Tag - bank

15 Mar

Focus on next stage of digital transformation – HDFC Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY50 ended in its 5 day winning streak and closed at 16,663 (-1.2%). Among the sectoral indices, AUTO (+0.6%), and FMCG (+0.2%) were the only gainers while METAL (-4.1%), IT (-2.6%), and OIL & GAS (-2.5%) were the top sectoral indices that closed in the red. Among the NIFTY50 stocks, TATACONSUM (+3.7%), M&M (+2.4%), and CIPLA (+2.0%) led the gainers while TATASTEEL (-5.2%), HINDALCO (-5.2%), and ONGC (-4.9%) led the losers.

Excerpts of an interview with Mr. Parag Rao, Country Head, HDFC Bank published in Economic Times on 14th March 2022:

  • The bank did face a couple of outages and it impacted the customers. The regulator took notice of this and conveyed that it has no issues with the bank’s growth plans and strategic direction in which the bank is going, but it would like it if the bank reconsiders its investments in infrastructure so that it can sustain this growth.
  • The bank in the interim was not allowed to do two things. One was the credit card ban; it could not issue new credit cards to customers and at the same time, all the new digital initiatives which the bank was planning to launch were put on temporary hold till such time the bank strengthened and demonstrated the capability to manage this kind of growth.
  • The bank’s new motto is technology become the driver and magnet to get business for the bank and that is how it has started the transformation. In this context, the first embargo on the issuance of credit cards was lifted in August-21. Since then, the bank has gotten back to its regular run rates and rapid growth plans on its credit card base.
  • HDFC Bank is a very large bank. It has commitments and responsibility to a very large customer franchise and in that sense, this pause in its growth was for a very good cause and it is now far better prepared for the next five years.
  • The bank’s strategy can be broken up into three core parts; one is reimagining the entire customer experience and building new digital platforms which would take the customer experience that much far into the future. The context has already been set over the last five to seven years with the emergence and explosion of the digital wave.
  • This digital wave has brought about significant changes in the way customers would interact with their principles, banks, and various other categories practically in every industry and so there was a different need for customers in this whole digital world.
  • All of this has expanded the kind of needs and demands that the customer expects from the institution. So reimagining customer experience and building completely new digital platforms to enhance customer value is one leg of the bank’s strategy.
  • One immediate change over the next couple of months will be the relaunch of PayZapp 2.0 on a completely new platform. The Bank aims is to be among the top three payment apps in the country and a significant ramp-up for PayZapp not just by how it engages and provides the services of holistic payments to its existing set of 60 million customers.
  • The Bank’s planned investments into technology are expected to double over the next 3 years as compared to the past 3 years. The bank is focused on expanding its digital infrastructure by bringing new and skilled talent to lead the transformation.

Asset Multiplier Comments

  • After 16 months of restrictions imposed by the RBI, HDFC Bank is all set to leverage its investments in technology to fuel the next stage of growth in customers by expanding its omnichannel presence.
  • While HDFC Bank is a leader in a lot of parameters in the banking sector, it requires significant catch-up to its peers like ICICI Bank and SBI who have already ahead of the curve when it comes to customer acquisition and tech-based infrastructure development.

Consensus Estimate: (Source: Marketscreener website)

  • The closing price of HDFC Bank was ₹ 1424 /- as of 15-March-2022. It traded at 2.7x/ 2.4x the consensus Book Value per share estimate of ₹ 520/600 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1970/- implies a P/B multiple of 3.3x on FY24E BVPS estimate of ₹ 600/-

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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07 Sep

Bank to see a greater expansion in rural areas – HDFC bank

Update on the Indian Equity Market:

On Tuesday, NIFTY ended lower at 17,362 (-0.1%) as it closed 40 points below the opening level of 17,402. Among the sectoral indices, CONSUMER DURABLES (+1.0%), FMCG (+0.3%), and FINANCIAL SERVICES (+0.2%) ended higher, whereas REALTY (-2.3%), IT (-1.3%), and PSU BANK (-1.3%) ended lower. Among the stocks, BHARTIARTL (+2.6%), HDFC (+2.5%), and GRASIM (+1.6%) led the gainers while SUNPHARMA (-2.2%), BPCL (-1.8%), and HINDALCO (-1.8%) led the losers.

Excerpts of an interview with Mr. Rahul Shukla, Group Head, Commercial & Rural Banking, of HDFC Bank (HDFCBANK) with Economic Times on 6th September 2021:

  • The reality is very different from what is spoken about in TV newsrooms. The commercial vehicle and construction equipment business is strong, credit utilisation by MSMEs is steadily increasing every month, the healthcare sector is fairly credit-strong.
  • The bank continues to expand its geographic footprint, extending credit in rural and semi-urban areas of the country, and sees no credit challenges in finding new business.
  • The bank is active in transportation finance, where it finances trucks, construction equipment, and tractors. The disbursements in July were 40% higher than in June, and in August, were 20-25% higher than in July.
  • The bank operates in 100,000 villages and in two years, it may expand to 200,000 villages. Even if it’s a huge jump, it is still only 30% of the market. The bank has a robust digital platform which has helped it to add new customers.
  • Rural lending today is about 90% crop-based lending. Crop-based lending is largely related to the price of dal and sugarcane. As the ecosystem is completely changing, there is a lot of push in vegetables, fruits, poultry, piggery, etc. which accounts for 60-65% of the crop-based lending.

Asset Multiplier Comments

  • Banks were willing to lend to the rural population during the 1st covid wave period as they were not as much affected as urban areas. The rural population was largely affected during the 2nd covid wave, and it is still recovering from the impact. Therefore, the dynamics related to lending may be different going forward.
  • HDFC Bank has seen a reduction in interest expenses and other operating expenses over the last 5 years. This trend is likely to continue in the upcoming years as the bank continues to manage its deposits and borrowings well. With reducing provisions led by an increase in NPA recoveries, the bank’s increasing geographic footprint, and well-balanced CASA deposits, we expect the bank’s prospects to improve further.

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

  • The closing price of HDFCBANK was ₹ 1,570/- as of 07-Sept-2021. It traded at 3.7x/3.2x/2.7x the consensus book value estimate of ₹ 423/488/574 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,760/- implies a PB multiple of 3.1x on FY24E BVPS of ₹ 574/-.

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

Ambitious to take ROE to 18% – Axis Bank

Update on the Indian Equity Market:

On Tuesday, Nifty 50 closed at a record high of 17,132 (+1.2%), led by BHARTIARTL (+6.7%), BAJFINANCE (+5.1%), and HINDALCO (+4.9%). The top losers were TATAMOTORS (-1.5%), NESTLEIND (-1.2%), and INDUSINDBK (-1.2%). The sectoral gainers were led by METAL (+1.5%), HEALTHCARE (1.4%), and IT (+1.4%). MEDIA (-0.1%) was the only sector that ended in the red.

Excerpts of an interview with Mr. Amitabh Chaudhry, MD & CEO, Axis Bank (AXISBANK) published in The Economic Times on 27th August 2021:

  • There are reasonable indications that the private capex creation has started, but only in some segments at this stage. The private sector capex is robust in segments such as upstream refinery, steel, cement, chemical, pharma, renewable, and storage systems.
  • The government has come up with a scheme inviting investments into the electronics and industrial automation, logistics, and export-oriented industries. The government is also investing in railways, roads, and highways. An accommodative stance by the RBI and the government is helping in the economic revival.
  • A lot of retail customers were supported in the first covid wave through two specific moratoriums and restructuring. This resulted in retail delinquencies not being as high as estimated. During the second wave, there was no moratorium and a lot of customers who availed of the moratorium were adversely impacted by the second wave.
  • For AXISBANK, a lot of the slippages on the retail side were from secured assets and loan-to-value against the secured assets were low. Either the customer repays, or the bank sells the assets. Hence, recovery was never an issue, it was a timing issue.
  • The stimulus led to a system liquidity surplus resulting in lower market borrowing rates. As a result, well-rated corporates are sitting on huge piles of cash and have repaid their borrowings. As a result, the credit growth of the industrial sector is being led by mid-sized corporates and some refinancing.
  • AXISBANK believes there are considerable credit opportunities as the economy starts reviving.
  • The bank is already operating in the zone of 15-16% Return on Equity (ROE). The ambition is to take it to 18%, which is an uphill battle.
  • AXISBANK believes it is very important to scale the subsidiaries further over the next couple of years.
  • Over the past 5 years, the acceleration towards embracing technology with the rapid emergence of fintech and Covid has only hastened the pace. AXISBANK recognised a few years back the need to scale up investments in technology. The technology spend has gone up ~78% in the last 2 years.
  • The entire strategy of AXISBANK on the digital front is around challenging themselves and working in partnerships with fintechs to provide solutions. AXISBANK will expand partnerships with fintechs going forward.
  • There are significant growth opportunities for the next 5-7 years. The Bank is laying the foundation for the future where it can capitalise on business opportunities in every segment.

Asset Multiplier Comments

  • Though slippages could remain elevated in the near term, healthy PCR (Provision Coverage Ratio) protects the Balance Sheet against any potential stress.
  • The bank is positive on economic revival which will lead to credit growth, healthy NIMs eventually helping to achieve the Bank’s target of 18% ROE.
  • With the work-from-anywhere culture and remote decision making, each organisation has realised that technology up-gradation is non-negotiable. AXISBANK has taken a step in the right direction by undertaking technology investments and execution of transformation projects.

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

  • The closing price of AXISBANK was ₹ 738/- as of 31-August-2021. It traded at 2.0x/ 1.8x/ 1.5x the consensus book value estimate of ₹ 370/ 420/ 479 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 871/- implies a PB multiple of 1.8x on FY24E BV of ₹ 479/-.

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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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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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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