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04 Dec

Demand for loans coming back – SBI

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

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

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

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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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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31 Jul

RBI should allow one-time restructuring rather than extending moratorium – Bajaj Finserv

Update on the Indian Equity Market:

On Thursday, Nifty ended 0.9%, lower than the previous close at 11,254. The top gainers for Nifty 50 were Dr Reddy (+4.6%), Sun Pharma (+3.7%), and Wipro (+2.5%) while the losing stocks were BPCL (-7.9%), IndusInd Bank (-5.4%), and IOC (-4.0%). The sectoral gainers for the day were Pharma (+3.1%) and IT (+0.7%) while the losers were Media (-2.3%), Pvt Bank (-2.0%) and PSU Bank (-1.9%).

Edited excerpts of an interview with Mr Sanjiv Bajaj, MD, Bajaj Finserv; dated 29th July 2020 from CNBC TV18:

  • Mr Bajaj extended support to HDFC chief Mr Deepak Parekh’s view that the Reserve Bank of India should not extend the loan moratorium.
  • Bajaj Finserv has a total of 6 months available for moratorium by September, and as the economy has started picking up from last month at varying speeds because of local lockdowns creating issues. But it is picking up other than a few key sectors like hospitality, travel, entertainment which are facing very high challenges. But most others have started at least doing okay. So, at a time like this, Mr. Bajaj believes that it doesn’t make sense to extend a blanket moratorium.
  • Moratorium numbers have come down significantly in the month of June as compared to April and May-20 for many banks & NBFCs.
  • RBI should allow one-time restructuring rather than extending the moratorium. According to him, let lenders decide on the basis of each one’s own underlying cash flows, because eventually, it should be kept in mind that there is a cost to doing all this and somebody has bear that cost. A 6-month moratorium is long enough, beyond that will start creating a moral hazard that even reasonable quality borrowers will lose the habit of paying.
  • Bajaj Finserv sees Rs 6,300 crores of credit cost for FY21E.
  • The Company was fortunate enough to raise capital for Bajaj Finance last year. They are adequately capitalised with the Rs 8,500 crore raised last year. As the two insurance companies do not need it, Bajaj Finserv has a significant capital on the books from profits of earlier years.
  • The tier-I ratio is 23-24% which he thinks is a comfortable one.

Consensus Estimate: (Source: market screener website)

  • The closing price of Bajaj Finserv Ltd was ₹ 6,175/- as of 30-July-2020. It traded at 2.8x/2.5x/2.1x the consensus book value estimate of ₹ 2,188/2,478/2,873 for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 7,248/- implies a PB multiple of 2.5x on FY23E EPS of ₹ 2,873/-.

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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30 Jan

Looking to raise equity & cash through restructuring – Habil Khorakiwala, Wockhardt

Update on the Indian Equity Market:

On Wednesday, Nifty ended 0.6% higher at 12,130. Among the sectoral indices, Nifty FMCG (+1.3%), Nifty Metal (+0.9%) and Nifty Auto (+0.8%) were the top gainers. Nifty Pharma ended the day marginally in the red. Tata Motors (+6.8%), Bajaj Finance (+5.1%) and Infratel (+3.4%) were the top gaining stocks while Eicher Motors (-4.5%), Yes Bank (-1.4%) and Dr Reddy (-1.4%) were the top losers.

Looking to raise equity & cash through restructuring – Habil Khorakiwala, Wockhardt

Excerpts from an interview with Habil Khorakiwala, Founder, Chairman and Group CEO, Wockhardt:

  • The company is looking to raise some equity and cash through a restructuring of the organization. There are alternatives on which the company is working.
  • The restructuring process would likely be completed in the next month.
  • The Q3 financial results of the company were recently released, and sales are up 9-10 percent compared to the previous quarter. Expense management over the last 9-12 months has resulted in significant operating cost reduction.
  • The 3Q margins (17.7%) are among the highest in recent times and a result of product mix. Despite spending heavily on both R&D and capex, there is a significant increase in EBITDA without R&D.
  • Addressing the liquidity issue, he said that last year the company has repaid ₹ 780 crore of its debt. The net debt increase period has been supported by the promoter. The new cash is to sustain drug discovery research programme and go into growth momentum in 2021.
  • They have completed most of the remediation measures at their Waluj facility and are in communication with the US FDA and hopeful of being on track as far as the US business is concerned.
  • There are three components to their India business: branded, generic, and active pharmaceutical ingredient (API) business. The branded business is down by less than a single digit. Though mostly discontinued, the generic business is showing a decline. The API business in India is down but up in the international markets.
  • Globally, their focus is on three-four areas. Their pharma business is important worldwide, including India. The research programme with the new chemical entity (NCE) is very important for the therapy area antibiotics. Third, the biosimilars are very important since new FDA guidelines has them thinking about entering the US market biosimilars segment. Last, due to technology advantage in formulation, the worldwide diabetic portfolio is a favorite.
  • Strategy for the antibiotic drug is marketing themselves in the US and India and looking for partners in the rest of the world.
  • Two of their molecules (EMROK (IV) and EMROK 0 (Oral)) have been approved by the Drug Controller General of India, which will be in the Indian market in the next three-four months. Another molecule, 5222 is entering phase-III clinical trial in the next few months.

Consensus Estimate:

The closing price of Wockhardt was ₹ 349 as of 29-January-20. The consensus estimate for EPS of Wockhardt is not available. Wockhardt reported a loss of ₹ 10.6 per share for FY19 and ₹ 13.8 for 9 months ending December 19 respectively.

 

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