India BFSI Conference, 18-19 Nov ’10 Key takeaways:: Anand Rathi

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India BFSI Conference, 18-19 Nov ’10
Key takeaways
 Conference. The Anand Rathi Institutional Equities’ India Banks &
Financial Services Conference was held in Mumbai on 18-19 Nov ’10.
The conference featured ten banks and three NBFCs. It offered an
opportunity to investors to interact with a spectrum of companies in
the sector, both government-owned and private, and gain insight into
future growth strategies and recent sector-specific issues.


 Companies featured. The companies featured in the conference were:
i) South India-based banks – Corporation Bank, Federal Bank, Indian
Overseas Bank, Karur Vysya Bank, South Indian Bank and Vijaya Bank;
ii) NBFCs – IDFC, M&M Financial Services and Shriram Transport
Finance; and iii) Promising investment opportunities – IDBI, IndusInd
Bank, Yes Bank and Union Bank.

 Key takeaways. Most company managements appeared optimistic on
bank loan-growth recovery owing to a broad-based sector contribution
in the next two years. Most discussed issues were provisions for
employee pension liabilities and exposure to microfinance institutions.
The employee pension liability is likely to be spread over five years and
is not expected to pose a serious risk to earnings growth. As regards the
microfinance issue, while most bank managements were caught
unawares by the recent developments, they nevertheless expressed
willingness to support microfinance lending. Also, their exposures to
microfinance lending are not significant, and are likely to have no major
impact on earnings.

 Interesting stock ideas. Yes Bank – Buy (based on rapid business
growth led by ambitious network expansion and high capital adequacy
to support robust earnings); M&M Financial Services – Buy (on
buoyant rural credit demand and healthy asset quality to maintain high
RoAs over FY11-13, likely equity dilution by end-FY11); Karur Vysya
Bank – Buy (RoA quality and consistency to sustain, led by better credit
growth, low trading gains and high NPA coverage); Federal Bank – Buy
(faster-than-system credit growth in FY12 with higher NIM likely to aid
RoE expansion); and Indian Overseas Bank – Not rated (sustenance of
high NIM and stable asset quality to lead RoE recovery).