Can Fin Homes (CANF): 1QFY20 Strong growth outside Metros

Dated: 24th July 2019


  • Reported NII grew 17% YoY (+7% QoQ) for 1QFY20 to Rs 1,479 mn. Reported NIMs were at 3.18% showing an increase of 40 bps QoQ.
  • In 1QFY20, PPOP grew by 15% YoY (+12% QoQ) to Rs 1,316 mn. Reported PAT grew 8% YoY (+21% QoQ) at Rs 810 mn.
  • Loan book grew 17% YoY on the back of disbursements growth of 10% YoY.
  • Asset quality deteriorated sequentially in 1QFY20. GNPAs and NNPAs were at 0.73% and 0.52% respectively in 1QFY20 compared to 0.62% and 0.43% respectively in 4QFY19.

Management commentary:

  • The company expects to bring NPAs down to March 19 levels by 2QFY20.
  • During the quarter, the company made NPA provisions of Rs 67.5 mn and standard asset provisions of Rs 19.1 mn.
  • In Karnataka, AUM growth was 7%, while ex-Karnataka AUM growth was 22%. Overall, southern region grew 15% and non-south regions reported 20% growth.
  • Growth in Metro cities is ~11% while non-metro growth is ~30%.
  • The company expects to benefit from the new affordable housing projects coming up on the outskirts of Bangalore. Can Fin will be focusing on tier 2-3 cities.
  • Management is hopeful of achieving loan book of Rs 23,000 mn by end of FY20

Consensus Estimate (Source: Market screener website)

  • The stock price was Rs 390/- as of close price of 24th July 2019 and traded at 2.5x/ 2.1x the consensus book value for FY20E / 21E of Rs 158 / 186 respectively. 
  • Consensus target price is Rs 431/- implying P/B of 2.3x for FY21E book value of Rs 186.


NII- Net interest income

NIM- Net interest margins

PPOP- Pre-provision profits

NPA- Non-performing assets

AUM- Assets under management

HDFC Bank (HDFCBANK IN): Stable performance but higher provisions are worrisome

Dated: 22nd July 2019

1QFY20 Results

  • Net Interest Income (NII) increased 23% YoY to Rs 1,32,943 mn. The NII margins improved by 21 bps YoY to 4.4%.
  • Operating Profit before Provisions and Contingencies (PPOP) increased by 29% YoY to Rs 1,11,472 mn. The provisions other than tax increased 60% YoY to Rs 26,137 mn which included specific loan loss provisions of Rs 24,135 mn (+69% YoY).
  • Reported PAT grew by 21% YoY to Rs 55,682 mn.
  • The advances grew by 17% YoY to Rs 82,97,298 mn driven by 20% YoY growth in the corporate & other loans to Rs 38,16,757 mn. The retail loans increased by 15% YoY to Rs 44,80,541 mn. The domestic loan mix between retail: wholesale stood at 54:46.
  • The asset quality as of 30th June 2019 deteriorated with GNPAs at 1.4% (v/s 1.36% as of 31st March 2019) and NNPAs at 0.43% (v/s 0.39% as of 31st March 2019).
  • HDFC Bank reported 18% YoY growth in deposits with 13% YoY growth in CASA to Rs 37,90,010 mn and 23% YoY growth in term deposits to Rs 57,55,530 mn.

Management Commentary

  • The Capital Adequacy ratio as of 30th June 2019 stood at ~16.9%; as against the regulatory requirement of ~11%.
  • Total provisions (comprising specific provisions, general provisions and floating provisions) were ~115% of the gross NPAs as of 30th June 2019 v/s 117% as of 31st March 2019. The Bank held floating provisions of Rs 14,510 mn as of 30th June 2019.
  • GNPAs ex-Agri stood at 1.17% as of 30th June 2019 v/s 1.09% as of 30th June 2018.
  • The Board of Directors has declared a special interim dividend of Rs 5 per equity share of Rs 2 to commemorate 25 years of the Bank’s operations.

Consensus Estimate (Source: market screener website)

  • The closing price of HDFC Bank is Rs 2,303/- on 22-Jul-19. It traded at 3.5x / 3.1x the consensus book value for FY20E /21E of Rs 650/ 751 respectively.
  • Consensus target price of Rs 2,717/- implies a P/B of 3.6 x on the FY21E book value of Rs 751/-.

Indian markets especially small and mid-cap stocks have fared poorly in the last 12 months. Decline gathered pace in the past two weeks making investors jittery. Here is a collection of thoughts on weak markets from prominent investors.

Dated: 21st July 2019

“A down market lets you buy more shares in great companies at favourable prices. If you know what you are doing, you’ll make most of your money from these periods. You just won’t realise it till much later.” Shelby Davis
“Christopher Davis’s grandfather used to say that you make the most money out of a bear market financial panic – you just don’t know it at the time. It’s always the case.” Li Lu
“We see the latest correction not as a disaster, but as an opportunity to acquire more shares at low prices. This is how great fortunes are made over time.” Peter Lynch

“Bear markets are great times to load up on stocks.” Ralph Wanger
“It’s not during up years that great investment track records are made!” Charles De Vaulx
“Down cycles are not fun. But they form the basis for enormous future profitability.” Steve Schwarzman
“Most investors take comfort from calm, steadily rising markets: roiling markets can drive investor panic. But these conventional reactions are inverted. When all feels calm and prices surge, the markets may feel safe; but, in fact, they are dangerous because few investors are focussing on risk. When one feels in the pit of one’s stomach the fear that accompanies plunging market prices, risk-taking becomes considerably less risky, because the risk is often priced into an asset’s lower valuation.” Seth Klarman
“Ironically, most of the risk to long-term investors in equities comes from panicking in the short-term and closing out positions at temporary low points.” Jeremy Grantham 
“Invest in time of chaos, harvest in times of prosperity.” Jonathon Sokoloff
“The best bargains are always found in frightening environments.” Howard Marks


Rallis: Revamped channel policies and improved price realisation drives performance

Dated: 19th July 2019

1QFY20 Results

  • Rallis reported a 9% YoY increase in consolidated revenues at Rs 6,232 mn. The Standalone revenues of Rs 3,631 mn (+3% YoY) were driven by 12% YoY growth in exports. The seeds business (Metahelix subsidiary) revenues grew by 18% YoY to Rs 2,601 mn.
  • EBITDA margins improved by 70bps YoY to 15.2%. Increase in raw material costs was offset by savings in other expenses. EBITDA was up 14% YoY to Rs 948 mn.
  • The Effective tax rate for 1QFY20 was lower at 22% v/s 28% in 1QFY19. The Consolidated PAT grew by 24% YoY to Rs 678 mn v/s Rs 547 mn in 1QFY19.  

Management Commentary

  • Despite the delayed monsoon and impacted sowings; the revamped channel policies and improved price realisation led to a satisfactory performance both the agrochemicals and seeds segment in the domestic market.
  • International Crop Protection chemical business at Rs 1,416 mn grew by 12% YoY and contributed 39% of the standalone revenues.
  • The effective tax rate was lower during the quarter due to the classification of a part of the business as agriculture income for taxation purpose.
  • Other expenses declined due to the pushover of the product launch expenses into 2QFY20.
  • The Capex plans for FY20E stand at ~Rs 2,000 mn including backward integration for 2 of the molecules.
  • The Board of Directors of the Company had approved the Scheme of Amalgamation of Metahelix life Sciences Limited (a wholly-owned subsidiary) with the Company.

Consensus Estimate (Source: market screener website)

  • The closing price of Rallis is Rs 154/- on 19-Jul-19. It traded at 16x / 13x the consensus EPS for FY 20E / FY 21E EPS of Rs 9.6 / 11.5 respectively.
  • Consensus target price of Rs 180/- implies a PE of 16x on FY21E EPS of Rs 11.5.

Yes Bank 1QFY20 result highlights: Return to Profitability, Asset Quality worsens.

Dated: 18th July 2019

• Yes Bank reported a 10% YoY growth in Advances. Advances declined by 2% sequentially over 4QFY19. Share of retail advances increased to 18% in 1QFY20 from 14% in 1QFY19.
• NII was reported at Rs 22,809 mn, 3% higher YoY and 9% lower QoQ. NII was lower by Rs 2,230 mn on account of interest reversals on slippages.
• Pre-provision operating profits were 20% lower YoY but improved by 48% QoQ. The sequential improvement was due to lower operating cost-to-income ratio and Rs 6,561 mn of treasury gains. 
• Yes Bank made provisions of Rs 17,841 mn in 1QFY19. Provisions included Rs 11,100 mn of MTM provisions on investments due to ratings downgrade. 
• Yes Bank returned to profitability with Net Profit of Rs 1,138 after a loss of 15,066 mn in 4QFY19. 
• Asset Quality worsened sequentially to GNPAs and NNPAs of 5.01% and 2.91% respectively in 1QFY19 from 3.22% and 1.86% respectively in 4QFY19. The share of sub-investment (BB and below) grade book in total advances increased to 9.4% from 7.1% in 4QFY19 due to exposure to 2 large financial players.

Conference Call highlights:
• Management expects to raise capital in 2QFY20. 
• Management maintained their Credit Cost guidance for FY20 at 125 bps. This is excluding MTM provisions on investments that may be required. 
• Yes Bank’s CET1 (Common Equity Tier 1) ratio has depleted to 8.0% by the end of 1QFY19 from 8.5% in the previous quarter. The CET1 ratio of 8% is the minimum regulatory requirement to be maintained by 31st March 2020. 
• Management said the sub-investment grade book has bottomed out and they expect material reductions in the book due to resolutions.
• According to the management, this was a quarter of consolidation and they expect to regain momentum from this point.

Axis Bank: Banks aren’t out of the woods yet, but closer to the tail

Dated: 17th July 2019

Interview with Mr Pralay Mondal (the head of retail banking at Axis Bank from ET NOW dated 17th July 2019)

Interview highlights:
 The banking industry is in a perennial clean-up cycle and we are in the midst of an NBFC and real estate crisis. The NBFC model does not work; they cannot compete with banks on pricing. Banks are coming out of a very poor NPA cycle, but according to him, it is not out of the woods yet 
 The good news is that the clean-up is visible, we know what the issues are, it can get worse, but you have a fair understanding of the situation. The bad news is that globally, there are a lot of challenges — the US is not looking very well, we are caught amid trade wars and India is not immune to this. 
 The auto consumption is down, auto dealers are in shambles. There is clear demand destruction happening there. The consumption economy is not doing so well, there is a clear impact on mortgages. 
 The discretionary part, which is the personal loans, credit cards and unsecured loans where we don’t have a full understanding of the end-use, which is growing at a very rapid pace. 
 One segment says that the credit-GDP penetration is very low, so we have big opportunities at the bottom of the pyramid segment. If you look at companies like Titan, HUL, ITC, Hero Honda, consumption is not taking off, so we need to understand that bank is a surrogate of all of this. 
 If the quality of NBFC portfolios being sold is good then the good portfolio is moving. Some of that will play out eventually, but it may not hit the banks hard.

Consensus estimates: (source market screener website)
 The stock price is Rs 754/- as of close price of 17th July 2019. It trades at 2.5x/ 2.2x/ 1.8x the consensus book value for FY20E/ FY21E/ FY22E of Rs 303/ 346/ 419 respectively.
 The consensus price target is Rs 851/- valued at 2.5x FY21E book value of Rs 346/-.

Disruption in builder loans won’t impact Repco Home Finance

Dated: 16th July 2019

Following are the excerpts from the interview given by Mr Yashpal Gupta, MD & CEO of Repco Home Finance published in Livemint.
· Mr Yashpal Gupta mentioned that the stoppage of disbursals to builders as predicted in a broker report will not affect the company. The company’s home loans are mostly given out for self-reconstructed houses.
· Out of the total outstanding loan book, the company has only 10-15% exposure to builder loans. The average ticket size of housing loans is about Rs 15 lakh. So even if there is a delay, the borrowers generally continue to pay from their own pocket. Most of the loans in the form of self-constructed houses are in tier II, III and IV cities.
· According to him, the banks and Housing Finance Companies (HFC) which constitute a large percentage of loans to the builder loans may get affected because of this development.
· The majority of the loan book is in Tamil Nadu. Since the last couple of years, the state is facing problems related to sand mining issue and the problem of land registration. During 1Q CY19, the state faced a water shortage in some areas due to rain shortfall.
· There are several aspects within affordable housing such as subsidy under PMAY (Pradhan Mantri Awas Yojana) scheme, affordable housing in terms of tax benefits up to Rs 45 lakhs and the builder constructing the affordable housing projects. The industry is facing the issues as the builder constructed affordable housing projects are at far places like distance of 50 to 60 km from major cities. People are not very keen on buying properties in those places creating a demand shortfall in the market for available properties.
Consensus Estimate (Source: market screener website)
· The closing price of Repco was Rs 366/- as of 16th July 2019. It trades at a price to Book Value (P/BV) multiple of 1.3x/1.1x the consensus Book Value estimates for FY20/21E of Rs 283/320 respectively. 
· Consensus target price of Rs 477/- implies a P/BV of 1.5x on EPS of Rs 320 for the year ending Mar-21E.

Infosys (INFY IN): Constant currency growth rate pick-up in 1QFY20, management ups revenue guidance for FY20

1QFY20 Results

Dated: 15th July 2019

Infosys (INFY) reported 10.6% YoY revenue growth in USD terms; highest in last 10 quarters, to USD 3,131 mn in 1QFY20. The digital business revenues (36% of the total company revenues) increased by 39% YoY to USD 1,119 mn while core business revenues declined by 0.8% YoY to USD 2,012 mn. 
• The revenues in INR terms increased by 14% YoY to Rs 2,15,390 mn. Appreciation of INR v/s USD impacted the revenue growth during the period.
• Depreciation increased by 56% YoY to Rs 6,810 mn (v/s Rs 4,360 mn in 1QFY19) and financial interest stood at Rs 400mn on account of the adoption of IFRS 16-Leases effective April 1, 2019.
• The operating margins declined by ~320 bps YoY to 20.5%. Consolidated PAT grew by 5% YoY to Rs 37,980 mn

Management Commentary

• The management has raised the revenue growth guidance for FY20E from 7.5%-9.5% to 8.5%-10% YoY. It maintained operating margins guidance of 21%-23% for FY20 v/s 22.8% in FY19.
• INFY has till date bought back shares worth Rs 59.34 bn of its previously announced share buyback of Rs 82.60 bn. 
• INFY revised Capital Allocation Policy of the Company after taking into consideration the strategic and operational cash requirements. It increased the pay-out from 70% of Free Cash Flow (FCF) to ~85% of FCF cumulatively for over a 5-year period through a combination of semi-annual dividends/share buyback / special dividends.

Consensus Estimate (Source: market screener website)

• The closing price of INFY was Rs 727/- on 15-Jul-19. It traded at 19.0x / 17.0x the consensus EPS for FY 20E / FY 21E EPS of Rs 38.2 / 42.7 respectively. 
• Consensus target price of Rs 792/- implies a PE of 18.5x on FY21E EPS of Rs 42.7.

IndusInd Bank 1QFY20 Result Update:

Dated: 15th July 2019

Consolidated Quarterly performance highlights:
1) Net Interest Income (NII) for the quarter grew 34% YoY at Rs. 28,440 mn. The Net Interest margins (NIMs) stood at 4.05% as against 3.92% in 1QFY19.
2) Fee income grew 28% YoY at Rs 16,630 mn, led by 47% YoY growth in the loan processing fees.
3) Provision for the quarter was Rs 4,310 mn where the credit cost stood at 3,040 mn and other provisions including the standard provisions stood at Rs1,260 mn.
4) Net profit for the quarter grew by 38% at Rs 14,330 mn.
5) Loan book grew by 28% YoY whereas the deposit growth for the quarter stood at 26% YoY led by CASA growth of 25% YoY. CASA (Current Accounts- Savings Accounts) ratio stands at 43%.
6) GNPA & NNPA for the quarter stood at 2.15% & 1.23% respectively. The provision coverage ratio for the bank stood at 43%.
7) The annualised ROE stood at 18.45% vs 5.46% in 4QFY19. 
8) IndusInd bank standalone performance {excluding Bharat Financial Inclusion Ltd (BFIL)}: NII grew by 14% YoY, Fees income grew 23% YoY, and operating profit growth has shown a 17% YoY growth while the Net Profit stood at Rs 12,200 mn, a growth of 18% YoY. IndusInd standalone loan book grew by 26% YoY for the quarter at Rs 18,99,620 mn.
Key Highlights of the Concall:
a) The IndusInd bank has guided for a loan book growth of mid-20% in the medium term.
b) They expect the credit cost to be in the range of 55-65 bps for FY20E.
c) The bank targets to gain market share in vehicle financing from the NBFCs. They expect the slowdown in the auto industry to continue in 2QFY20E. They see some recovery in the auto sector during the festive season this year.
d) IndusInd Bank has made an adequate provision for IL&FS exposure according to the management. Bank’s funded and non-funded exposure to the group is 1.67% of the loan book net of provisions held. 
e) Liabilities of BFIL have not fully transferred and will take another 6-9 month to get reflected. The IndusInd bank expects the AUMs to grow at 35% YoY. BFIL disbursement has seen a slowdown in Orissa & West Bengal region. This slowdown is expected to continue for a few more months.
Consensus estimates: (source market screener website)
• The stock price is Rs 1,485/- as of close price of 15th July 2019. It trades at 2.8x/ 2.4x/ 2.0x the consensus book value for FY20E/ FY21E/ FY22E of Rs 523/ 626/ 741 respectively.
• The consensus price target is Rs 1,851/- valued at 3.0x FY21E book value of Rs 626/-.

The inseparable pair of skills

Dated: 14th July 2019

Morgan Housel reminds us that Investing skills are important, but they have to be paired with personal finance skills to be sustainable.

Housel is surprised how many good investors he knows with terrible personal finance habits. Maybe he shouldn’t – they are completely different skills. The ability to uncover an undervalued investment is not associated with your propensity to avoid lifestyle bloat. The irony is that people who will move mountains to gain a few basis points of return bleed ten times that amount on personal spending that all science says adds little to their net life happiness.

But investing and personal finance rely on each other because few industries are as cyclical as investing and as Charlie Munger says, “The first rule of compounding is to never interrupt it unnecessarily.” Compounding works only to the extent that your lifestyle doesn’t force you to sell investments at inopportune times to fund your lifestyle. Someone earning average but uninterrupted returns may be better off than someone outperforming by 50 basis points a year yet forced to liquidate a portion during every bear market to pay off lenders.

Investment returns have a lot of potentials to make you rich and achieve your goals. But whether a strategy will work, and how long it will work for, and whether markets will cooperate, is always a question. Personal savings and frugality – finance’s conservation and efficiency – are parts of the money equation that are largely in your control and have a 100% chance at being as effective in the future as they are today. So which should you pay more attention to?

This is not about living like a monk, hampered by frugality. It holds true at every level of wealth and spending. Housel concludes that the idea that reducing your needs has the same impact as increasing your income – but the former is more certain and in your control than the latter, so it has a higher expected value – is as true for someone spending Rs15,000 a year as it is someone spending Rs15 lakhs per year.