Tag - NPA

Expect retail stress to reduce by September; MSME stress by Q3 or Q4– Punjab National Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY ended at 15740 (-0.1%) as it could not sustain the intraday highs. Among the sectoral indices, IT (+1.2%), PHARMA, REALTY and MEDIA (+0.9%), ended higher while PSU BANK (-1.5%), METAL (-1.1%), and BANK (-1.0%) led the losers. Among the stocks, TATAMOTORS (+3.2%), TECHM (+2.3%), and BHARTIARTL (+2.1%) led the gainers while HINDALCO (-1.8%), TATASTEEL (-1.7%), and JSWSTEEL (-1.3%) led the losers.   

Excerpts of an interview with Mr. Mallikarjuna Rao, MD, and CEO, Punjab National Bank (PNB) with CNBC TV18 on 7th June 2021:

  • On an outstanding basis, the gross NPA and net NPA are flat, but the credit outstanding for the quarter ended March 2021 is down by 3%, which is why the gross NPA numbers seem elevated at 14%.
  • Due to the covid-19 second wave, the proforma NPA has become worse across the banking industry, including PNB. The NPA composition consists of retail and MSME clients, whereas there are no corporates.
  • As collections from clients are improving, the stress of retail clients would be adjusted to a great extent by September, and of MSMEs by Q3 or Q4 of FY22. The collections were at 91% in May 2021, and around 84% in April 2021.
  • The net NPA has gone from 4% to 5.7% in Q4FY21 on a QoQ basis. Write-offs in Q4FY21 are at Rs 72280mn, whereas the recovery and upgrades are at Rs 69990 mn respectively in Q4FY21 on a QoQ basis.
  • During FY21, the credit cost was at 2.5%. During FY22, the profit is expected to not be less than Rs 60,000 mn and the credit cost is expected to be at 1.5%.
  • PNB is expecting a recovery of Rs 6,000 mn from DHFL, with no specific date of recovery mentioned.
  • PNB is well capitalized, having a capital adequacy ratio of 14.2%

Asset Multiplier comments:

  • With the various states throughout the country unlocking and recovering from the impact of the covid- 19-second wave, the collections will improve in 1HFY22 and will become better in the second half. Improving asset quality and lower credit costs will be a feature of many Indian banks in FY22E. 

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

  • The closing price of PNB was ₹ 42/- as of 8-June-2021.  It traded at 0.51x/ 0.48x the consensus book value estimate of ₹ 80.8/86.4 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 39/- implies a PB multiple of 0.45x on FY23E BVPS of 86.4/-.

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.”

M&M Finance- 2HFY20 to be better

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 1.7% higher. Among the sectoral indices NIFTY Bank (+3.7%), NIFTY PVT bank (+3.5%), NIFTY PSU bank (+3.1%) closed higher while NIFTY Media (-0.3%), NIFTY FMCG (-0.2%) NIFTY IT (-0.8%) ended on a negative note. The biggest gainers were IndusInd Bank (+5.5%), Infratel (+5.3%), Bharti Airtel (+5.2%) whereas Yes bank (-5.2%), Hero motocorp (-2.8%), Zee (-2.4%) ended on a negative note.

Excerpts from an interview with Mr. Ramesh Iyer – Chairman & Managing Director, M&M Financial Services.

  • Mr Ramesh said, “We have been focusing on the semi-urban rural market and we do see that the festival demand, at least the footfall at the dealerships are much much higher than what it was in the last six months.”
  • According to him, the festival season would turn out to be good and normally the second half for the rural market is always good, given the festival, and harvest has been in widespread range. Put together, he expects demand to pick up and the second half to be good.
  • They have revised FY20 loan growth numbers and there are four reasons for that:
    • Their deeper penetration is an advantage as they get volumes from the deeper pockets. 
    • Multi-product approach that they have been taking. Their growth is not dependent on a single product. 
    • They have been little more aggressive in pre-owned vehicle like pre-owned cars, tractors, UVs, etc, and they do see demand for a pre-owned vehicle in the rural market picking up.
    • Large customer base.
  • They have not seen too much competition and they expect some market share growth. So, that is one growth possibility.
  • Pre-owned vehicle segment has been a little aggressive and they do see growth coming from there. While the heavy commercial vehicle segment is not growing, they have a very small base or a low base and they do expect some volume growth there, given the total volume.
  • As far as the pre-owned vehicle is concerned, they were concentrating on cars and UVs. Now, they have also gone into pre-owned tractor financing and that is another very exciting segment.
  • These are the growth drivers and market share gain from their prime products like UV or car segment altogether is helping them maintain growth.
  • They do not see an issue to really worry about from the asset quality front but it all depends on yields. What is going to be the price that will get announced because the farm cash flow is important from a rural perspective, but they believe that given the widespread monsoon, at least in some of the states, the yields would be good.
  • They do not, therefore, see a spike in NPAs but there are some pockets where one could witness delay.
  • Their focus area is going to be semi urban, rural market and that is what they have done for the last 25 years. They do see a pick up in sentiment and they expect that in the next six months, with the festival and the harvest coming up, they should see some buoyancy in that market.
  • They are borrowing from banks, own debentures, fixed deposits and that has helped them maintain growth. But yes, there has been some increase in cost that they have witnessed initially but now that is climbing down.
  • Liquidity has not been an issue and as cost seems to get addressed, they feel a little more comfortable than that of six months back.
  • They will be open to any inorganic growth opportunity, but they do not have anything on the tables at this stage. But clearly, it has to have a strategic fit, a cultural fit and that is what they will look for.

Consensus Estimate (Source: market screener website & Investinng.com website)

  • The closing price of M&M Finance was ₹ 334 /- as of 09-10-19. It traded at 1.7x /1.5x/1.4x x the consensus book value for FY20E/ FY21E/FY22E of ₹ 194 /₹ 218/ ₹242 respectively.
  • Consensus target price of ₹ 378/- implies a P/B multiple of 1.6 x on the FY22 book value of ₹242 /-

SBI 1QFY20 result update: Profitability sequentially better, pace of improvement disappoints.

Dated: 5th August 2019

  • Advances grew by 14% YoY to Rs 21,347 bn. Indian retail book growth was 17% while corporate book growth was 12%. Foreign advances book grew by 16%.
  • NII was Rs 229 bn, 5% higher YoY. Overall NIMs at the Bank level marginally improved to 2.81% from 2.78% in 4QFY19.
  • Total operating expense was 7% higher YoY. The increase was due to higher employee provisions on account of decline in bond yields.
  • Provisions were 52% lower YoY and 44% lower QoQ. The total provisions number was lower due to provision write backs of Rs 24 bn. NPA provisions were Rs 116 bn in 1QFY20 vs. Rs 130 bn in 1QFY19 and 173 bn in 4QFY19.
  • Reported PAT was at Rs 23 bn vs Rs 48 bn loss reported in 1QFY19 and Rs 8 bn profit in 4QFY19.
  • Asset Quality was stable on a sequential basis with GNPA and NNPA at 7.53% and 3.07% respectively.

Management commentary:

  • Slippages were high in 1QFY20 at Rs 162 bn compared to Rs 99 bn and Rs 75 bn in 1QFY19 and 4QFY19 respectively. Reasons for this jump include Rs 20 bn exceptional agri slippages in one state on account of farm loan waiver, higher SME slippages due to absence of RBI dispensation which was available in 1QFY19, Rs 20 bn due to some technical issues in an account that is being serviced regularly.
  • Out of Rs 116 bn NPA provisions made in 1QFY20, Rs 23 bn was provided against 2 accounts that are standard but need proactive provisions as per a recent RBI circular.
  • Management has guided to credit costs of 140 bps for FY20E. This includes any additional provisions that may be required for the 2 specific currently standard accounts (DHFL and one renewable energy account). This credit cost guidance is higher than the previous guidance of 100 bps.
  • Management is expecting loan growth of 12% and NIMs for the overall business of 3.15% in FY20E.
  • In the current scenario, management expects to achieve core RoA of 0.5-0.6% in FY20. Gains from recoveries or subsidiary stake sale will be over and above this return guidance. This is lower than previous comparable guidance of 0.70-0.75%

Consensus estimates (Source: Marketscreener website):

  • The stock price was Rs 300/- as of 5-Aug-19 and traded at 1.17x/ 1.04x the consensus Book Value for FY20E/21E BV of Rs 256/286 respectively.
  • Consensus target price is Rs 376/- implying P/B of 1.31x for FY21E BV of Rs 286