BFSI Quarterly Performance Analysis Q4FY14

8/12/2019 BFSI Quarterly Performance Analysis Q4FY14

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Analyst: Sanjeev Jain

Mail: [email protected]: +91-33-6651-2121

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BFSI Q4’14 Earnings Review – Higher Provisioning - Affected PSBs’

Profitability……

19th June 2014

Industry’s GNPA

+ Restructuring

crossed over~INR5.6 trillions

or ~9% of total

advance

PSBs’

Profitabilitydown by ~7% YoY

to ~INR11000

crores





Macro Economy – Key Highlights

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Indian GDP Growth (%) Trend

India’s Q4FY14, Gross Domestic Product (GDP) growth came in at 4.6% YoY against 4.7% YoY in the previous quarter and 4.4% YoY in thecorresponding quarter last year. For FY14, it came in at 4.7% YoY against 4.5% YoY in the previous year .

India’s Industrial Production growth rebounded to 13 month high in April 2014. IIP growth came in at 3.4% YoY against -0.5% YoY previous

month.

India's wholesale price inflation hit a five month high in May 2014. Wholesale prices rose faster than expected 6.01% in May 2014 against5.20% in the previous month.

India’s Consumer Price Inflation (CPI) eased to 8.28% in May 2014 from a three-month high of 8.59% in the previous month.

India’s Trade Deficit increased to 11.23 billion USD in May 2014 as compared to 10.09 billion USD in the previous month.

India’s Fiscal Deficit for FY14 came down to $86.08 billion or equivalent to 4.5% of the country's Gross Domestic Product (GDP) as against

4.9% a year earlier.

Repo Rate, Reverse Repo Rate, Cash Reserve Ratio (CRR) stood at 8%, 7% and 4% respectively.

Index of Industrial Production (IIP) Trend

3.4%





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Macro Economic – Review Contd……

6.01%

WPI Inflation Trend

8.28%

CPI Inflation Trend

-11.23

India’s Falling Fiscal Deficit TrendIndia’s Trade Deficit Trend

4.5%





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Macro Economic – Review Contd……

60.16

Indian Rupee vs. USD

17th June 2010 16th June 2014

8.64

GOI 10 years Bond Yield (%)

16th June 201417th June 2010

RBI’s Monetary Policy Stance





Industry’s Total Business Crossed Over USD 2.44 Trillions

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Total Advances (INR Crs.) Total Advances (INR Crs.)

Total Deposits (INR Crs.) Total Deposits (INR Crs.)







Banking Sector – Outlook & Top Picks

Taking into consideration various valuations and fundamental parameters, coupled with quarterly performances (Q4FY14), our top picks for three months in the Banking space are:-

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•Banks are under our coverage, for detail report kindly follow the link below.

http://www.microsec.in/static/EqtFundamental.aspx?id=1&Submenu=5

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08

Indian Banking – Asset Quality Improved; Pace of Restructuring Continues…..

On the debt restructuring front, according to the latest data available in the Corporate Debt Restructuring (CDR) cell, as on 31 st March, 2014,about 622 cases involving a total debt of ~INR4.30 trillions are referred to since its inception. Out of which, the total debt approved in 476 casesthrough the CDR route is ~INR3.30 trillions. Whereas, live cases in CDR are 280 and its aggregate debt is ~INR2.42 trillions (increased by ~17%QoQ). This time again, Infrastructure sector is leading the CDR list which comprises almost 21 of the total debt in the CDR cell as on 31st

March 2014, followed by the Iron & Still, Power and textile at ~18 , ~11 and ~8 respectively.

After long time, most of the PSBs including State Bank of India (SBI) have reported a improvement in their asset quality figures. Whereas,Private Sector Banks have also improved its asset quality after deterioration over the last three consecutive quarters. As on 31st March 2014,Gross Non-Performing Asset (GNPA) of 37 listed Indian Banks crossed over INR2.33 trillions or 3.37% of total advances. Out of which, GNPAof 21 listed Public Sector Banks stood at ~INR2.09 trillions or 4.37% of total advances as against ~INR2.10 trillions or 4.49% in the previousquarter of the current financial year, improved by ~INR1050 crores or 12bps QoQ. Whereas, GNPA of 16 listed Private Sector Banks improved

by 38bps or ~INR472 crores to 2.05% or ~INR24142 crores as against 2.43% or ~INR24613 crores in the previous quarter of the current financialyear. Higher restructuring, write offs, selling of bad loan to Asset Reconstruction companies (ARCs) and somehow recoveries are the mainreason for this achievement. The Indian corporate are still facing a tougher challenge to repay their loans which has provoked the Banks toexpand their foothold in retail banking wherein, the demand is high and relatively secured.

Banking Industry’s NPA Trend

Source: ACE Equity, CDR Mechanism, Microsec Research

Corporate Debt Restructuring (CDR)





Asset Quality Trend; Industry's NPA Improved-Led By Both Private & PSBs…

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Net NPA(%) Trends -Pvt vs. PSB Gross NPA (%) Trends -Pvt vs. PSB

Net NPA (%) Trends -Banking Industry

Source: ACE Equity, Companies, Microsec Research

Gross NPA (%) Trends -Banking Industry





Private Banks’ NIM improved – Supported Industry's NIM

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In this quarter, PSBs have reported a deterioration in theirNet InterestMargin (NIM) By 7bps QoQ and 11bps YoY to 2.59% after maintainingtheir NIM since last three consecutive quarters. Higher restructuringcoupled with slowdown in the corporate advances and high cost of capital has dragged down the PSBs NIM. Whereas, Private Sector Bankshave reported 7bps QoQ and 5bps YoY growth in their NIM. PrivateBanks’ Healthy loan book coupled with strong vigilance and thoughtful

business strategy boosted their NIM. However, industry’s NIM has beendown by 2bps to 2.98%, somehow supported by Private Banks. Webelieve that PSBs’ NIM may improve with the improvement in theeconomy and also, the Government’s recent proposal (if implemented)regarding the sector may improve PSBs’ NIM. On the Private Bankingspace, their NIM may further improve back by the healthy depositsfranchise coupled with healthy business growth and strong riskmanagement ability. Banks which are better placed are likely togenerate better business and returns.

Private Sector Banks Public Sector Banks


Indian Banking Industry





Pace of Restructuring Pushed Up Provisioning……

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Private Banks Public Sector Banks

Indian Banking Industry






Stable Growth In Top line Amid Economic Slowdown

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Net Interest Income (INR Crs.) Net Interest Income (INR Crs.)

Source: ACE Equity, Microsec Research

Other Income (INR Crs.) Other Income (INR Crs.)





PSBs’ Profitability Down (YoY)-Led By Pace Of Restructuring, Affected Industry

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Profit After Tax (INR Crs.)Profit After Tax (INR Crs.)

Profit After Tax (INR Crs.)






In Q4FY14, despite challenging environment, again, Private Sector Banks have reported a strong performance against their Public Sector peers.Healthy asset quality with strong business growth coupled with increasing foothold in retail banking space and Banks’ proactive riskmanagement has widened the gap of performance compared to their Public Sector peers. Whereas, PSBs are suffering from asset quality problem,which has not only dented their profitability but also affected their overall business growth. In this quarter (Q4FY14), Public Sector Banks have

reported ~7% YoY de-growth in their bottom line due to higher provisioning. Whereas, Private Banks reported ~11% YoY growth in their bottom line supported by flat provisioning and healthy top line growth.

The highest YoY growth in Net Profit for Q4FY14 was reported by IndusInd Bank Ltd. (~+29 ) and Federal Bank Ltd. (~+25 ) amongst thePrivate Banks. On the PSBs front, the highest YoY growth in Net Profit for Q4FY14 was observed in case of United Bank of India Ltd. (~+1405 )and UCO Bank Ltd. (~+475 ).

On the asset quality front, amongst PSBs, UCO Bank Ltd. has shown the best performance as compared its peers. It’s Gross NPA and Net NPAdecreased by 88bps and 68bps QoQ to 4.32% and 2.38% respectively. Amongst the Private Sector Banks, Lakshmi Vilas Bank Ltd. reported astrong improvement in its assets quality. The Bank’s Gross NPA and Net NPA improved by 141bps and 89bps QoQ to 4.19% and 3.44%

respectively.

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Banking Quarterly Performance Analysis (Q4’14) – Private Banks Continues ToMaintain Their Shine Over Public Sector Peers.

Source, ACE Equity, Companies, Microsec Research





Source: Bloomberg, ACE Equity, Companies, Microsec Research

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Quarterly Performance Analysis (Appendix 1)







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Key Financial Snapshot (Appendix 3)






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non-BAnkinG finAnciAl compAnies( nBfc)





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NBFCs – Outlook & Top PicksThe continued slowdown in the economy coupled with high cost of capital and adverse regulatory environment in some business such asMining, Power and Infrastructure have badly affected the Indian Non Banking Finance Companies (NBFCs), which has been clearly reflected inthe companies’ financials. However, Mid and small housing finance companies have reported a healthy set of numbers in this quarter. It ismainly, because of the renewed efforts from the Government to prioritize low cost housing construction coupled with the various schemeslaunched by the National Housing Bank (NHB) to promote housing from low to middle income group in Tier-II and Tier-III cities and also, the

Indian’s appetite of own home have increased the demand. We believe, the industry itself may see revival, if interest rates decline. Moreover,with the expectations of economic recovery along with the Government and regulator's persistent effort to promote low cost housing may setthe industry for a strong growth in the coming years.

Power Finance companies have also maintained their profitability in this quarter again. The number of actions that have been taken by theGovernment like hike in tariff rates, forest clearances to coal mining projects and focus given to infrastructure (especially, Power sector)supported the industry’s business growth.

Infrastructure finance companies have disappointed the investors this time. The companies have reported a poor set of numbers in this quarter.However, we believe, the sector may improve faster than others as the Government’s effort in the fast execution of the pending projects andfocus given to infrastructure may fuel the industry.

Owing to the slowdown in the Automobile industry, Auto financing companies have reported a tepid business growth in this quarter. However,the companies’ diversified loan portfolio has supported the profitability. We believe, lowering in excise duty on Automobile sector acrossvarious segment coupled with rising rural cash flow and the expectation of improvement in the economy going forward may push up thedemand. Hence, positive for automobile finance companies.

In our Previous Banking Quarterly Performance Analysis(Q3FY14) report, dated 3rd March 2014, we have

recommended three NBFCs based on their valuations andfundamental parameters as well as quarterlyperformances. All NBFCs have given a robust returns.Amongst them, PTC India Financial Services has given ahighest return of ~126 in three months time horizon

The following table depicts the return summary of all the recommended NBFCs.





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NBFCs –Top Picks

Taking into consideration various valuations and fundamental parameters, coupled with quarterly performances (Q4FY14), our top picks for three months in the NBFC space are:-





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Microsec Research: Phone No.: 91 33 66512121 Email: [email protected]





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MICROSEC RESEARCH IS ALSO ACCESSIBLE ON BLOOMBERG AT <MCLI>

_

Ajay Jaiswal: President, Investment Strategies, Head of Research: [email protected]

Fundamental Research

Name Sectors Designation Email ID

Nitin Prakash Daga IT, Telecom & Entertainment VP-Research [email protected]

Sutapa Roy Economy Research Analyst [email protected]

Sanjeev Jain BFSI Research Analyst [email protected]

Soumyadip Raha Oil & Gas Executive Research [email protected]

Anik Das Capital Goods, Power Research Analyst [email protected]

Neha Majithia Metal, Mineral, mining Research Analyst [email protected]

Ajoy Mukherjee Pharma & Agri Inputs Research Analyst [email protected]

Saroj Singh Auto , Cement Executive Research [email protected]

Khusboo Jaiswal Mid Cap Research Executive [email protected]

Technical & Derivative Research

Vinit Pagaria Derivatives & Technical Sr.VP [email protected]

Ranajit Kumar Saha Technical Research Sr. Manager [email protected]

Institutional Desk

Abhishek Sharma Institutional Desk Dealer [email protected]

PMS Division

Siddharth Sedani PMS Research VP [email protected]

Research-Support

Subhabrata Boral Research Support Asst. Manager Technology [email protected]









BFSI Quarterly Performance Analysis Q4FY14

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