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02 September 2013
Best of MF in August from Moneycontrol
Muthoot NCD Public Issue - Opening on September 2, 2013 (Monday) with Coupon Rates
Dear All,
Company has obtained the ROC approval. The Issue is scheduled to open on September 2, 2013 (Monday) and close on September 16, 2013(Monday).
Brief terms of the Issue are as follows:
Nature of the Secured NCDs
We are offering Secured NCDs which shall have a fixed rate of interest. The Secured NCDs will be issued at a face value of ` 1,000.00 per NCD. Interest on the Secured NCDs shall be payable in the manner, as set out hereinafter. The terms of the Secured NCDs offered pursuant to the Issue are as follows:
Nature of the Unsecured NCDs
We are offering Unsecured NCDs which shall have a fixed rate of interest. The Unsecured NCDs will be issued at a face value of ` 1,000.00 per NCD. Interest on the Unsecured NCDs shall be payable in the manner as set out hereinafter. The terms of the Unsecured NCDs offered pursuant to the Issue are as follows:
Company has obtained the ROC approval. The Issue is scheduled to open on September 2, 2013 (Monday) and close on September 16, 2013(Monday).
Brief terms of the Issue are as follows:
Nature of the Secured NCDs
We are offering Secured NCDs which shall have a fixed rate of interest. The Secured NCDs will be issued at a face value of ` 1,000.00 per NCD. Interest on the Secured NCDs shall be payable in the manner, as set out hereinafter. The terms of the Secured NCDs offered pursuant to the Issue are as follows:
| Options | I | II | III | IV | V | VI | VII | VIII | IX | X | |
| Frequency of Interest Payment | Monthly* | Monthly* | Monthly* | Annually** | Annually** | Annually** | NA | NA | NA | NA | |
| Who can apply | All categories of investors (Category I, II and III) | ||||||||||
| Minimum Application | ` 10,000.00 (10 NCDs) | ` 10,000.00 (10 NCDs) | ` 10,000.00 (10 NCDs) | ` 10,000.00 (10 NCDs) | ` 10,000.00 (10 NCDs) | ` 10,000.00 (10 NCDs) | ` 10,000.00 (10 NCDs) | ` 10,000.00 (10 NCDs) | ` 10,000.00 (10 NCDs) | ` 10,000.00 (10 NCDs) | |
| In multiples of | ` 1,000.00 (1 NCD) | ` 1,000.00 (1 NCD) | ` 1,000.00 (1 NCD) | ` 1,000.00 (1 NCD) | ` 1,000.00 (1 NCD) | ` 1,000.00 (1 NCD) | ` 1,000.00 (1 NCD) | ` 1,000.00 (1 NCD) | ` 1,000.00 (1 NCD) | ` 1,000.00 (1 NCD) | |
| Face Value of NCDs (` / NCD) | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | |
| Issue Price (` / NCD) | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | |
| Tenor from Deemed Date of Allotment | 24 months | 36 months | 60 months | 24 months | 36 months | 60 months | 400 days | 24 months | 36 months | 60 months | |
Coupon (% per annum)(for Category 1 - Institutional, Category 2 – Non-Institutional, and Category 3 - Individual)
| 11.50% | 12.00% | 11.50% | 12.00% | 12.25% | 12.00% | NA | NA | NA | NA | |
Effective Yield (Per annum)(for Category 1 - Institutional, Category 2 – Non-Institutional, and Category 3 - Individual)
| 11.50% | 12.00% | 11.50% | 12.00% | 12.25% | 12.00% | 11.00% | 12.00% | 12.55% | 12.00% | |
| Mode of Payment | Through various options available | ||||||||||
| Amount (` / NCD) on Maturity*** (for Category 1 - Institutional, Category 2 – Non-Institutional, and Category 3 - Individual) | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,000.00 | ` 1,121.71 | ` 1,254.52 | ` 1,425.76 | ` 1,762.78 | |
| Maturity Date (From Deemed Date of Allotment) | 24 months | 36 months | 60 months | 24 months | 36 months | 60 months | 400 days | 24 months | 36 months | 60 months | |
| Nature of indebtedness | Secured | ||||||||||
Nature of the Unsecured NCDs
We are offering Unsecured NCDs which shall have a fixed rate of interest. The Unsecured NCDs will be issued at a face value of ` 1,000.00 per NCD. Interest on the Unsecured NCDs shall be payable in the manner as set out hereinafter. The terms of the Unsecured NCDs offered pursuant to the Issue are as follows:
| Option | XI |
| Frequency of Interest Payment | NA |
| Who can apply | All categories of investors (Category I, II and III) |
| Minimum Application | ` 10,000.00(10 NCD) |
| In multiples of | ` 1,000.00(1 NCD) |
| Face Value of NCDs (` / NCD) | ` 1,000.00 |
| Issue Price (` / NCD) | ` 1,000.00 |
| Tenor from Deemed Date of Allotment | 72 months |
Coupon (% per annum)(for Category 1 - Institutional, Category 2 – Non-Institutional, and Category 3 - Individual)
| NA |
Effective Yield (Per annum)(for Category 1 - Institutional, Category 2 – Non-Institutional, and Category 3 - Individual)
| 12.25% |
| Mode of Payment | Through various options available |
| Amount (` / NCD) on Maturity*(for Category 1 - Institutional, Category 2 – Non-Institutional, and Category 3 - Individual) | ` 2,000 |
| Maturity Date (From Deemed Date of Allotment) | 72months |
| Nature of indebtedness | Unsecured |
Investment planning is simpler than you think, and more rewarding than you would imagine.
INR impact: First order inflation effects limited to middle-income India and large-scale investment :: Credit Suisse
● One reason the word "crisis" gets bandied about these days is
that the steep 24% fall in the INR since April can start a downward
economic spiral. As a weaker INR helps growth, unpayable forex
debt, fiscal problems and a spike in inflation are the likely fears.
● On inflation, the first-order effect seems limited to the WPI (32% is
in USD), and not so much on CPI (5%) or CPI-AL (0%). Further,
the transmission comes with varying time-lag (e.g. carmakers
raising prices only now, three months after the fall started), and is
item-dependent (e.g., steel prices in INR have not changed).
● While the full translation impact is likely to be as high as 7.5 pp on
the WPI, the immediate broader economic impact at least in the
form of inflation is likely limited. The government's decision on
diesel price post the Parliament session would be critical.
● Other than the second order impact due to fuel price hikes, the part
of the economy that is doing well (low-income India) may not see real
wage erosion. Middle-income India and large-scale investment will
see more pressure (Fig 3). RBI's 18 September decision will be tricky
(esp. as CS India’s strategy view is that the INR's fall is short-lived).
One reason the word "crisis" gets bandied about these days is that a
steep 24% fall in the INR since April can start a downward economic
spiral. As a weaker INR helps growth, unpayable foreign currency
debt and a spike in inflation are the likely fears.
Inflation: CPI first-order linkage to rupee the lowest
A weak INR affects prices of items that are imported or linked to
global prices. Further, the price translation into INR for various items
is likely to happen with varying degrees of delay (e.g. carmakers are
only raising prices from 1 September, three months after the currency
fall started), and will be affected by local demand-supply dynamics
(e.g., despite the weak INR, steel prices in INR have not budged).
that the steep 24% fall in the INR since April can start a downward
economic spiral. As a weaker INR helps growth, unpayable forex
debt, fiscal problems and a spike in inflation are the likely fears.
● On inflation, the first-order effect seems limited to the WPI (32% is
in USD), and not so much on CPI (5%) or CPI-AL (0%). Further,
the transmission comes with varying time-lag (e.g. carmakers
raising prices only now, three months after the fall started), and is
item-dependent (e.g., steel prices in INR have not changed).
● While the full translation impact is likely to be as high as 7.5 pp on
the WPI, the immediate broader economic impact at least in the
form of inflation is likely limited. The government's decision on
diesel price post the Parliament session would be critical.
● Other than the second order impact due to fuel price hikes, the part
of the economy that is doing well (low-income India) may not see real
wage erosion. Middle-income India and large-scale investment will
see more pressure (Fig 3). RBI's 18 September decision will be tricky
(esp. as CS India’s strategy view is that the INR's fall is short-lived).
One reason the word "crisis" gets bandied about these days is that a
steep 24% fall in the INR since April can start a downward economic
spiral. As a weaker INR helps growth, unpayable foreign currency
debt and a spike in inflation are the likely fears.
Inflation: CPI first-order linkage to rupee the lowest
A weak INR affects prices of items that are imported or linked to
global prices. Further, the price translation into INR for various items
is likely to happen with varying degrees of delay (e.g. carmakers are
only raising prices from 1 September, three months after the currency
fall started), and will be affected by local demand-supply dynamics
(e.g., despite the weak INR, steel prices in INR have not budged).
Multiple challenges South Indian Bank (SIB) :: Ambit
Multiple challenges
South Indian Bank (SIB) has a plateful of challenges, with little
diversification outside its home state Kerala, a weak liability franchise,
no improvement on fee income generation, slowing asset growth and
rising credit costs. The bank has a 57% exposure to corporate loans
and a coverage ratio of 29%, and thus, it has a small margin of error
on asset quality. We expect SIB’s financial performance to be volatile
and we expect RoAs to fall below 1% in the near term. We change our
stance to SELL.
Competitive position: WEAK Changes to this position: NEGATIVE
Fares poorly in comparison to peers: As discussed in the thematic section,
SIB emerges as the weakest franchise among its regional bank peers. A high
geographical concentration in the intensely competitive state of Kerala had led
to a weak liability franchise (CA: 3.5%, CASA: 21%). SIB has made little
progress on its longstanding weakness in fee income generation (fee income
to assets below 60bps). With a 57% exposure to corporate loans and a low
provision coverage ratio of 29%, SIB is weakly cushioned to any adverse asset
quality shocks.
Growth slowdown with subdued profitability: SIB’s FY13 loan growth has
slowed down to 17% from an average of 28% in FY08-12. Excluding gold
loans, growth is even weaker at ~12%. With gold loan growth coming to a
halt, we expect further weakness in growth going forward. We do not expect
any near-term improvement in NIM, as the liability franchise would show no
improvement. Similarly, we expect credit costs to remain elevated at ~68bps
(vs 56bps in FY13 and average 27bps in FY08-12) due to a difficult external
environment and high exposure to corporate loans.
Management change due in September 2014: The six-year tenure of the
current MD & CEO, Dr. V. A. Joseph, will end in September 2014. In the year
ahead, the uncertainty on the new MD & CEO and change in strategy post the
transition would add further risk to this franchise.
SELL stance with a target price of `20: We change our stance to SELL with
a valuation of `20 (implied FY14E P/ABV of 0.75x and FY14 P/E of 5.0x) as we
expect profitability to remain subdued (average RoA of ~0.95% over FY14-
15), with slowing asset growth (19% CAGR in FY13-15 vs 25% CAGR in FY10-
13). Our previous valuation for SIB was `29. The 31% drop in our valuation is
driven by lower valuation multiples due to our concerns on multiple structural
issues faced by the bank. Key risks to our SELL stance are a better-thanexpected recovery in the macro-economic environment and takeover interest
from an incumbent or a new banking licence recipient looking to expand in
south India.
South Indian Bank (SIB) has a plateful of challenges, with little
diversification outside its home state Kerala, a weak liability franchise,
no improvement on fee income generation, slowing asset growth and
rising credit costs. The bank has a 57% exposure to corporate loans
and a coverage ratio of 29%, and thus, it has a small margin of error
on asset quality. We expect SIB’s financial performance to be volatile
and we expect RoAs to fall below 1% in the near term. We change our
stance to SELL.
Competitive position: WEAK Changes to this position: NEGATIVE
Fares poorly in comparison to peers: As discussed in the thematic section,
SIB emerges as the weakest franchise among its regional bank peers. A high
geographical concentration in the intensely competitive state of Kerala had led
to a weak liability franchise (CA: 3.5%, CASA: 21%). SIB has made little
progress on its longstanding weakness in fee income generation (fee income
to assets below 60bps). With a 57% exposure to corporate loans and a low
provision coverage ratio of 29%, SIB is weakly cushioned to any adverse asset
quality shocks.
Growth slowdown with subdued profitability: SIB’s FY13 loan growth has
slowed down to 17% from an average of 28% in FY08-12. Excluding gold
loans, growth is even weaker at ~12%. With gold loan growth coming to a
halt, we expect further weakness in growth going forward. We do not expect
any near-term improvement in NIM, as the liability franchise would show no
improvement. Similarly, we expect credit costs to remain elevated at ~68bps
(vs 56bps in FY13 and average 27bps in FY08-12) due to a difficult external
environment and high exposure to corporate loans.
Management change due in September 2014: The six-year tenure of the
current MD & CEO, Dr. V. A. Joseph, will end in September 2014. In the year
ahead, the uncertainty on the new MD & CEO and change in strategy post the
transition would add further risk to this franchise.
SELL stance with a target price of `20: We change our stance to SELL with
a valuation of `20 (implied FY14E P/ABV of 0.75x and FY14 P/E of 5.0x) as we
expect profitability to remain subdued (average RoA of ~0.95% over FY14-
15), with slowing asset growth (19% CAGR in FY13-15 vs 25% CAGR in FY10-
13). Our previous valuation for SIB was `29. The 31% drop in our valuation is
driven by lower valuation multiples due to our concerns on multiple structural
issues faced by the bank. Key risks to our SELL stance are a better-thanexpected recovery in the macro-economic environment and takeover interest
from an incumbent or a new banking licence recipient looking to expand in
south India.
Losing momentum Karur Vysya Bank:: Ambit
Losing momentum
Karur Vysya Bank’s (KVB) RoAs have declined to 1.3% in FY13 from an
average of 1.6% over FY06-11, due to constraints on its liability side,
rising cost ratios and increasing credit costs. KVB continues to seek
growth amidst a slowing macro-economic environment. We believe
unabated pressure on margins, cost ratios and asset quality would
lead to a further decline in RoAs. The stock is trading at inexpensive
valuations of 1.0x FY14 BV but near-term positive catalysts are scarce.
We initiate coverage with a SELL stance.
Competitive position: MODERATE Changes to this position: STABLE
Losing momentum: KVB delivered average RoAs of 1.6% along with asset
CAGR of 26% in FY06-11. However, its RoAs have moderated to 1.3% in
FY13, owing to: (1) continued weakness in its liability franchise (CASA to
borrowed funds declined from 23% in FY11 to 17% in FY13), (2) increase in
the cost-to-income ratio (from 42% in FY11 to 47% in FY13), and (3) rising
credit costs (from 13bps in FY11 to 53bps in FY13).
RoA moderation to continue: RoAs would decline by 30bps to 1% over the
next two years, owing to: (i) continued geographical concentration of
branches, which means that the CASA ratio would remain weak and put
pressure on margins amidst the phase of tight liquidity; (ii) the management’s
continued branch expansion plans, which would put pressure on cost ratios, as
productivity of the new branches would remain limited in the weak economic
environment; and (iii) credit costs that have been rising from the trough levels
(average 13bps in FY08-12 to 53bps in FY13) would remain elevated given
the 69% loan exposure to the corporate and commercial segments. A
significant chunk of these loans are towards the mid-corporate and consortium
loan corporate segments. KVB’s delinquency levels have increased in recent
quarters owing to this exposure.
Initiate with SELL stance and a target price of Rs320: We initiate
coverage with a SELL stance and a valuation of Rs320 (implied FY14E P/ABV of
1.0x and FY14 P/E of 6.3x) based on the EVA approach. Our EVA model
assumes sustainable steady-state RoEs of 15% beyond the next three years
and a cost of equity of 15%. The rise in credit cost will be the main driver of
RoA moderation but the geographically concentrated nature of the rapid
branch expansion will affect the operating performance of the bank as well.
Key risks to our SELL stance are a better-than-expected economic recovery,
particularly in Tamil Nadu, and a reversal in its current strategy of pursuing
rapid growth in favour of productivity improvement.
Karur Vysya Bank’s (KVB) RoAs have declined to 1.3% in FY13 from an
average of 1.6% over FY06-11, due to constraints on its liability side,
rising cost ratios and increasing credit costs. KVB continues to seek
growth amidst a slowing macro-economic environment. We believe
unabated pressure on margins, cost ratios and asset quality would
lead to a further decline in RoAs. The stock is trading at inexpensive
valuations of 1.0x FY14 BV but near-term positive catalysts are scarce.
We initiate coverage with a SELL stance.
Competitive position: MODERATE Changes to this position: STABLE
Losing momentum: KVB delivered average RoAs of 1.6% along with asset
CAGR of 26% in FY06-11. However, its RoAs have moderated to 1.3% in
FY13, owing to: (1) continued weakness in its liability franchise (CASA to
borrowed funds declined from 23% in FY11 to 17% in FY13), (2) increase in
the cost-to-income ratio (from 42% in FY11 to 47% in FY13), and (3) rising
credit costs (from 13bps in FY11 to 53bps in FY13).
RoA moderation to continue: RoAs would decline by 30bps to 1% over the
next two years, owing to: (i) continued geographical concentration of
branches, which means that the CASA ratio would remain weak and put
pressure on margins amidst the phase of tight liquidity; (ii) the management’s
continued branch expansion plans, which would put pressure on cost ratios, as
productivity of the new branches would remain limited in the weak economic
environment; and (iii) credit costs that have been rising from the trough levels
(average 13bps in FY08-12 to 53bps in FY13) would remain elevated given
the 69% loan exposure to the corporate and commercial segments. A
significant chunk of these loans are towards the mid-corporate and consortium
loan corporate segments. KVB’s delinquency levels have increased in recent
quarters owing to this exposure.
Initiate with SELL stance and a target price of Rs320: We initiate
coverage with a SELL stance and a valuation of Rs320 (implied FY14E P/ABV of
1.0x and FY14 P/E of 6.3x) based on the EVA approach. Our EVA model
assumes sustainable steady-state RoEs of 15% beyond the next three years
and a cost of equity of 15%. The rise in credit cost will be the main driver of
RoA moderation but the geographically concentrated nature of the rapid
branch expansion will affect the operating performance of the bank as well.
Key risks to our SELL stance are a better-than-expected economic recovery,
particularly in Tamil Nadu, and a reversal in its current strategy of pursuing
rapid growth in favour of productivity improvement.
Federal Bank : Structural concerns discounted : Ambit
Structural concerns discounted
We have been toning down our expectation on Federal Bank (FB)’s
operating performance even as there has been a tangible
improvement in the bank’s asset quality, particularly for retail and
SME books. Our analysis of FB’s geographical concentration and its
impact on FB’s liability franchise, fee income generation and cost
efficiency show that any improvement from hereon would be gradual,
and the process could test the management’s and investors’ patience.
However, in the last three months, the stock has underperformed the
Bankex by 11% and current valuation of 0.63x FY14 BV seems to
discount these long-term structural concerns. Our target price of `312,
valuing FB at 0.75x FY14 BV, implies 21% upside.
Competitive position: WEAK Changes to this position: NEGATIVE
Deep-rooted inertia: As discussed earlier (page 13-15), geographical
diversification is the key to a bank’s liability franchise, as it leads to low cost of
funds, better income generation and cost efficiencies. FB’s management has
been focused on addressing asset quality issues but the need to evolve into a
more geographically diversified franchise has been neglected. For a bank of
FB’s size, its concentration in a small state (Kerala) has led to weak operating
performance - a low CA ratio (stuck at around 5% for the last 11 years), and a
meagre fee income to assets ratio of 0.6%. Weak income generation has led
to deterioration in cost ratios (cost to income of 35% in FY09 vs 45% in FY13).
The recent exit of a non-executive director suggests a degree of
disenchantment in the Boardroom with the bank’s progress
(http://goo.gl/NC7455). We believe further signs of discontent in the
Boardroom of FB cannot be ruled out and could be an overhang on the stock
Lacks levers for profitability improvement: The bank’s NIMs are already
structurally down (from 4.3% in FY09 to 3.4% in FY13), owing to: (1) derisking to lower-yielding assets; and (2) deregulation of the non-resident
deposits interest rates. The geographical concentration of the branch
expansion will hinder low-cost deposit mobilisation and limit the decline in the
cost of funds. Fee income to assets would remain subdued at ~0.6%, as
opportunities remain limited due to branch concentration. The pressure on
income generation, we believe, will keep cost to income at ~45%. Mediumterm trends in retail and SME asset quality have indeed improved but the
corporate loan segment remains a key risk in the current environment. We
build in FY14-15 average credit costs of ~75bps (vs 58bps in FY13 and 74bps
in FY12). Profitability will, hence, decline, with RoAs of ~1.1% in FY14-15 (vs
1.3% in FY13 and 1.4% in FY12).
Valuation and stance: The stock has underperformed the Bankex by 11%
and current valuation of 0.63x FY14 BV seems to discount these long-term
structural concerns. We cut our FY14/15 estimates by 25% and cut our TP by
47% to `312. Our TP implies 0.8x FY14 P/B and 6.5x FY14 P/E.
We have been toning down our expectation on Federal Bank (FB)’s
operating performance even as there has been a tangible
improvement in the bank’s asset quality, particularly for retail and
SME books. Our analysis of FB’s geographical concentration and its
impact on FB’s liability franchise, fee income generation and cost
efficiency show that any improvement from hereon would be gradual,
and the process could test the management’s and investors’ patience.
However, in the last three months, the stock has underperformed the
Bankex by 11% and current valuation of 0.63x FY14 BV seems to
discount these long-term structural concerns. Our target price of `312,
valuing FB at 0.75x FY14 BV, implies 21% upside.
Competitive position: WEAK Changes to this position: NEGATIVE
Deep-rooted inertia: As discussed earlier (page 13-15), geographical
diversification is the key to a bank’s liability franchise, as it leads to low cost of
funds, better income generation and cost efficiencies. FB’s management has
been focused on addressing asset quality issues but the need to evolve into a
more geographically diversified franchise has been neglected. For a bank of
FB’s size, its concentration in a small state (Kerala) has led to weak operating
performance - a low CA ratio (stuck at around 5% for the last 11 years), and a
meagre fee income to assets ratio of 0.6%. Weak income generation has led
to deterioration in cost ratios (cost to income of 35% in FY09 vs 45% in FY13).
The recent exit of a non-executive director suggests a degree of
disenchantment in the Boardroom with the bank’s progress
(http://goo.gl/NC7455). We believe further signs of discontent in the
Boardroom of FB cannot be ruled out and could be an overhang on the stock
Lacks levers for profitability improvement: The bank’s NIMs are already
structurally down (from 4.3% in FY09 to 3.4% in FY13), owing to: (1) derisking to lower-yielding assets; and (2) deregulation of the non-resident
deposits interest rates. The geographical concentration of the branch
expansion will hinder low-cost deposit mobilisation and limit the decline in the
cost of funds. Fee income to assets would remain subdued at ~0.6%, as
opportunities remain limited due to branch concentration. The pressure on
income generation, we believe, will keep cost to income at ~45%. Mediumterm trends in retail and SME asset quality have indeed improved but the
corporate loan segment remains a key risk in the current environment. We
build in FY14-15 average credit costs of ~75bps (vs 58bps in FY13 and 74bps
in FY12). Profitability will, hence, decline, with RoAs of ~1.1% in FY14-15 (vs
1.3% in FY13 and 1.4% in FY12).
Valuation and stance: The stock has underperformed the Bankex by 11%
and current valuation of 0.63x FY14 BV seems to discount these long-term
structural concerns. We cut our FY14/15 estimates by 25% and cut our TP by
47% to `312. Our TP implies 0.8x FY14 P/B and 6.5x FY14 P/E.
ING Vysya Bank: Proven competitive advantages:: Ambit
Proven competitive advantages
ING Vysya Bank (IVB) has proven its competitive advantages over
other regional banks through better geographical diversification, lowcost deposits franchise, better fee income generation capability and
better asset quality. These advantages have led to a stock rerating. We
expect its valuation gap with private sector banks to narrow further
over the next two years. Moderation in the cost-to-asset ratio and
containment of credit costs would lead to an RoA improvement of
10bps by FY15, at a time when most of IVB’s peers would face RoA
declines. Moreover, IVB is well placed to face any adverse asset quality
shocks in the near term, owing to its less risky loan book, high
provision coverage ratio and high capital ratio. We initiate coverage
with a BUY stance.
Competitive position: MODERATE Changes to this position: STABLE
Continued RoA improvement over the last four years: After a muted RoA
performance until FY09, IVB has improved its RoAs by 55bps in FY09-13 and
has delivered a 29% EPS CAGR during this period. The company de-risked its
loan book by: (1) increasing the proportion of collateralised SME loans, (2)
realigning its balance sheet towards higher interest earning assets, and (3)
improving its operational efficiency in terms of bringing down the cost-toincome ratio by ~830bps. Thus, its RoAs have improved in FY09-13.
Narrowing the valuation gap to new private sector banks: A favourable
loan mix change towards higher-yielding assets, a pick up in low-cost CASA
deposits and improving productivity of urban and metro branches that were
opened in recent years would lead to an RoA improvement of 10bps by FY15.
This improvement will take place at a time when most peer banks would see
RoA compression. This, we believe, would further narrow down the valuation
gap to new private sector banks (currently at 35% vs 52% in August 2011).
Strong buffer to protect from any asset quality shocks: Negligible
exposure to stressed sectors in the corporate book and a well-performing SME
book, provision coverage and capital ratio mean that IVB is relatively better
placed vs its peers to absorb system-wide asset quality shocks vs its peers.
Initiate with BUY stance and a target price of `626: We initiate coverage
with a BUY stance and a target price of `626 (implied one-year forward P/B of
1.6x and one-year forward P/E of 14.0x) based on the EVA approach. Our EVA
model assumes sustainable steady-state RoAs of 1.4% beyond the next three
years and a cost of equity of 14%. The main catalysts for IVB are stable asset
quality and pick up in branch expansion with contained cost ratios. The key
risk to our BUY stance is the higher-than-expected weakness in the macroeconomic environment which would affect the credit quality of SME borrowers.
ING Vysya Bank (IVB) has proven its competitive advantages over
other regional banks through better geographical diversification, lowcost deposits franchise, better fee income generation capability and
better asset quality. These advantages have led to a stock rerating. We
expect its valuation gap with private sector banks to narrow further
over the next two years. Moderation in the cost-to-asset ratio and
containment of credit costs would lead to an RoA improvement of
10bps by FY15, at a time when most of IVB’s peers would face RoA
declines. Moreover, IVB is well placed to face any adverse asset quality
shocks in the near term, owing to its less risky loan book, high
provision coverage ratio and high capital ratio. We initiate coverage
with a BUY stance.
Competitive position: MODERATE Changes to this position: STABLE
Continued RoA improvement over the last four years: After a muted RoA
performance until FY09, IVB has improved its RoAs by 55bps in FY09-13 and
has delivered a 29% EPS CAGR during this period. The company de-risked its
loan book by: (1) increasing the proportion of collateralised SME loans, (2)
realigning its balance sheet towards higher interest earning assets, and (3)
improving its operational efficiency in terms of bringing down the cost-toincome ratio by ~830bps. Thus, its RoAs have improved in FY09-13.
Narrowing the valuation gap to new private sector banks: A favourable
loan mix change towards higher-yielding assets, a pick up in low-cost CASA
deposits and improving productivity of urban and metro branches that were
opened in recent years would lead to an RoA improvement of 10bps by FY15.
This improvement will take place at a time when most peer banks would see
RoA compression. This, we believe, would further narrow down the valuation
gap to new private sector banks (currently at 35% vs 52% in August 2011).
Strong buffer to protect from any asset quality shocks: Negligible
exposure to stressed sectors in the corporate book and a well-performing SME
book, provision coverage and capital ratio mean that IVB is relatively better
placed vs its peers to absorb system-wide asset quality shocks vs its peers.
Initiate with BUY stance and a target price of `626: We initiate coverage
with a BUY stance and a target price of `626 (implied one-year forward P/B of
1.6x and one-year forward P/E of 14.0x) based on the EVA approach. Our EVA
model assumes sustainable steady-state RoAs of 1.4% beyond the next three
years and a cost of equity of 14%. The main catalysts for IVB are stable asset
quality and pick up in branch expansion with contained cost ratios. The key
risk to our BUY stance is the higher-than-expected weakness in the macroeconomic environment which would affect the credit quality of SME borrowers.
INR – Risk scenarios „USD/INR records steepest year-to-date fall in 20yrs:: BofA Merrill Lynch
INR – Risk scenarios
„USD/INR records steepest year-to-date fall in 20yrs
INR weakness accelerated today with spot reaching a historical high of 68.755
intraday, a fall of 2.75%. In ytd terms, this represents a fall of 19.3% - the
steepest fall since the balance-of-payments crisis in 1991. This begs two key
questions: First, what is driving this dynamic and second, what are the risks.
Three dysfunctional dynamics
#1 Oil and commodity prices – Geopolitical concerns over military intervention
in Syria are prompting oil prices to break higher. Additionally, gold prices are
gaining on safe-haven buying. As such, the RBI’s calculated oil basket and gold
prices in INR terms are at record highs (chart 1). This price effect is hurting the
government’s efforts to repress gold imports and narrow the current account
deficit. That said our own conversations with onshore market participants did not
see panic USD buying by oil importers in the onshore FX market today.
#2 Fiscal concerns - The overnight passage of the Food Security Bill (INR1.35tn)
and the infrastructure projects (INR1.8tn), by the Indian parliament triggered fresh
fears that this will be the beginning of a spending spree and erosion of credibility.
#3 Policy vacuum – An additional contributory factor is the absence of direct FX
policy action. Moreover, the overnight policy statement that a panel would be set
up to investigate the expansion of bilateral central bank FX swap lines over the
next month was interpreted more as policy inaction. India entered a USD15bn
swap arrangement with Japan in 2011 to improve access to crisis USD funding.
Three policy risk scenarios
Status quo remains: INR depreciates and we have to wait for the current
account to correct and assume less FII inflows under Fed QE tapering. A
conservative estimate is USD/INR goes to 70 year-end and 75 by-end 2014
based on NDF forward pricing.
#1 Very likely policy action – NRI (Non- resident Indian) bond issue. We
stabilize USD/INR at current levels, but stay in elevated trading range USD/INR
63-69.
#2 Likely policy action – hike rates. Failure to attract capital inflows amid Fed
tapering and 2014 India election uncertainty runs the risk of a crisis of confidence.
This would likely accelerate INR weakness to 75 by year-end and induce
emergency rate hikes, but cause an earlier stabilization and recovery in USD/INR
back to 65-70 levels by mid-2014.
#3 Unlikely – capital controls: This goes against India’s FX legislation and will
deter the future inflows required to fund the existing current account deficit.
„USD/INR records steepest year-to-date fall in 20yrs
INR weakness accelerated today with spot reaching a historical high of 68.755
intraday, a fall of 2.75%. In ytd terms, this represents a fall of 19.3% - the
steepest fall since the balance-of-payments crisis in 1991. This begs two key
questions: First, what is driving this dynamic and second, what are the risks.
Three dysfunctional dynamics
#1 Oil and commodity prices – Geopolitical concerns over military intervention
in Syria are prompting oil prices to break higher. Additionally, gold prices are
gaining on safe-haven buying. As such, the RBI’s calculated oil basket and gold
prices in INR terms are at record highs (chart 1). This price effect is hurting the
government’s efforts to repress gold imports and narrow the current account
deficit. That said our own conversations with onshore market participants did not
see panic USD buying by oil importers in the onshore FX market today.
#2 Fiscal concerns - The overnight passage of the Food Security Bill (INR1.35tn)
and the infrastructure projects (INR1.8tn), by the Indian parliament triggered fresh
fears that this will be the beginning of a spending spree and erosion of credibility.
#3 Policy vacuum – An additional contributory factor is the absence of direct FX
policy action. Moreover, the overnight policy statement that a panel would be set
up to investigate the expansion of bilateral central bank FX swap lines over the
next month was interpreted more as policy inaction. India entered a USD15bn
swap arrangement with Japan in 2011 to improve access to crisis USD funding.
Three policy risk scenarios
Status quo remains: INR depreciates and we have to wait for the current
account to correct and assume less FII inflows under Fed QE tapering. A
conservative estimate is USD/INR goes to 70 year-end and 75 by-end 2014
based on NDF forward pricing.
#1 Very likely policy action – NRI (Non- resident Indian) bond issue. We
stabilize USD/INR at current levels, but stay in elevated trading range USD/INR
63-69.
#2 Likely policy action – hike rates. Failure to attract capital inflows amid Fed
tapering and 2014 India election uncertainty runs the risk of a crisis of confidence.
This would likely accelerate INR weakness to 75 by year-end and induce
emergency rate hikes, but cause an earlier stabilization and recovery in USD/INR
back to 65-70 levels by mid-2014.
#3 Unlikely – capital controls: This goes against India’s FX legislation and will
deter the future inflows required to fund the existing current account deficit.
Sizzling Stocks - Sesa Goa, Mahindra & Mahindra Financial Services :: Business Line
Sizzling Stocks - Sesa Goa (Rs 187.3)
The stock surged over 30 per cent, registering an intraweek high of Rs 198.9 before settling with 22.5 per cent gains for the week. This rally was on the back of the delisting of Sterlite Industries with effect from August 27. Moreover, Sesa Goa was included in the S&P BSE Sensex in place of Sterlite Industries. Following a medium-term downtrend, the stock found support at around Rs 120 in late July and early August 2013. Subsequently, it reversed direction triggered by positive divergence in daily relative strength index and moving average convergence divergence indicator. Since then, the stock has been on a short-term uptrend. Last week's strong rally breached its key resistances at Rs 160 and Rs 175 decisively. There has been an increase in volume over the past two weeks. The stock is trading well above its 50 and 200-day moving averages.
The stock is facing resistance in the band between Rs 200 and Rs 205. Only a strong breakthrough of this band will pave the way for an up-move to Rs 220 and then to Rs 235 in the medium-term. Next significant resistances are pegged at Rs 245 and Rs 260. A conclusive rally above Rs 300 will be conducive for a long-term up-move to Rs 350. Important supports for the stock are positioned at Rs 175, Rs 160 and then at Rs 140.
Mahindra & Mahindra Financial Services (Rs 252.7)
The stock surged 16.8 per cent last week, taking support from its key medium-term base level at Rs 215. The stock's recent up-move has emphatically breached its important resistance at around Rs 240. With this rally, the stock appears to have resumed its long-term uptrend that has been in place from its June 2012 low of Rs 120. Short-term trend is also up. However, the stock is currently testing significant resistance at Rs 260. A strong breach of this resistance will take the stock northwards to Rs 285 and to new highs in the medium-term. But, inability to surpass Rs 260 will confine the stock to hovering sideways in the wide range between Rs 215 and Rs 260, before progressing higher.
On the downside, a decisive fall below Rs 215 will pull the stock down to Rs 200 and then to Rs 180 in the medium-term. Key immediate supports are pegged at Rs 240 and Rs 228 levels.
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