Tag - Collection efficiency

Localised lockdowns impacting collection efficiency – Bandhan Bank

Update on the Indian Equity Market:

The Indian benchmark indices closed in the red for the second day, due to concerns over the impact of faster inflation on dollar flows into emerging markets. The Nifty50 ended the day at 14,697 (-1.0%), dragged by TATASTEEL (-4.8%), HINDALCO (-3.5%), and JSWSTEEL (-3.5%). The top gainers in the index were TATAMOTORS (+3.2%), TITAN (+1.6%), and MARUTI (+1.3%). The sectoral gainers were PSU BANK (+3.2%), MEDIA (+0.7%), and AUTO (+0.2%), while METAL (-3.0%), PRIVATE BANK (-1.6%), and BANK (-1.3%) led the sectoral losers.

Excerpts of an interview with Mr. Chandra Shekhar Ghosh, MD and CEO, Bandhan Bank (BANDHANBNK) published in Mint on 12th May 2021:

  • The complete impact of the second wave is yet to be felt, but Mr. Ghosh expects business to bounce back by June-21.
  • The impact of the second wave of the virus has been localised lockdowns. The advantage of localised lockdowns is businesses are still functional. There was a lack of access to villages and smaller localities last year, affecting collection efficiency.
  • Following localised lockdowns, collection efficiency has dropped 300-400bps from March-21. The drop has been due to complete lockdowns in certain areas and with branches in such areas, executives cannot go out for collections. This impact has been felt in April-21, he expects the efficiency to bounce back by June-21.
  • The microfinance part of their business is better off without moratoriums. In their case, borrowers repay if they can come to the bank’s offices or where the collection executives can reach. Wherever it is not permitted, the executives are not venturing out. Mr. Ghosh believes this is better than a moratorium, as nobody would want to repay under a blanket benefit.
  • The bank is providing loan restructuring if customers request it. The customers who are able to pay 50% or 75% in instalments are paying. The customers take it upon themselves to repay so that credit score isn’t impacted. About 78% of NPA (Non-performing Asset) customers have repaid in March-21.
  • He expects similar growth in credit growth in FY22 as last year (~20%).

Asset Multiplier Comments

  • As the bank has a higher exposure to rural and semiurban areas, there was a lower impact on its operations in 4QFY21. With lockdown restrictions imposed in rural areas as well due to the second wave, the bank may face issues with collection.
  • In the recently released 4QFY21 results, the Bank has recognised higher provisions for weaker borrowers adequately. While the impact of the second wave cannot be measured so soon, the bank is likely to maintain its conservative stance and maintain higher provisioning buffers going forward.

Consensus Estimate: (Source: market screener website)

  • The closing price of BANDHANBNK was ₹ 288/- as of 12-May-2021. It traded at 2.3x/ 1.9x the consensus book value estimate of ₹ 126/ 155 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 384/- implies a PB multiple of 2.5x on FY23E BV of ₹ 155/-.

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.”