Tag - liquidity

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.”

By Axis Bank, Bank , , 0 Comments Read more...
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.”

By SBI , , , , , 0 Comments Read more...
18 Feb

‘Opportunities for growth delivery across segments’- Amitabh Chaudhry, Axis Bank

Update on the Indian Equity Market:

On Monday, Nifty 50 closed marginally lower at 12,046. IT was the only sector that ended marginally in the green. PSU Bank (-3.0%), Realty (-1.5%) and Media (-1.1%) were the top losers. Titan (+1.7%), GAIL (+1.6%) and Nestle (+1.6%) were the top gainers while Yes Bank (-4.0%), Coal India (-3.8%) and ONGC (-3.2%) were the top losers for the day.

‘Opportunities for growth delivery across segments’- Amitabh Chaudhry, Axis Bank

Excerpts of an interview with Amitabh Chaudhry, MD, and CEO, Axis Bank published in Mint on 17th February 2020:

  • The market share of Axis Bank is in the 4.5-5 percent range in deposits and loans. Opportunities are there and growth delivery across all businesses is possible. Although the loan growth has been good, the bank has seen some unexpected stress. Now the stock of overall stress has come down which will hopefully be reflected in the slippages.
  • The bank has been one of the most transparent ones in his view, in terms of disclosing numbers. Barring further shocks, from all the metrics, the future looks good, which they need to demonstrate in the coming quarters.
  • The growth is mainly coming from refinancing activity. No significant new activity has been observed. Hence, he is of the view that economic activity will take some time to pick up.
  • The SME side of the business is the first one to get a hit as the economic activity slows. The average realizations are coming down in a very calibrated way. In some sectors, the exposure has been reduced and some new relationships added.
  • The growth has been good in the retail segment, aided by slower lending by Non-banking financial companies (NBFCs) and the slowdown in consumption. Retail estate and some other asset classes also help in adding to the momentum in retail. In terms of the delinquencies and risk metrics, the bank is at historical lows except for CVC and some parts of MFI business.
  • The retail story is the talk of the day. Everyone is either already into the business or entering it. Either way, the probability of the retail cycle coming is increasing as time passes. The government is also trying to offer relief measures to push consumption, RBI also has a loose monetary policy, thus liquidity is there in the system.
  • Despite the rabi harvest being pretty good, there hasn’t been a significant pickup in tier-2 and tier-3. The slowdown has helped inventory stabilization at a reasonable level but there has not been any pickup in consumption as yet.
  • The government is trying to infuse liquidity to benefit both the real estate and NBFC sectors. Some of the troubled NHBCs today have high exposure to the real estate sector. So, if NBFC is okay and can start lending, the money is expected to go to the real estate sector.
  • The banker is of the view that the cleansing process is not over yet and that the government will continue going after people who have taken the system for a ride. So, that means there will be a negative surprise but they have to be prepared for it.
  • In the hindsight, it was a good thing they raised capital when they did. There is enough ‘firepower’ now for continued growth over the next few years, which will be used in a very calibrated manner.
  • The promises made as part of the GPS strategy haven’t changed yet. The aspirational 18% return on equity (ROE) is not possible. However, they have been able to maintain the long- term credit cost below 1 percent and cost to asset ratio below 2%. These promises were made because they believe they have the means to do something very different, digital banking is one of them.

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

  • The closing price of Axis Bank was ₹ 739/- as on 17-February-20. It traded at 2.5x/ 2.2x/ 1.9x the consensus Book Value estimate of ₹ 302/ 342/ 396 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 847/- which implies a Price to Book multiple of 2.1x on FY22E Book value of ₹ 396/-
By Axis Bank , , , 0 Comments Read more...
01 Feb

Growth picking up post demonetization, GST- Mr V.P.Nandakumar, Manappuram Finance

Update on the Indian Equity Market:

On Friday, NIFTY closed -0.6% lower. Among sectoral indices NIFTY Metal (-2.3%), NIFTY Pharma (-1.2%), NIFTY IT (-1.1%) closed lower while, NIFTY Realty (+1.2%), NIFTY PSU Bank (+0.8%), NIFTY Bank (+0.6%) higher. The biggest gainers were Kotak Bank (+3.7%), SBI (+2.4%), IndusInd Bank (+1.9%) whereas Tata Motors (-5.0%), ONGC (-4.5%), and PowerGrid (-3.6%) ended with losses.

Edited excerpts from an interview of Mr V.P.Nandakumar, MD, CEO, Manappuram Finance on CNBC-TV18

  • Targeted growth in gold loan had been 10-12%. In three quarters the achieved growth is 11%.
  • Price increase of gold has helped the company and that has led to volume growth.
  • Microfinance institutions (MFIs) are doing well and the asset quality is also maintained in this difficult hour for the non-banking financial companies (NBFCs) industry. The gold loan industry and the MFI industry are faring better.
  • Overall demand is better  in last three quarters.
  • In non – gold loan, the recovery is slightly less because of natural calamities such as floods, political issues.
  • There is some interference of local politicians with the collection but the companies themselves are confident of achieving it.
  • 10%-15% AUM is growth is expected. changes made in regulation, demonetization, GST have crippled the market. The market is now picking up post-GST, demonetization.
  • The company has raised $300 Mn as overseas bonds and the cost is 11.6%. The coupon rate was 5.9% but because of hedging, the all-inclusive cost is about 11.6%.
  • The domestic cost is easing because of the banks’ lending rates, it has slightly come down. It is now 9.25%.
  • Speaking about the decision to take dollar loan Mr V.P Nandakumar says, the domestic cost is low but the sectoral liquidity pressure cannot be ignored. There is liquidity pressure in the NBFC sector.
  • Mr Nandakumar says natural calamity is a challenge that the company faced. In the last year, there had been floods and that had led to delays.
  • Speaking on asset quality, he says, the company is analyzing district wise and pin code wise. with these measures, he doesn’t think the asset quality will deteriorate any further.

Consensus Estimate (Source: market screener website)

  • The closing price of Manappuram Finance was ₹ 188/- as of 31-January-20. It traded at 2.8x / 2.3x / 1.8x the consensus Book Value for FY20E / 21E / 22E of ₹ 64.9/81.6/101 respectively.
  • Consensus target price of ₹ 190/- implies a Price to Book multiple of 1.8x on FY22E Book Value of ₹ 101.
By Gold loan NBFC, Manappuram Finance , , , , 0 Comments Read more...
08 Jan

In India, commercial vehicles unlikely to do well in 2020: Timken India CMD

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 12,052 (0.5% higher). Among the stocks, Vedanta(+3.7%), Zee (+2.4%) and Ultratech Cement (+2.0%) were the gainers. Infratel (-1.8%), BPCL (-1.5%), and Infosys (-1.3%) were the top losing stocks. Nifty Realty (+1.9%), Nifty Media (+1.0%) and Nifty Financial Services (+0.8%) were the top sectoral gainers. All the sectors ended in the green.

Excerpts from an interview with Mr Sanjay Koul, CMD, Timken India published in Economic Times on 06th January 2020:

  • Every time the emission norms change, there is a dip in the market. The commercial vehicles market dipped before the emission norms came into effect. This time because of the axle load change and the rest of the liquidity issues played a role and demand dipped.
  • According to him, the rebound is also going to be a little bit early because of the fact that the inventory corrections have taken place in the market, liquidity is going to be sorted out and is sure that the man on the road is going to be able to borrow the traditional LFOs and small truck owners will be able to go and borrow money.
  • While the inventory correction has taken place, there is going to be a little bit of pre-buying. So, January-February should be okay. After that, as the liquidity eases out and freight movement takes place, there might be a pleasant surprise of the markets coming back a little bit early.
  • Timken serves fragmented markets. Anything which has wheels or anything which is moving on stationary equipment needs a bearing. Timken has the strategy of serving the diverse fragmented markets – be it on-road, off-road, off-highway, rails, trains, power, coal, mining.
  • A large part of Timken’s business comes from the power transmission space. Timken sees a very strong offtake in terms of the wind market. Wind power has taken off, not only for domestic consumption but also a lot of gearbox manufacturers are exporting gearboxes out of India to other markets, including China.
  • According to Mr Koul, in 2020, in India commercial vehicles would not do well, but they would start coming up slowly and steadily. Rail in India would be pretty much good which is divided into locomotives, freight, and passenger. In passenger, there is a further division into mass rapid transportation, which is the Metro rail. In India, the rail system including metros is being modernized and they are being made high speed and highly safe. This market would be pretty okay. As the infrastructure push from the government takes place, the off-highway market should be okay and this is seen in December which was a decent month as far as the excavators and backhoes are concerned in India. Power coming out of thermal should not be great but at the same time, the wind would be pretty much good. On the whole, 2020 would be a mixed bag for Timken. The commercial vehicles which have huge traction as it consumes a lot of small bearings might not be great. The other areas which consume large value bearings would be okay.
  • Exports have been an important part of the Company’s strategy. For many years, they have been exporting both in terms of heavy trucks of highways and railway systems. Timken will continue exporting these to different markets around the globe. Timken currently serves Chinese, African, American, European and Russian markets. If one market is down, another market would be up. The Company has been able to serve these different export markets. But when the global markets are struggling themselves, it is a challenge for emerging markets as the supply chains have not really changed a lot in the last decade or so. But still, exports are okay for Timken, if not great.
  • For margin expansion, there are two aspects according to him. One is the cost and the other is pricing. Cost is the aspect which will act as a catalyst for Timken going forward. Timken is working on cutting waste. The Company makes sure that they do not waste a downturn. The Company continuously works on the cost front so that they optimize and generate less and less waste. Whereas on the price front, there is going to be stagnant pricing.
  • Timken’s endeavour is to make sure that they keep on generating as much value as possible as they are the leader in supply chaining the bearing pieces. Thus, Mr Koul is not unduly worried about the margin front.

Consensus Estimate: (Source: market screener website)

The closing price of Timken India Ltd was ₹ 900/- as of 07th January-20. It traded at 33x/30x/25x the consensus earnings estimate for FY20E/ FY21E/ FY22E of ₹ 27.6/30.7/36.7 respectively.

By Timken India , , , , , 0 Comments Read more...
18 Dec

It’s a perfect storm in the consumer goods sector, says Godrej’s Gambhir

Update on the Indian Equity Market:

On Tuesday, NIFTY50 closed 0.9% higher at 12,082. NIFTY50 gainers include Tata Steel (+4.6%), Bharti Airtel (+4.5%), Vedanta (+3.4%) and Hindalco (+3.3%). NIFTY50 losers include Sun Pharma (-1.3%), GAIL (-0.9%) and Bajaj Auto (-0.7%). Metal (+2.9), IT (+1.9%) and Media (+1.0%) were the top sectoral gainers. Pharma (-0.3) and Realty (-0.3%) were the only losing sectors.

Excerpts from an interview with Mr Vivek Gambhir, MD & CEO, Godrej Consumer Products Ltd (GCPL). The interview was published in Livemint dated 16th December 2019

  • For packaged consumer goods companies, rural growth slowed to a seven-year low in the September quarter, according to market researcher Nielsen India.
  • A general gloom in consumer sentiment and stagnating wages continue to impact sales of daily goods in India’s hinterland said, Mr Vivek Gambhir.
  • The slowdown has been persistent for the last three or four quarters according to Mr Gambhir. GCPL saw the first signs around October 2018. Over the last few quarters, along with the slowdown in demand, they have seen liquidity pressure in the channels (wherein traders and distributors have limited access to cash or credit from the market). Similarly, over the last three to six months, consumer sentiment has also worsened. So, in some ways, what the Company is seeing currently is a perfect storm in the FMCG sector with the confluence of slowing demand, channel liquidity pressure and weakening consumer sentiment which has been exacerbating the situation.
  • Reasons for the slowdown: Data on real wage growth in the rural sector shows that real wages have been flat or declining over the last one or two years. According to him, what consumers do is, once certain products are within their spending basket, they spend on them for a while. Then they start dipping into their savings. Even savings rates have come down in India recently. But when sentiment becomes sour, then things start affecting the sector.
  • GCPL has seen such a similar kind of situation in its first couple of quarters. They have seen a volume growth of 6-7%, which is not a bad volume growth. Volume growth is not translating into value growth because of consumer incentives and offers. He believes that is the right call to take as the P&L is quite healthy. GCPL is sitting on attractive margins. The need of the hour is to stimulate demand. Ideally, GCPL would like to be at double-digit volume growth and the efforts going forward will be to get back there.
  • In a slowdown, home and personal care get impacted more than food, according to him. The indulgence categories like beauty products and chocolates continue to grow as consumers like some ‘feel-good” factor even in a slowdown. The slowdown has been quite pervasive and has impacted most categories, particularly in rural India. Within the home and personal care, discretionary categories such as skin creams, conditioners, hair oil, hair colour get impacted. But more items are considered as discretionary for rural consumers given their lower income levels.
  • In the last two or three months, both staples and discretionary have been impacted quite a bit; that is consumer sentiment has worsened. People had very high expectations post the elections. Since they did not see any improvements, the mood seems to have worsened.
  • Views on changing goods and services tax (GST) slabs again: At this stage, trying to do too much with GST rates will be a mistake in his opinion. Companies need time to let the GST rates settle. There are a lot of implementation issues that need to be addressed. The Companies need to continue to work with various stakeholders, particularly small businesses and, in GCPL case, channel partners, to help them deal with what has been one of the largest tax reforms in Indian history post-independence. At this stage, trying to do too much with GST rates to drive short-term collections may not be the right strategy. It is important to stay the course, rather than to make rate changes that are currently being discussed.

Consensus Estimate (Source: market screener website)

  • The closing price of Godrej Consumer Products Ltd was ₹ 677/- as of 17-December-19. It traded at 43x/37x/33x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 16.0/18.6 /20.7 respectively.
  • Consensus target price of ₹ 753/- implies a PE multiple of 36.4x on FY22E EPS of ₹ 20.7/-.
By Godrej Consumer Products , , , , , , 0 Comments Read more...
09 Oct

Edelweiss: Liquidity to improve after a few months

Update on the Indian Equity Market:

On Monday, NIFTY closed lower by 0.4%. NIFTY Media (+1.3%), NIFTY Pvt Bank (+0.2%) and NIFTY Bank (+0.1%) were the sectoral indices that closed positive. Among the decliners, the worst performers were NIFTY Pharma (-3.4%), NIFTY Metal (-1.2%) and NIFTY Realty (-1.2%).

Edelweiss: Liquidity to improve after a few months

Excerpts from an interview with Mr. Rashesh Shah- Chairman & CEO, Edelweiss Group published in Economic Times dated 4th October 2019.

  • Though Edelweiss has NBFC business, it is a diversified group. The business includes asset management, wealth management, Asset Reconstruction Company and a lot of other businesses. Edelweiss has always focussed on being a diversified group.
  • The overall book of Edelweiss is not expected to grow but the wholesale/retail mix will go more in favor of retail. Whatever repayments are coming in wholesale, are being used to grow retail.
  • The availability of liquidity has been fairly okay. The partial credit guarantee scheme that was announced in the budget will get operationalized soon and the expectation is about Rs 350-400 bn of the asset portfolios of NBFCs will be bought by banks. This will give a lot of additional liquidity to NBFCs. The credit cycle should start coming back because of this improved liquidity.
  • The stress in the corporate book, wholesale book, and the cash flow has been there for one year. The only good news is that there is no unknown anymore. Everybody knows what sort of cash flows can be expected and everybody is aligned with that.
  • In another three to six months, a lot of things should be back to normal for liquidity in the economy as a whole.
  • Overall, while credit was frozen around April- June, the banking system, especially the PSU banks have opened up the credit flow into the economy. The optimism is more now compared to three months ago.  On the whole, the banking system is on a much better footing to ensure that the economy does not freeze up and make sure that the free flow of credit continues.
  • In the next three to six months things should at least get normalized and then improvement should start. At least, things have stopped getting worse in the last four-five weeks.
  • In terms of real estate, in India, it has been observed that if the project gets completed, then usually recoveries and sales are not a problem. The current effort is to make sure the projects get completed. Also, the demand-supply equation in housing has started to correct. Due to slower launches, the supply of inventory will slowly reduce and as the demand comes back with interest rates coming down and banks pushing home loans, the demand-supply equation will correct.
  • Edelweiss has a 20% portion of its balance sheet exposed to real estate. The P&L is further diversified by earnings from other businesses. The real estate book is also spread over 160 projects and is fairly granular. Out of the 160 projects, all along for the last 8-10 years, about 10 to 20% of the portfolio is always under watch because some intervention is required to make sure the project execution happens, and those parameters have not worsened.
  • Edelweiss has a lot of experience with ARC where they acquire NPAs from banks. Last year Edelweiss resolved quite a few of them with Rs 70 bn worth of recoveries in the ARC business. This year, the aim is for a Rs 120 bn recoveries in the ARC business.

Consensus Estimate (Source: market screener website) 

  • The closing price of Edelweiss was ₹ 78 /- as of 07-October-19. It traded at 8.6x /6.8x/ 5.1x. The consensus EPS for FY20E/ FY21E/ FY22E of ₹ 9.1/11.4/15.3 respectively.
  • Consensus target price of ₹ 169/- implies a PE multiple of 11.0x on FY22 EPS of ₹15.3/-

By Edelweiss, NBFC , , 0 Comments Read more...
01 Oct

AU Small Finance Bank (AUBANK): No liquidity issues with the banks or the large NBFCs

Update on the Indian Market:

On Monday, NIFTY closed 0.3% lower at 11,477 points. NIFTY reported September 2019 gains of over 4%. Amongst the NIFTY 50 Stocks, BHARTIARTL (+6.9%), HCLTECH (+3.6%) and UPL (+3.3%) were the top gainers while YESBANK (-14.4%), INDUSINDBK (-6.1%) with other banks dragged the NIFTY down. In the sector-wise performances, IT (+1.9%) and FMCG (+0.3%) were the only gainers while PSU Banks (-3.5%), Private Banks (-2.7%), Financial Services (-2.1%), Media (-2.1%) and Pharma (1.9%) were losers for the day.

AU Small Finance Bank (AUBANK): No liquidity issues with the banks or the large NBFCs

Key takeaways from the interview of Mr Sanjay Agarwal, MD & CEO, AU Small Finance Bank; dated 26th September 2019 on CNBC TV 18:

  • In the meeting with the Smt. Nirmala Sitharaman, Minister of Finance and Minister of Corporate Affairs, India; Mr Agarwal mentioned that the representatives of the banking fraternity accepted that there are no liquidity issues with the banks or the large NBFCs.
  • AUBANK operates in around 150 districts and 10,000 villages. There are no liquidity crises in any of the areas where AUBANK operates.
  • In 1QFY20, AUBANK reported 44% in growth in Assets Under Management (AUM) and 40% in disbursements v/s RBI financial sector growth rate of ~10%. The deposits increased by 100% YoY.
  • AUBANK has been able to deliver the target they had set. Personal vehicle sales have suffered. The commercial vehicle segment is cyclical and will turn around in due time.
  • AUBANK already has a business strategy in line with the Finance minister’s advice of increasing the presence in the field.
  • Mr Agarwal mentioned that the money is available for customers who meet the requirements of eligibility of credibility.
  • Recent tax reforms from 35% to 25% will lead to growth in the margins.  AUBANK is yet to decide on how it is going to utilize the benefit arising from these reforms; whether for Capex or for improving the Return on Assets (ROA).
  • AUBANK has a small presence in the gold loans segment but is growing at ~80% YoY. Consumer durable loans too, form a very small part of the advances and is expected to grow at ~80-90% YoY.

Consensus Estimate (Source: market screener website)

  • The closing price of AUBANK was ₹ 661/- as of 30-September-19. It traded at 4.7x/3.9x /3.2x the consensus book value for FY20E/ FY21E/ FY22E of ₹ 140/168/206 respectively.
  • Consensus target price of ₹ 699/- implies a PE multiple of 3.4x on the FY22E book value of ₹ 206/-
By AU Bank, Bank , , , , , 0 Comments Read more...