCG (-0.5%), and FINANCIAL SERVICES (-0.4%) were the top losers.

 

Disbursement growth will be higher than AUM growth– CHOLAFIN

 

Excerpts of an interview with Mr. D Arul Selvan, Executive VP and CFO, Cholamandalam Investment and Finance (CHOLAFIN), aired on CNBC-TV18 on 4th March 2021:

  • Commercial Vehicles (CV) replacement has been delayed by about 2 years now due to a series of factors such as axle load norms, BS6 implementation, and covid-19 impact. Mr. Selvan expects the replacement demand to kick in as CVs have to be replaced sooner or later. February 2021 itself saw good growth across CV segments.
  • Disbursements will have good growth in FY22E, but the AUM growth will not be the same. During the moratorium period, disbursements dropped but AUM was not impacted in the absence of repayments. Now as repayments also happen, disbursement growth will be higher while the AUM growth will be lower.
  • CHOLAFIN is adequately provided and won’t see higher credit costs. The collections are also improving. February as a 28-day month generally has lower absolute collections. However, collections in February 2021 have been marginally higher than January 2021.
  • Selvan is seeing that the earning potential of customers is improving and they are now able to service loans comfortably.
  • CHOLAFIN’s 4QFY21E RoE should be significantly better than FY20 reported numbers and directionally, the RoE would now improve.
  • Mr Selvan expects that the NIMs will be stable. NIMs could have marginally improved but CHOLAFIN is now scaling up on M&HCV segment which has lower NIMs. M&HCV lending business has a lower yield but it is compensated by much lower operating expenses and lower loan losses.

 

Asset Multiplier Comments:

  • CV cycle recovery has been a matter of debate between industry players for some time now. Some companies seem to be banking on the hope that CV recovery is here, while some players think we are still some time away from the upcycle.
  • Lenders across board have been witnessing improvement in collection efficiency. This is attributable to opening up of the economy post lockdown.

 

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

  • The closing price of CHOLAFIN was ₹ 537 as of 8-March-2021. It traded at 4.5x/ 3.8x/ 3.1x the consensus BVPS estimate of ₹ 119/142/171 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 444/- implies a PB multiple of 2.6 on FY23E BVPS of ₹171/-.

 

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.”

Bigger demand in financing younger vehicles – Shriram Transport Finance

Update on Indian Equity Market:

The Budget 2021 induced rally which started on Monday continued as Nifty50 closed the day 142 points higher at 14,790. The rally was led by PHARMA (2.8%) along with PSU BANK (2.6%) and PVT BANK (1.7%) continued its upward journey while REALTY (-0.4%) and FMCG (-0.1%) were the only sectors that closed in the red. Within the index, INDUSINDBK (7.3%), POWERGRID (6.0%) and DIVISLAB (4.7%) were the biggest gainers whereas SHREECEM (-1.6%), UPL (-1.5%), and ULTRACEMCO (-1.0%) were the biggest losers.

Excerpts of an interview with Mr. Umesh Revankar, Managing Director- Shriram Transport Finance Company Ltd (SRTRANSFIN) with CNBC TV18 dated 2nd February 2021:

  • Mr. Revankar believes that the announcement of a voluntary vehicle scrappage policy is a positive development for the auto and allied industry. The development will increase the demand especially for financing of 3 to 10-year-old vehicles.
  • The existing loan book of the company is not impacted by the introduction of the policy. The company normally lends for a maximum of 12-13 years. However, he expects people to buy younger vehicles between 3-10 years and there will be a big demand in that space.
  • He mentioned that the company is able to raise money at low costs for a longer tenure. This is expected to reduce the overall cost of funds and eventually improve NIMs (Net Interest Margins). He is confident of breaching 7 percent in NIMs.
  • The company may do much lower than what had been planned for restructuring. As a result, the restructuring portfolio will be much smaller.
  • The credit cost as of December-2020 was at 2.59 percent which is expected to be sustainable in the next few quarters. The company is aiming to go back to 2 percent by the end of FY22E.

Consensus Estimate: (Source: market screener website)
•The closing price of SRTRANSFIN was ₹ 1,464/- as of 3-February-2021. It traded at 1.7x/ 1.5x/ 1.3x the consensus book value estimate of ₹ 854/ 970/ 1,093 for FY21E/FY22E/23E respectively.
• The Consensus price target of SRTRANSFIN  of  ₹ 1,393/- implies a 1.3x PB multiple on FY23E book value estimate of ₹1,093/-.

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.”

Used data analytics to gain rural market share – L&T Finance

Update on the Indian Equity Market:

 

On Wednesday, Nifty closed 0.9% higher at 14,645. Within NIFTY50, TATAMOTORS (+6.1%), ADANIPORTS (+4.4%), and WIPRO (+3.4%) were the top gainers, while POWERGRID (-2.1%), SHREECEM (-1.8%), and NTPC (-1.6%) were the top losing stocks. Among the sectoral indices, AUTO (+2.3%), IT (+2.2%), and PSU BANK (+2.1%) were the top gainers while FMCG (-0.2%) was the only losing sector.

 

Used data analytics to gain rural market share – L&T Finance

 

Excerpts of an interview with Mr Dinanath Dubhashi, MD & CEO, L&T Finance (L&TFH), aired on CNBC-TV18 on 18th January 2021:

  • L&TFH reported 10% YoY PAT growth in 3QFY21 on the back of good disbursements, good fees, good performance on liquidity and cost of funds, and maintaining asset quality.
  • The industry has seen an uptick in demand from rural India. This is due to a combination of structural as well as seasonal factors. The general wellbeing of farmers due to several government schemes has led to higher discretionary spending ability. Seasonal factors including good rainfall for 3 years, good reservoir levels, excellent Kharif prices, and rabi sowing higher YoY have all contributed to rural demand.
  • L&TFH has used data analytics to benefit from the rural demand surge. It has helped L&TFH to gain market share till 2QFY21 and maintain it in 3QFY21. 
  • In 3QFY21, L&TFH had all-time high disbursements in tractors and 2-wheelers.
  • GNPA has marginally moderated to 5.12% in 3QFY21 vs 5.19% in 2QFY21. NNPA increased to 1.9% in 3QFY21 from 1.6% in 2QFY21.
  • Collection efficiency is better than pre-Covid levels for the farm segment, back to the pre-Covid level for the 2-wheeler segment, good collections are happening even in the wholesale businesses.
  • On provisions, the worry has not ended but new worries are not coming in either. L&TFH has not created more provisions on Stage 1 & 2 assets in 3QFY21.  In 3QFY21, L&TFH has provided Rs 1,440 mn for an HFC exposure to the extent of the entire gap between existing provisions and expected resolution money. 
  • L&TFH is still very much RoE focused, but this year is not the one to be overly concerned about RoE. This year is about remaining liquid, solvent, maintaining excellent asset quality, and maintaining market position.

 

Consensus Estimate (Source: market screener website)

  • The closing price of L&TFH was ₹ 104.2 as of 20-January-2021. It traded at 1.3x/ 1.2x/ 1.1x the consensus BVPS estimate of ₹ 77.7 /85.9 /97.6 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 103.8/- implies a PE multiple of 1.1x on FY23E BVPS of ₹ 97.6/-.

 

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.”

The auto industry will be back in full form in FY22E – Chola Finance

Update on Indian equity market:
Markets bounced back to erase Monday’s steep loss as Nifty closed the day 138 points higher at 13,466. Within the index, ADANIPORTS (5.6%), HCLTECH (5.4%) and TECHM (4.1%) led the index higher while KOTAKBANK (-1.0%), HDFC (-0.7%) and BAJFINANCE (-0.6%) were the highest losers. All the sectoral indices closed the day in green led by IT (3.4%), PHARMA (2.2%), and METAL (1.4%).
Excerpts of an interview with Mr. Arulselvan D., Executive Vice-President & CFO, Cholamandalam Investment & Finance Company (Chola finance) published on CNBC-TV18 dated 21st December 2020:
The impact of COVID-19 impact is behind now. The disbursements, collections, and profitability is expected to reach the pre-pandemic level in one or two quarters.
Demand in the auto segment surged ahead of the festive season. The auto industry will be back in full form in FY22E. The company will look to catch up with lost business during the COVID period in FY22E.
Post moratorium, there are certain segments that are not out of its COVID-19 pressure like the school bus segment, employee transport buses, and to some extent heavy commercial vehicles.
The company is witnessing improvement in the collection on a month-on-month basis and good traction from moratorium customers.
The rural segment especially is doing well because of good monsoon. More than 85% of the company’s branches are in the rural area and the company is confident of growth in the rural parts of the country.
Net interest margin will show a slight improvement from hereon. The cost of funds has reduced further with improvement in yields.
Consensus Estimate: (Source: market screener website)
The closing price of Chola finance was ₹ 360/- as of 21-Dec-2020. It traded at 3.1x/ 2.7x/ 2.3x the consensus Book Value estimate of ₹ 116/ 135/ 160 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 380/- implies a P/B multiple of 2.4x on FY23E BV of ₹ 160.
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.”