India non banks- Road show feedback – what the investors are saying ::Macquarie Research

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India non banks
Road show feedback – what the investors are saying
Event
􀂃 We met a large number of foreign and domestic investors on our Indian non
banks marketing trip. Key takeaways are given below.
Impact
􀂃 Retail NBFCs – how bad could things get? Investors are broadly looking at
challenges in terms of earnings, asset quality, regulations and valuations.
⇒ Earnings pressures. Investors are concerned both with the extent of
slowdown in loan growth as well as pressure on margins, although there
is more concern on margin than growth. With regard to individual stocks,
Shriram Transport was seen as better able to hold on to ROEs in the near
term, compared to LICHF which is seen as more vulnerable to margin
compression.
⇒ Regulatory headwinds. The extent of the hit on capital of SHTF and
MMFS, from possible changes in rules for securitisation and credit
enhancement, was a negative surprise to many. Quite a few investors are
waiting for the final RBI regulations for NBFCs before forming a view on
the two stocks as well as the sector (including gold financing companies).
⇒ Asset quality. Investor concerns here surrounded mainly the developer
portfolio not just of LIC Housing but also HDFC Ltd. There were queries
on whether evergreening of loans was getting more and more common
and on the extent of the debt repaying capabilities of developers.
⇒ Valuations. Valuations are seen as rich, particularly for LIC Housing
given the way the stock had rallied and the earnings concerns. For SHTF
and MMFS, while some growth slowdown was already seen in the price,
sharper than expected squeeze on margins or adverse regulations were
seen as large negative risks.
􀂃 Infrastructure financing NBFCs – renewed interest. Given their cheap
valuations, there was significant interest in PFC/REC/IDFC. Quite a few
investors believed that risks were more than priced in. There was also an
investor view that sustained rerating of these stocks can only happen with the
macro environment turning positive.
􀂃 Investors still seem underweight on the broader banking space.
However, looking to add selectively where valuations are cheaper and
downside is limited. There is interest in some of the cheaper state owned
banks like Union Bank and also Yes Bank as they may positively surprise the
Street on margins and they do not have significant concerns on asset quality.
Among the larger private banks, Axis seemed to get renewed interest
following its underperformance with respect to peers.
Outlook
􀂃 We retain our bearish stance on retail non banks given earning pressures. We
are positive on infrastructure financing NBFCs.