Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - November 6, 2023

HDFC Bank's Q2FY24 PAT reached INR 159 bn driven by strong loan growth

HDFC Bank’s Q2FY24 PAT reached INR 159 bn driven by strong loan growth

Company Overview:

HDFC Bank, the largest private sector bank in India, offers a diverse range of banking and financial services. Their portfolio includes retail loans such as home loans, LAP, 2-wheeler loans, personal loans, as well as wholesale loans for corporates, businesses, and agriculture. In Q2FY24, retail loans accounted for 51% of the loan book, while wholesale loans constituted the remaining 49%. The company expanded by adding 85 net new branches, increasing their total to 7,945 compared to 6,499 in Q2FY23, with a total customer base of 91 million, marking a 7% QoQ growth.

Deposit grew 5.3% QoQ (merged basis) which reduce CASA to 37.6% in Q2

During Q2FY24, deposits increased by 5.3% QoQ (on a merged basis), reaching 21,729 billion, while the loan book grew by 4.9% QoQ (on a merged basis) to 23,328 billion. The increase in term deposits resulted in a reduced CASA ratio of 37.6%. Gross advances stood at 23,546 billion, growing by 4.9% QoQ (on a merged basis). Retail deposits accounted for 83% of the total, with the remaining 17% being wholesale deposits in Q2FY24.

Loan book up 5.5% QoQ driven by Retail and CRB in Q2

In Q2FY24, the retail loan book expanded by 3.1% QoQ (a remarkable 106.62% YoY) to 11,995 billion, while the CRB (Corporate, Retail, and Business Banking) loan book grew by 9.7% QoQ (29.46% YoY) to 7,052 billion. Among the retail loans, credit card and personal loans grew by 0.5% and 1.1% QoQ, respectively, while gold and other retail loans displayed robust growth at 7.8% and 7.2% QoQ in Q2FY24. In the CRB segment, agriculture and business banking demonstrated strong growth at 13.6% and 10% QoQ, while corporate loans increased by 5.8% QoQ.

NIMS Contraction – 70 bps QoQ to 3.65% Impact of High CoF

Net Interest Margins (NIMs) declined by 70 basis points (bps) QoQ, reaching 3.65%, primarily due to an 80 bps increase in the cost of funds (CoF) QoQ (150 bps YoY), which stood at 4.8%. This increase in CoF was attributed to excess liquidity in the merged arm of HDFC Bank, which incurred higher costs. On the other hand, the yield on loans rose by 135 bps QoQ (218 bps YoY) to 9.7%, resulting in a spread of 3.26%, reduced by 35 bps QoQ (42 bps YoY).

Slight Increase in GNPA/NNPA- 17bps QoQ/5bps QoQ

Asset quality experienced a minor decline in Q2FY24, with Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) increasing by 17 bps QoQ and 5 bps QoQ, respectively, to 1.31% and 0.35%. The amounts for GNPA and NNPA stood at 3,15,799 million and 80,728 million, respectively. The provision coverage ratio remained at 74.4%, compared to 74.9% in the previous quarter. Capital Adequacy Ratio (CAR) continued to be strong at 19.54% in Q2FY24, exceeding the RBI guidelines of 15%.

Valuation and Key Ratios:

As of the current market price of 1,489, the stock is trading at 2.87 times its book value of 519 per share. The company reported healthy return ratios in Q2FY24, with Return on Assets (ROA) at 2%, Return on Equity (ROE) at 16.2%, and an Interest Coverage Ratio of 1.65x, signifying the company’s solvency.

Q2FY24 Results Updates: Standalone

➡️ In Q2FY24, interest income surged by 75.45% YoY (39.33% QoQ) to 676,984 million, while interest expenses increased by 129.51% YoY (61.33% QoQ) to 403,132 million, resulting in Net Interest Income (NII) of 273,852 million, growing by 30.27% YoY (16.04% QoQ).

➡️ The healthy growth in NII was driven by the high yield on loans, which increased by 135 bps QoQ and 218 bps YoY.

➡️ Total income in Q2FY24 increased by 33.11% YoY (16.03% QoQ) to 380,930 million, led by a 40.97% YoY and 16.04% QoQ increase in other income.

➡️ Pre-Provision Operating Profit (PPOP) income grew by 30.48% YoY (20.89% QoQ) to 226,938 million, driven by operating efficiency. The cost-to-income ratio dropped by 240 bps QoQ.

➡️ Profit After Tax (PAT) surged by 50.64% YoY (33.67% QoQ) to 159,761 million, resulting in Earnings Per Share (EPS) for the quarter standing at 21 Rs, growing by 10.53% YoY and remaining stable on a QoQ basis.

Conclusion:

HDFC Bank, India’s largest private sector bank, reported positive Q2FY24 results with healthy growth in deposits and advances. The bank’s loan book showed significant expansion in both retail and corporate segments, and while there was a slight contraction in net interest margins due to higher cost of funds, the overall financial performance remained robust. Asset quality remained stable, and the bank continued to maintain a strong capital adequacy ratio. With a trading valuation at 2.87 times book value and healthy return ratios, HDFC Bank continues to demonstrate its resilience and strength in the Indian banking sector.

Q2FY24: Shriram Finance reports robust AUM growth Drives NII soars to 4,594 Cr

0 Comment

Jio’s Giant Leap: Reliance Confirms IPO in Early 2026

Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - November 3, 2023

RIL Reports Strong Q2FY24 Performance Across Diverse Business Segments

Company Overview:

Reliance Industries Ltd is a conglomerate engaged in multiple sectors, including Oil to Chemicals (O2C), Oil and Gas, and Retail, encompassing electronics, fashion & lifestyle, grocery, and beverages, as well as Digital services. Notably, within the Digital Business, Jio stands out, contributing a significant 85% to the overall 5G capacity and ranking as India’s top 5G network. In the retail sector, footfalls reached a remarkable 260 million, showing a 41% YoY increase, and 471 new stores were added, bringing the total count to 18,650 in Q2FY24.

Retail segment achieved record EBITDA, up 41% YoY, with 260 million footfalls and an 80 bps margin expansion in Q2

In Q2FY24, the Retail segment reported revenue of 77,163 Cr, a robust 18.8% YoY growth (+10.29% QoQ). This growth was primarily attributed to the strong performance in the grocery business, which experienced a 33% YoY increase. EBITDA reached 5,820 Cr, reflecting a strong 32.10% YoY growth, with contributions from grocery and fashion & lifestyle consumption. EBITDA margins expanded by 80 basis points YoY to 7.56%, driven by festive demand. Notably, the company added 2,033 new stores YoY, including 471 new stores in Q2FY24, bringing the total count to 18,650. Footfalls reached an impressive 260 million, marking a 41% YoY increase, and registered customers grew by 27% YoY, totaling 281 million.

Digital service Growth led by strong subscriber addition-32.1 Mn YoY (11.1 Mn in Q2) & growing 5G adoption

The Digital service business reported revenue of 32,657 Cr, reflecting a growth of 10.48% YoY (+1.81% QoQ). This growth was driven by a robust net subscriber addition of 32.1 million YoY and 11.1 million in Q2FY24. EBITDA increased by 14.48% YoY (2.55% QoQ) to 14,071 Cr, with EBITDA margins expanding by 150 basis points YoY to 43.09%. The Average Revenue Per User (ARPU) grew by 2.6% YoY, reaching 181.7 Rs, with a total of 459.7 million subscribers. The company also experienced substantial growth in data traffic, which increased by 28.5% YoY to 36.3 Exabytes, driven by the growing adoption of 5G and higher engagement on home STB. Notably, over 70 million subscribers migrated to 5G, and 8,000 towns were covered with true 5G.

Robust O2C EBITDA Growth supported by strong domestic demand and tight fuels market

In Q2FY24, minor improvement in asset quality with GS3/NS3 declining to 1bps/9bps QoQ to 4.29%/1.71% with amounting GS3/NS3 stood at 4,024 Cr/1,562 Cr. Stage 2 declined 60 bps QoQ to 5.7% this resulted in 30+ dpd improving 70 bps QoQ to 10% and current level of write-off stood at 351 Cr in Q2FY24. Provision coverage on stage-3 assets stood at 61.2% against 60.1% in previous quarter. CAR strongly stood at 18.70% in Q2FY24 which is above the RBI guidelines 15%.

KG D6 gas production added sharp improvement in oil and gas Business in Q2

In Q2FY24, the Oil and Gas business reported robust revenue of 6,620 Cr, showing a significant 71.8% YoY growth (+42.9% QoQ), primarily due to the strong production from the KG D6 block, reaching 68.3 MMSCMD, marking a 65.8% YoY increase compared to 19 MMSCMD in Q2FY24. The Oil and Gas segment reported an all-time high EBITDA, growing by 50.3% YoY (+18.7% QoQ) to 4,766 Cr, driven by higher volumes and an improvement in price realization on a YoY basis. However, EBITDA margins declined by 10.31% YoY (-14.69% QoQ) to 71.99% in Q2 due to costs related to MJ field commissioning and decommissioning of the Tapti field.

Valuation and Key Ratios:

Currently, the stock is trading at a multiple of 23x EPS (TTM) of 101 Rs, with a current market price of 2,320 Rs, and an industry price-to-earnings ratio of 11.1x. The company reports an ROE of 2.27% and ROA of 1.18% in Q2FY24. The interest coverage ratio stood at 5.63x in Q2FY24, indicating the company’s solvency, while the current ratio stood at 1.16x in Q2FY24.

Q2 FY24 Results Highlights: Consolidated

➡️ In Q2FY24, consolidated revenue grew by 1.08% YoY (+11.44% QoQ) to 2,31,886 Cr, primarily due to lower O2C revenues with a 14% decline in crude oil.

➡️ Consolidated EBITDA increased by 31.98% YoY (+7.55% QoQ) to 40,968 Cr, with solid growth across all operating segments. EBITDA margins were up by 400 basis points YoY to 17.67%, due to a decline in the cost of goods sold (COGS) by 4.03% YoY but maintained a 0.69% QoQ.

➡️ PAT surged by 28.15% YoY (+8.87% QoQ) to 19,878 Cr while PAT growth in consumer business tempered by higher depreciation with growth in asset and higher network utilisation. PAT margins expanded 180 bps YoY (stable on QoQ basis) to 8.57%

➡️ Interest cost grew 25.85% YoY (-1.82% QoQ) to 5,731 Cr with gross debt stood at $35,606 Mn and net debt at $14,176 Mn. Capex stood at 38,815 Cr primarily towards 5G roll-out and building retail ecosystem.

➡️ Earnings per share (EPS) for the quarter stood at 29.36 Rs, representing significant 28.15% YoY and 8.87% QoQ growth.

Conclusion:

Reliance Industries Ltd has demonstrated strong performance across its diversified business segments, with remarkable growth in Retail, Digital services, and Oil and Gas. The company’s robust financials and its focus on expanding its 5G network and retail presence position it favorably for future growth and sustainability.

Q2FY24: Shriram Finance reports robust AUM growth Drives NII soars to 4,594 Cr

0 Comment

Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - November 3, 2023

After a strong Q2 in FY24 REC is ready for the rerating saga

Company Overview:

REC Limited (formerly Rural Electrification Corporation Limited) is a non-banking financial company (NBFC) under the administrative control of the Ministry of Power, Government of India. It is also registered with the Reserve Bank of India (RBI) as a public financial institution (PFI) and an infrastructure financing company (IFC).
REC was incorporated in 1969 to finance and promote rural electrification projects in India. Over the years, it has expanded its scope of business to include financing of the entire power sector, including generation, transmission, and distribution. REC also finances projects in the renewable energy and infrastructure & logistics sectors.

REC’s Q2 earnings soar on lower costs and higher margins:

REC Limited’s Q2FY24 earnings were strong on all counts, with a 17bps QoQ NIM uptick, provision reversal of ~INR 5bn, and high 20% YoY loan growth. The company is upbeat on growth guidance of 20% YoY, NIM steadying at 3.5%, and anticipated provision reversals for FY24, which signals strong book value accretion and potential valuation multiple re-rating.
a. NIM uptick: REC’s NIM uptick was driven by asset re-pricing across products, with yields climbing 15bps QoQ, and a favourable liability mix with ~40% borrowings being priced at ~7% (23bps lower than average CoF).
b. Provision reversal: REC reversed provisions of ~INR 5bn, including standard asset provisions created on grounds of prudency during the pandemic and ~INR 2.5bn write-backs led by resolutions of two assets.
c. Loan growth: REC’s loan growth accelerated to 20% YoY after a hiatus of four years, largely led by renewables, LPS, and infra portfolios.
d. Outlook: REC is upbeat on growth guidance of 20% YoY, NIM steadying at 3.5%, and anticipated provision reversals for FY24. This signals strong book value accretion and potential valuation multiple re-rating.

RECL’s loan growth surges on renewables, non-power sectors; FY24E-26E outlook upbeat:

RECL (presumably a financial institution) recorded a strong loan growth of 4% quarter-over-quarter (QoQ) and 20% year-over-year (YoY). This growth was largely driven by non-power loans in sectors like infrastructure, logistics, and e-mobility, as well as loans related to LPS (possibly referring to Loan Protection Scheme) and renewables.
The renewables sector constitutes 7% of RECL’s assets, approximately INR 300 billion. There is an expectation that this figure may increase significantly to INR 3 trillion by FY30 (fiscal year 2030). This growth could be triggered by a recent Memorandum of Understanding (MoU) worth INR 280 billion and the government’s goal to increase the share of renewables to 30% of the mix by FY30. Additionally, Q2 saw 25% of overall loan sanctions coming from renewables.
The non-power sector’s share in RECL’s portfolio has increased from 8% in Q1 to 13% of the mix. RECL is actively expanding its capabilities in terms of talent, skillsets, and pricing strategies, with a focus on state-backed, low-risk assets. The report suggests that RECL anticipates a higher loan Compound Annual Growth Rate (CAGR) of 19% in the fiscal years FY24E-26E. This expectation is based on the quality of renewable corporate clients and high-value infrastructure projects, which provide a robust outlook for the business.

RECL aims to maintain steady NIMs, write-backs to boost FY24 profits:

RECL is aiming to maintain steady NIMs. They are working to control credit costs with the goal of achieving a 0% net Non-Performing Asset (NPA) ratio by FY25. It’s noteworthy that RECL has not experienced any slippages in the past seven quarters, and they expect write-backs in FY24.
In the second quarter (Q2), RECL reported that Stage 3 assets, which typically refer to non-performing or impaired assets, stood at a five-year low of 3.14%. At the moment, there are 19 stressed projects with a total value of INR 149 billion in Stage 3. Out of these, five projects worth INR 18.8 billion are being pursued for resolution outside the National Company Law Tribunal (NCLT), and the remaining 14 projects worth INR 130 billion are undergoing resolution within NCLT. It is estimated that there will be a build-up of Gross Non-Performing Assets (GNPA) in the range of 2-2.4% and write-offs during FY24E-26E.

Valuations: Analyst sees 30% upside in RECL:

Despite recent price momentum, RECL is seen as having the potential for further re-rating. This is attributed to the company’s high double-digit growth visibility, positive performance in Q2, and the ability to maintain steady margins in a challenging funding environment. Additionally, the significant write-backs are expected to lead to a high return profile with an anticipated Return on Equity (RoE) of 18-19% and Return on Assets (RoA) of 2.8% in the fiscal years FY24-26E. In light of these positive factors, there has been a revision of the estimates for FY24E and FY25E, with an increase of 15% or more for each of these fiscal years.

REC Ltd Reports Strong Q2FY24 Result:

REC Ltd reported net sales of Rs 11,688.24 crore in September 2023, reflecting a significant increase of 17.4% compared to the same period in September 2022 when it was Rs 9,955.99 crore. The company’s quarterly net profit for September 2023 amounted to Rs 3,789.90 crore, indicating substantial growth of 38.72% from the figure of Rs 2,732.12 crore in September 2022. The EBITDA for September 2023 were reported at Rs 12,193.52 crore, showing strong growth of 32.98% from the EBITDA of Rs 9,169.73 crore in September 2022. REC Limited has a market capitalization of ₹79,668 Crores, reflecting the total market value of its outstanding shares. The stock’s Price-to-Earnings (P/E) ratio stands at 6.19, indicating its valuation in relation to its earnings. A lower P/E ratio suggests potential undervaluation. REC Limited’s Return on Capital Employed (ROCE) is 9.14%, showcasing its profitability relative to the total capital employed in the business. The company reported a Profit after Tax of ₹12,739 Crores, representing its net income after accounting for all expenses and taxes. REC Limited has a Price to Book Value (P/B) ratio of 1.25, implying that the current market price of the stock is slightly higher than its book value per share.

Conclusion:

REC Limited, a government-controlled financial company, posted impressive Q2FY24 results. The highlights include a remarkable 17.4% YoY increase in revenue, reflecting strong growth. Notably, the company saw an uptick in Net Interest Margin (NIM), provision reversals, and a substantial rise in loan growth. REC is confident about its future, with a projected 20% YoY growth and stable NIM. The surge in loan growth was primarily fuelled by non-power sectors, and REC anticipates a higher growth rate in loans for FY24-26E. They are also focused on maintaining NIMs and managing non-performing assets.

Q2FY24: Shriram Finance reports robust AUM growth Drives NII soars to 4,594 Cr

0 Comment

Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - November 2, 2023

Indian stock surge draws investors leaving China

India is expected to become the world’s third-largest economy by the end of the decade, with projections indicating a robust annual average real GDP growth of 6 percent, outpacing mostother major economies. This forecast comes from the consultancy firm Capital Economics. The Indian stock market has been on a tear in recent months, with the benchmark Sensex index rising by over 20% since the start of the year. This surge has attracted a wave of foreign investment, with many investors choosing to leave the Chinese market and invest in India instead.

Fertile Investing Ground

India’s economy and stock market have been doing well recently and India has also
outperformed china. The MSCI India index, which measures the performance of Indian stocks,has gone up by 7.5% this year, while the MSCI China index, which tracks Chinese stocks, has gone down by 7.6%. Over the last five years, Indian stocks have risen by 63%, while Chinese stocks have fallen by 18%. India’s economy is growing faster than China’s, with a growth rate of 7.8% in the June quarter, compared to China’s growth rate of 6.3%.

Foreign investors have been moving their money from Chinese stocks to Indian stocks, even though Indian stocks are more expensive and has higher valuations. This is because China’s economy hasn’t rebounded as strongly as expected, which has raised concerns about deflation (a decrease in prices) and made investors less confident in the Chinese market.

“India’s markets seem really encouraging and promising. They’re experiencing substantial growth, and there’s a lot of money being invested in building infrastructure. India is one of the fastest-growing economies. On the other hand, in China, we’re seeing issues in the property sector,” explained Jonathan Curtis from Franklin Templeton during his recent trip to India.

Indian stocks have outshined Chinese stocks by a significant amount. This is thanks to the billions of dollars invested by foreign funds and a growing number of individual investors who have tripled in number since the pandemic started.

Allocators Enticed

Foreign fund managers, who handle a lot of money (billions of $), are taking their investments out of Chinese stocks and putting some of it into Indian stocks, even though Indian stocks are considered relatively expensive. In August, they withdrew around $12 billion from Chinese stocks, while India received approximately $1.5 billion in investments, with a significant portion going into financial stocks.

China’s economy, which was expected to rebound strongly after the pandemic, hasn’t
performed as well as anticipated. This is due to problems in the housing market and increasing local government debt. Chinese households are saving more, which is leading to weaker domestic demand. This economic uncertainty has made investors less confident and has put pressure on stock prices. Experts have noted that China is different from other countries in its post-pandemic recovery because it’s facing a risk of prices falling instead of rising. This uncertainty about investing in China has opened up an opportunity for India.

India’s economic foundation looks good, despite challenges like geopolitical tensions, rising prices, and supply chain disruptions. In September, foreign investors sold about $1.8 billion worth of Indian stocks, but the Sensex (an Indian stock market index) still rose by 1,000 points in the same month, thanks to continued investments from local investors, particularly mutual funds.

Indian markets are not heavily dependent on China’s weakness, there are other reasons for their strength. The growing number of individual investors in India plays a significant role. Additionally, consistent investments through mutual funds are considered a healthy trend. Strong corporate earnings growth is also attracting investors. Hong Kong-based brokerage CLSA recently upgraded its view on India, saying it plans to allocate more weightage to India compared to what index management company MSCI suggests. They’re moving money out of China and Australia to invest more in India.

Investment Destinations

India’s technology sector is a popular choice for investment due to its successful digitization efforts and a tech-savvy population. The nation’s strong education system and English speaking workforce have contributed to this tech focus, with Indian-born
CEOs leading major U.S. tech companies.

Early-stage venture capital is a way for investors to enter India’s tech scene, with success stories like Flipkart, an e-commerce company, valued at around $40 billion after being acquired by Walmart. However, India’s investment landscape can be less liquid, making it challenging to find buyers for venture-backed companies.

The growing Indian financial sector is appealing to foreign investors, with HDFC Bank and Bajaj Finance stocks being popular choices. Infrastructure is another promising area for investment, thanks to government initiatives like the Delhi Mumbai Expressway project, which will significantly reduce travel times. One significant factor driving India’s growth is its young population, which is expected to contribute to a robust GDP and make India the world’s second-largest economy by 2070, according to a Goldman Sachs study. Investing in India today may be a wise choice if this bright future unfolds as predicted.

https://www.equityright.com/indias-soaring-success-dedicated-india-funds-outperforming-emerging-markets/

0 Comment

Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - November 2, 2023

Dabur Subsidiaries Face Cancer Lawsuits in US and Canada

Overview of Dabur

Dabur India Ltd. is one of India’s leading consumer goods companies with a portfolio of over 250 herbal and Ayurvedic products. The company was established in 1884 and has a long history of developing and manufacturing traditional Indian healthcare products.

Dabur’s products are divided into several categories, including

➢ Healthcare This category includes products similar as Dabur Chyawanprash, Dabur Amla, and Dabur Honitus.
➢ Haircare This category includes products similar as Dabur Vatika, Dabur Amla Hair Oil, and Dabur Red Paste.
➢ Oral care This category includes products similar as Dabur Red Toothpaste, Dabur Lal Dant Manjan, and Dabur Meswak Toothpaste.
➢ Skin care This category includes products similar as Dabur Gulabari, Dabur Odomos, and Dabur Vatika Naturals.
➢ Home care This category includes products similar as Dabur Red Air Freshener, Dabur Odomos Mosquito Repellent Cream, and Dabur Pudin Hara.

About the case

Homegrown FMCG major Dabur on Wednesday said its three foreign subsidiaries are facing cases in civil and state courts in the US and Canada. Two consumers have filed suits against Dabur subsidiaries in the United States and Canada, alleging that the company’s Vatika Naturals Coconut Styling Gel caused them to develop cancer. The suits were filed in California and Ontario in late 2022 and early 2023, independently.

The complainants, both women, allege that the hair gel contains the chemical 1,4 dioxane, which is a known carcinogen. They claim that they used the hair gel for several times before developing cancer, and that the product’s marker didn’t adequately advise consumers about the risks of using it.

Dabur has denied the allegations, saying that its hair gel is safe and that there’s no scientific evidence that it causes cancer. The company has also said that it’s committed to consumer safety and that its products are tested to ensure that they meet all applicable safety norms.

The subsidiaries are Namaste Laboratories LLC, Dermoviva Skin Essentials Inc., and Dabur International Ltd. The suits are still in their early stages, and it’s too early to say how they will be resolved. still, they’ve raised concerns about the safety of Dabur’s hair products and other products that contain 1,4- dioxane.

What’s 1,4- dioxane?

1,4- dioxane is a synthetic chemical that’s used in a variety of artificial and marketable
products, including cosmetics, cleaning products, and paint strippers. It’s also a by- product of some manufacturing processes. 1,4- dioxane is a known carcinogen, and the International Agency for Research on Cancer (IARC) has classified it as a Group 2B carcinogen, which means that it’s “conceivably carcinogenic to humans.”

Implicit health pitfalls of 1,4- dioxane-
Exposure to 1,4- dioxane can do through inhalation, ingestion, or skin immersion. Cancer, skin irritation, eye vexation and 1,4- dioxane can irritate the airways and cause coughing, gasping, and shortness of breath.

https://www.equityright.com/indias-soaring-success-dedicated-india-funds-outperforming-emerging-markets/

0 Comment

Gabriel India Stock Rockets Nearly 80% in 13 Sessions: What’s Driving This Surge?

Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - November 1, 2023

MMFS Q2FY24: PAT Drops to 235 Cr YoY Amid 45 bps NIM Compression

Company Overview:

M&M Finance, a leading Non-Banking Financial Company (NBFC), specializes in financing various types of vehicles, including new and pre-owned autos, utility vehicles, tractors, passenger cars, and commercial vehicles. Additionally, the company offers a range of financial services, encompassing mutual fund distribution, insurance broking, and housing finance. M&M Finance has strategically diversified its lending portfolio, extending its reach to retail and small to medium-sized enterprises in rural and semi-urban areas across India. As of Q2FY24, the company boasts an extensive network, with 1,368 offices spanning 27 states and 7 union territories, serving a substantial customer base of over 9.5 million individuals.

Loan book grew 27% YoY (+8.1% QoQ) to 93,723 Cr, fueled by auto and pre-owned vehicle loans.

M&M Finance experienced a remarkable 27% YoY increase in its loan book, with a further 8.1% QoQ growth, amounting to 93,723 Cr in Q2FY24. This growth was primarily driven by a strong performance in the auto, car, and pre-owned vehicle segments. Notably, the company’s disbursements increased by 12.61% YoY and 9.45% QoQ, reaching 13,315 Cr in the same period. The performance of the tractor portfolio and SME segments, however, remained sluggish. The Cars and Commercial Vehicles segment displayed notable growth of 25% YoY and 28% YoY, standing at 2,455 Cr and 1,511 Cr, respectively, while maintaining market share in various segments. New business segments, including SME, personal loans, and consumer loans, contributed approximately 12% to the overall loan mix.

NIMs compression ~45 bps QoQ and high credit cost ~2.8% (Q2FY23 – 2.5%):

In Q2FY24 yield moderated at ~35% bps QoQ while CoF rose 10 bps led to NIMs contraction by 45 bps QoQ stood at 6.5% in Q2 due to effect of change in portfolio mix (with higher mix of pre-owned vehicles and tractors) and increased interest cost. Annualized credit cost stood at 2.8% (Q2FY23-2.5%) higher than expectation for FY24 targeted between 1.5% -1.7% and included INR 3.5 bn of write-off (PQ-3.1 bn).

Minor improvement in asset quality & CAR strong at 18.7% in Q2

Valuation and Key ratios: ROA/ROE decline -130 bps/500 bps

Currently, M&M Finance’s stock is trading at 1.63 times its book value, at 151 per share, with the market price at 248 Rs. The company reported a decline in return ratios, with ROE decreasing by approximately 500 bps to 5.5%, and ROA decreasing by 130 bps to 0.9% in Q2FY24. The interest coverage ratio stood at 1.44x, indicating the company’s solvency.

Q2 FY24 Results Highlights: Standalone

➡️ In Q2FY24, interest income grew 25.32% YoY (+3.91% QoQ) to 3,153 Cr while interest expense grew 46.56% YoY (+8% QoQ) to 1,566 Cr resulted in Net interest (NII) income reaching to 1,587 Cr grew 9.64% YoY (+0.17% QoQ).

➡️ Pre-Provision operating profit (PPOP) increased 9.17% YoY (-5.07% QoQ) to 943 Cr due to rise in Opex by 8.32% QoQ because of company’s transformation strategy includes technology investment. Opex-to-average assets remained stable at 2.8% in Q2FY24.

➡️ Provision amount increased 215.72% YoY (+19.02% QoQ) to 626.55 Cr which includes 351 write-off led to decline PAT by 48% YoY (-33.30% QoQ).

➡️ PAT decline 47.54% YoY (-33.30% QoQ) to 235 Cr due to increase in provision 215% YoY results in EPS stood at1.90 Rs (PQ-2.84) decline 33% QoQ.

Conclusion:

M&M Finance continues to expand its loan book and customer base, showcasing its presence and performance in the NBFC sector. While challenges in NIMs and higher credit costs require attention, the company’s strong CAR and provision coverage are notable strengths. The decline in return ratios reflects certain performance pressures, and management should focus on addressing these concerns to ensure sustained growth and profitability.

Q2FY24: Shriram Finance reports robust AUM growth Drives NII soars to 4,594 Cr

0 Comment

India: Infrastructure Set to Outpace IT as the Growth Engine

Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - November 1, 2023

India’s soaring success : dedicated India funds outperforming emerging markets

India’s soaring success: dedicated India funds outperforming emerging markets

Dedicated India funds have outperformed emerging market funds in recent months, as investors shift their focus to economies that are less reliant on China. India is one of the fastest-growing major economies in the world, and it is benefiting from a number of factors, including strong domestic demand, a young and growing population, and a government that is supportive of investment.

The average India fund returned 30.2% in the year to the end of September, compared to 18.7% for emerging market funds. This outperformance has been driven by a number of factors, including strong economic growth in India, a relatively low valuation for Indian stocks, and a favorable investment climate.

India’s economy is expected to grow at 7% in 2023, according to the World Bank, making it one of the fastest-growing major economies in the world. This growth is being driven by a number of factors, including a young and growing population, rising consumer spending, and increasing investment in infrastructure and manufacturing.

Indian stocks are also relatively undervalued, trading at a price-to-earnings ratio of around 17, compared to 20 for emerging market stocks as a whole. This makes Indian stocks attractive to investors who are looking for value. The Indian government has also taken steps to improve the investment climate in recent years. These steps include reducing red tape, simplifying tax rules, and improving corporate governance. These changes have made India a more attractive destination for foreign investors.

The outperformance of dedicated India funds is likely to continue in the coming months. India’s economy is expected to remain strong, its stock market is relatively undervalued, and the government is committed to improving the investment climate.

Benefits of investing in India-dedicated funds:-

1. Access to a growing economy:
India is the world’s fastest-growing major economy, with a projected GDP growth rate of 7% in 2023. This growth is being driven by a young and growing population, rising consumer spending, and increasing investment in infrastructure and manufacturing.

2. Undervalued stocks:
Indian stocks are trading at a relatively low valuation, compared to emerging market stocks as a whole. This makes Indian stocks attractive to investors who are looking for value.

3. Favorable investment climate:
The Indian government has taken steps to improve the investment climate in recent years, including reducing red tape, simplifying tax rules, and improving corporate governance. These changes have made India a more attractive destination for foreign investors.

4. Diversification:
Investing in India-focused funds can provide diversification benefits to your investment portfolio. These funds typically invest in a wide range of Indian stocks and securities, which can help spread risk across different sectors and industries within the Indian economy.

5. Expertise and local knowledge:
Many India-focused funds are managed by professionals with deep knowledge of the Indian market and its unique dynamics. They have the ability to conduct in-depth research, identify promising investment opportunities, and navigate the complexities of the Indian financial system.

US Market:

Demand for US sovereign debt is expected to hold up well in the next few months, but there are risks ahead in the next year from all directions. Fund flows into energy-dedicated funds have started to accelerate, as energy prices in the US are expected to be higher for a longer period.

Overall Flows Subdued:
Overall fund flows have been fairly subdued recently, with bond funds taking in a bit more money than equity funds. However, this is likely to change in the coming months, as investors look to rotate into more cyclical assets in anticipation of a stronger economic recovery.

Implications for Investors:
Investors who are looking for growth should consider overweighting emerging markets equities in their portfolios. They should also consider adding some exposure to energy-related stocks, as well as cyclical stocks that stand to benefit from a stronger economic recovery. However, investors should also be mindful of the risks associated with these investments,
including volatility and currency risk.

Neogen Chemicals’ EBITDA Soars to 29.46 Cr fueled by lower input costs

0 Comment

RBI Lowers CPI Inflation Forecast to 3.7% for FY26 Amid Stable Price Outlook

Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - November 1, 2023

Banks' risky bet on unsecured loans

Banks’ risky bet on unsecured loans

Introduction:

Unsecured loans, also known as personal loans or consumer loans, are financial products that do not require borrowers to provide collateral. They have become increasingly popular among Indian consumers for their accessibility and quick approval processes. However, this rapid growth has led to concerns about the credit risk exposure of banks and the overall financial stability of the banking sector.

Indian banks have seen a sharp growth in unsecured loans in recent months, despite the Reserve Bank of India (RBI) cautioning them against such lending. Unsecured loans are those that are not backed by any collateral, making them riskier for banks.

According to a report by the Credit Information Bureau of India (CIBIL), unsecured loans grew by 22% year-on-year in the first quarter of 2023. This is faster than the growth of secured loans, which was 18%. The report also found that the average unsecured loan size has increased by 15% in the past year. This suggests that banks are becoming more comfortable lending larger amounts without collateral.

➢ HDFC Bank, ICICI Bank, and Kotak Mahindra Bank increased their unsecured loan portfolios by up to 30% in the July-September quarter.
➢ They anticipate that growth in the unsecured segment, which includes microfinance, credit cards, personal loans, and some retail loans, will continue.
➢ This growth comes despite concerns flagged by the Reserve Bank of India over the surge in such loans.
➢ HDFC Bank’s personal loan portfolio grew 15.5%, ICICI Bank’s credit card portfolio grew 29.5%, and Kotak Mahindra Bank’s unsecured portfolio grew 49.76%.
➢ IndusInd Bank’s microfinance portfolio grew 16%, credit card business grew 33%, and other retail loans climbed 64%.
➢ RBL Bank’s retail portfolio grew 35%.

The risk of defaults has prompted the RBI to warn banks against making excessive loans that are not secured. The RBI instructed banks to “exercise due caution” when making unsecured loans in a circular that was published in April 2023. Additionally, the RBI requested that banks “make sure the loans are used for productive purposes and that the borrowers have adequate repayment capacity.”

The RBI’s concerns have been shared by analysts. They caution that by making large loans in the unsecured market, banks are taking on excessive risk. They claim that a downturn in the economy could lead to a severe rise in unsecured loan defaults.

Impact of the growth in unsecured lending on the economy:

The growth in unsecured lending has had a mixed impact on the economy. On the one hand, it has boosted consumer spending and helped to drive economic growth. On the other hand, it has increased the risk of a financial crisis if there is a sharp increase in defaults on unsecured loans. The impact of the growth in unsecured lending on the economy will depend on a number of factors, including the overall health of the economy, the interest rate environment, and the creditworthiness of borrowers.

Concerns related to the growth in unsecured lending:

➢ It could lead to a rise in consumer debt levels. This is because unsecured loans are typically easier to obtain than secured loans.
➢ Another concern is that the growth in unsecured lending could lead to a bubble in the credit market. This is because unsecured loans are often used to finance consumption, rather than investment. If there is a sudden decline in consumer confidence, it could lead to a wave of defaults on unsecured loans.

Conclusion:

Despite the RBI’s cautionary steps, unsecured loans have grown significantly in India’s banking industry. While they provide customers with convenient access to borrowing, they also pose hazards to both banks and borrowers. To guarantee the banking sector’s long-term stability, banks must strike a balance between profitability and responsible lending while complying to the RBI’s standards.

Neogen Chemicals’ EBITDA Soars to 29.46 Cr fueled by lower input costs

0 Comment

Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - October 31, 2023

SBI Card Q2FY24: Navigating Headwinds with a Vision for Long-Term Success

Company Overview:

SBI Card & Payment Services Limited (SBI Card) is a leading Indian credit card issuer and payment services provider. It is a joint venture between the State Bank of India (SBI), the country’s largest bank, and The Carlyle Group. SBI Card offers a wide range of credit cards, including super premium cards, premium cards, travel and shopping cards, classic cards, exclusive co-branded cards as well and corporate cards. SBI Card was launched in October 1998 and has since grown to become the second-largest credit card issuer in India, with a customer base of over 16 million cards in force. The company has a wide network of branches and ATMs across India and also offers its products and services through online and mobile channels. SBI Card is known for its innovative products and services, as well as its commitment to customer service. The company has won various industry accolades for its customer service, branding, product innovation and marketing.

Core earnings fall as NIM/retail spending falls; costs rise:

SBI Card’s second-quarter earnings were in line with expectations, but they did not provide a clear picture of the company’s performance. The following reasons contributed to the 2% in QoQ growth in core profitability:- Margin decline: NIM fell 12 basis points year on year to 11.3%, while yields fell 14 basis points year on year. The share of high-yielding receivables remained stable (62% of the mix over the last two quarters), while revolvers stayed stable. Furthermore, the corporation was unable to reprice EMI loans in time for the holiday season. Fee growth slowed to 3.5% as less lucrative corporate spending (increased 14% QoQ) outpaced retail spending (up 5% QoQ). Online retail spending on discretionary items (consumer durables, clothes, and jewelry) fell 44%. Analysts are cautious about discretionary spending since structural demand drivers are weak. Cost income increased to 57% (up 70 basis points QoQ) as a result of significant corporate spending and cash-back incentives (recent offers as high as 27.5% cash-back on select consumer durable goods).

Anticipated Impact of Industry Headwinds on SBI Card’s Q3 Earnings:

SBI Card’s third-quarter earnings are projected to be impacted by industry headwinds such as low revolvers, competition, poor discretionary expenditure, and risks associated with small-ticket card loans. As a result, analysts anticipate that the company’s receivables CAGR will fall from 30% to 27% in FY24-26E, while its spending CAGR will fall from 24% to 21%. Analysts anticipate that SBI Card’s cost-income ratio will stay elevated in FY24-26E, averaging 58%.

SBI Card Faces Trade-off Between Credit Cost and NII:

SBI Card is facing a difficult choice between increasing its net interest income (NII) and reducing its credit costs. On the one hand, the company is increasing its sourcing from open market and banca channels in order to boost revenues. However, this could lead to higher credit costs, which could offset the positives in NII. SBI Card’s self-employed and tier 3 sourcing climbed to 41% and 33%, respectively, in Q2, contributing to an increase in NII. However, credit expenses increased to 6.7%, and write-offs increased 9% year on year. Given that SBI Card is not immune to the unsecured credit market’s headwinds, analysts have revised down their credit cost/GNPA projections for FY24E/25E to 6.3%/2.7%, respectively.

Valuation Outlook: Downgrade to “Reduce,” TP Adjusted to INR 829:

The current valuation of the stock is INR 747 per share. With a book value of INR 117 per share, the market is trading at a Price-to-Book Value (P/BV) ratio of 6.43x, indicating that the stock is priced significantly higher than its book value. Furthermore, the Price-to-Earnings (P/E) ratio stands at 30.7x, suggesting that investors are willing to pay a premium for each unit of earnings generated by the company. This elevated P/E ratio could be a result of strong market sentiment, high growth expectations, or a combination of both. In evaluating this stock, investors should carefully consider whether the premium valuation aligns with their investment goals and risk tolerance. Exhibits 1-6 demonstrate a detailed examination of industry trends that suggest a considerable increase (an increase of 114 basis points) in the 90-day past due (90dpd) rate for credit cards, raising worries regarding SBICARD’s portfolio quality in the coming months. This condition produces a more obvious conflict between credit charges and net interest income (NII), which could have a detrimental influence on the company’s profitability.

Impressive Q2FY24 Financial Performance:

In the second quarter of the fiscal year 2024, the company reported robust financial results. Total revenue amounted to INR 14,286 crore, indicating a substantial 26% year-on-year (YoY) growth. The net profit also demonstrated remarkable performance, surging to INR 603 crore, marking a substantial 15% YoY increase. Earnings per share (EPS) reached INR 6.37, reflecting a solid 14% YoY growth. Additionally, the Return on Equity (RoE) stood at an impressive 25.7%, and the Return on Assets (RoA) was a notable 5.63%, showcasing the company’s strong financial performance and efficiency during this quarter.

Conclusion:

SBI Card is a well-known Indian credit card issuer and provider of payment services with a proven track record of profitability and growth. However, the company is currently suffering industry headwinds such as low revolvers, competition, poor discretionary expenditure, and risks associated with small-ticket card loans. These obstacles are expected to have an immediate impact on the company’s profitability. Despite the challenges, SBI Card is well-positioned for long-term expansion. The company has a strong brand, a diverse product and service offering, and a sizable client base. SBI Card is also investing in digital and technology initiatives to enhance customer experience and operational efficiency.

Q2FY24: Shriram Finance reports robust AUM growth Drives NII soars to 4,594 Cr

0 Comment

Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - October 31, 2023

Festive Season to Boost E-Commerce Sales in India

The festive season sales across e-commerce platforms have seen massive growth in 2023 as compared to muted growth in 2022, according to industry expertscommerce firms in India have seen huge growth in sales during the ongoing festive season, with some platforms reporting over 30% growth compared to the same period last year. This growth is being driven by a number of factors, including rising disposable incomes, increasing internet penetration, and attractive discounts and offers from e-commerce platforms.

The festive season is one of the most important periods for e-commerce firms in India, and they typically offer their biggest discounts and promotions during this time. This year, e-commerce firms have been particularly aggressive with their offers, in an effort to attract and retain customers. As the e-commerce industry matures, the report anticipates a rise in contributions from higher-margin categories such as beauty and personal care (BPC), home and general merchandise, and fashion during this year’s festive season.

Over recent quarters, we have observed an increased GMV from categories beyond electronics. While electronics tend to sell well during festive periods, a broader analysis of festive sales over the past few years reveals a clear trend towards category diversification. This is a positive development for the ecosystem, indicating consumers’ willingness to purchase a variety of product categories online and attracting more brands to meet their demands,” noted Mrigank Gutgutia, Partner at Redseer Strategy Consultants.

Flipkart and Amazon, the two largest e-commerce firms in India, have both reported strong sales growth during the festive season. Flipkart’s Big Billion Days sale, which began on October 8, saw a 30% increase in order volumes compared to the same sale period last year. Amazon’s Great Indian Festival sale, which also began on October 8, saw a 25% increase in order volumes.

Other e-commerce firms, such as Myntra, Meesho, and Snapdeal, have also reported strong sales growth during the festive season. Myntra, which is a fashion e-commerce platform, saw a 40% increase in order volumes during its End of Season Sale. Meesho, a social commerce platform, saw a 35% increase in order volumes during its Maha Diwali Sale. Snapdeal, a general merchandise ecommerce platform, saw a 20% increase in order volumes during its Diwali Sale.

E-commerce sales in the previous festive season were 35% higher than in 2021, representing a significant increase. The strong growth in e-commerce sales during the festive season is a sign of the growing maturity of the e-commerce market in India. It is also a sign of the increasing popularity of online shopping among Indian consumers.

The following have contributed to the massive growth in festive season e-commerce sales in 2023:

Recovery from the COVID-19 pandemic:

The e-commerce industry in India faced a challenging year in 2022 due to the COVID-19 pandemic. However, in 2023, the industry has made a remarkable recovery, with a significant surge in festive season e-commerce sales. Consumers have returned to online shopping in large numbers, driven by their increased comfort with digital retail and the industry’s enhanced infrastructure and safety measures. Businesses have employed innovative marketing strategies and attractive deals to entice shoppers. This resurgence in ecommerce sales in 2023 showcases the industry’s resilience and its ability to adapt, even in the face of adversity.

The rise of social commerce:

Social commerce is a new and growing trend in India. Social commerce platforms, such as Meesho and Shop Clues, allow consumers to shop online through social media platforms such as
WhatsApp and Facebook. Social commerce is particularly popular among consumers in rural and semi-urban areas, where internet access is limited.

The popularity of new product categories:

New product categories, such as electronics and fashion, are becoming increasingly popular among Indian consumers. These categories are driving a significant portion of the growth in e-commerce sales. Tier-II and Tier-III cities are driving growth: Tier-II and Tier-III cities are accounting for a growing share of e-commerce sales in India. This is due to the increasing internet penetration and rising disposable incomes in these cities.

Mobile commerce is on the rise:

Mobile commerce is also on the rise in India. More and more consumers are using their smartphones to shop online. This is convenient for consumers, who can shop from anywhere
and at any time. E-commerce firms are increasingly focusing on providing personalized shopping experiences to their customers. This is done by using artificial intelligence and machine learning to recommend products to customers based on their past purchase history and browsing behaviour.

Neogen Chemicals’ EBITDA Soars to 29.46 Cr fueled by lower input costs

0 Comment