Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Result Beat On Unwarranted Provision Reduction: Federal Bank (FB.IN) posted FY 3Q21 bottom-line results of INR 4.0 bn, exhibiting linked quarter improvement of INR 965 mn (31.4%). Two factors drove the bottom-line – one legitimate, the latter simply ridiculous: a) net interest income improved INR 571 mn (4.1%) tracking both loan growth of INR 26.0 bn (2.1%) and NIM improvement of 10 bp to 3.00%; and b) a drop of INR 1.7 bn (29.0%) in its loss provision despite an annualized net new problem loan increase of over 67%; and*Reserve Cover Is Shallow: If we look at coverage of total problem loans, which includes the restructured book, coverage amounts to just 59.0% versus 57.7% at FY 2Q21. Although we are encouraged by the linked quarter improvement, we do feel that reserve cover is quite light by close to INR 50.0 bn – nearly three years of bottom-line performance.

*Result Beat On Unwarranted Provision Reduction: Federal Bank (FB.IN) posted FY 3Q21 bottom-line results of INR 4.0 bn, exhibiting linked quarter improvement of INR 965 mn (31.4%). Two factors drove the bottom-line – one legitimate, the latter simply ridiculous: a) net interest income improved INR 571 mn (4.1%) tracking both loan growth of INR 26.0 bn (2.1%) and NIM improvement of 10 bp to 3.00%; and b) a drop of INR 1.7 bn (29.0%) in its loss provision despite an annualized net new problem loan increase of over 67%; and*Reserve Cover Is Shallow: If we look at coverage of total problem loans, which includes the restructured book, coverage amounts to just 59.0% versus 57.7% at FY 2Q21. Although we are encouraged by the linked quarter improvement, we do feel that reserve cover is quite light by close to INR 50.0 bn – nearly three years of bottom-line performance.    

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Home First Finance / Equity Capital Markets

Home First Finance (HFF) is an affordable housing finance company targeting first time home buyers in low and middle-income groups. The company aims to raise around US$160m in its India IPO. It is backed by True North, GIC and Bessemer and has recently obtained an investment from Warburg Pincus as well.HFF has grown rapidly over the past few years, driven by an expansion in its branch network and large number of new customers. Over FY17-20, HFF’s loan grew at a CAGR of 62%, while its earnings grew even faster with NII growing at 68%, PPoP at 117% and PAT at 128% CAGR.  It still remains largely focussed on housing loans and has pristine asset quality.However, its funding sources lack diversity and its margin is artificially inflated by its high capitalisation. Furthermore, the company talks a lot about tech but a lot of its functions appear to be still very contact heavy and hence, salesforce/customer service dependent.I have covered various aspects of the deal in my earlier notes,  <a href="https://www.smartkarma.com/insights/home-first-finance-pre-ipo-riding-on-affordable-housing" target="_blank" rel="noopener">Home First Finance Pre-IPO - Riding on affordable housing</a> and <a href="https://www.smartkarma.com/insights/home-first-finance-pre-ipo-earnings-not-showing-the-covid-strain-but-other-metrics-are" target="_blank" rel="noopener">Home First Finance Pre-IPO - Earnings not showing the COVID strain but other metrics are</a>.In this note I’ll run the deal through our ECM framework and talk about recent updates.

Home First Finance (HFF) is an affordable housing finance company targeting first time home buyers in low and middle-income groups. The company aims to raise around US$160m in its India IPO. It is backed by True North, GIC and Bessemer and has recently obtained an investment from Warburg Pincus as well.HFF has grown rapidly over the past few years, driven by an expansion in its branch network and large number of new customers. Over FY17-20, HFF’s loan grew at a CAGR of 62%, while its earnings grew even faster with NII growing at 68%, PPoP at 117% and PAT at 128% CAGR.  It still remains largely focussed on housing loans and has pristine asset quality.However, its funding sources lack diversity and its margin is artificially inflated by its high capitalisation. Furthermore, the company talks a lot about tech but a lot of its functions appear to be still very contact heavy and hence, salesforce/customer service dependent.I have covered various aspects of the deal in my earlier notes,  Home First Finance Pre-IPO - Riding on affordable housing and Home First Finance Pre-IPO - Earnings not showing the COVID strain but other metrics are.In this note I’ll run the deal through our ECM framework and talk about recent updates.

Home First Finance IPO - It’s Not Really Cheap, Banking on Momentum

Indian Railway Finance Corporation / Equity Capital Markets

Indian Railway Finance Corporation (IRFC) aims to raise around US$630m via selling new and existing shares in its Indian IPO.IRFC is the dedicated financing arm of the Indian Railways for mobilizing funds from domestic as well as overseas capital markets. Its primary business is financing the acquisition of rolling stock assets and project assets of the Indian railways and lending to other entities under the Ministry of Railways.IRFC’s AUM has grown by 25-32% over FY18-FY20, while disbursements have been growing at 34-43%. Although revenue growth has lagged AUM growth since at least FY18 as its net interest margin had been under pressure due to the rising cost of funds and fluctuation margin set by the Ministry of Railways. We have covered the above and other points in our previous note: <ul><li dir="ltr"><a href="https://www.smartkarma.com/insights/indian-railway-finance-pre-ipo-low-risk-low-margin-business" target="_blank" rel="noopener">Indian Railway Finance Pre-IPO - Low risk, low margin business</a></li></ul>In this note, we'll talk about updates for the newly filed DRHP and run the deal through our ECM framework

Indian Railway Finance Corporation (IRFC) aims to raise around US$630m via selling new and existing shares in its Indian IPO.IRFC is the dedicated financing arm of the Indian Railways for mobilizing funds from domestic as well as overseas capital markets. Its primary business is financing the acquisition of rolling stock assets and project assets of the Indian railways and lending to other entities under the Ministry of Railways.IRFC’s AUM has grown by 25-32% over FY18-FY20, while disbursements have been growing at 34-43%. Although revenue growth has lagged AUM growth since at least FY18 as its net interest margin had been under pressure due to the rising cost of funds and fluctuation margin set by the Ministry of Railways. We have covered the above and other points in our previous note: Indian Railway Finance Pre-IPO - Low risk, low margin businessIn this note, we'll talk about updates for the newly filed DRHP and run the deal through our ECM framework

Indian Railway Finance IPO - Low Risk, Low Margin, Low Returns

*Strong Results, But Managed: HDFC Bank (HDFCB.IN) [HDFCB] reported FY 3Q21 results of INR 76.5 bn, which increased INR 12.5 bn (16.6%) linked quarter. On a core operating basis, results improved INR 11.5 bn (17.7%) to INR 76.5 bn over the period. Other income drove the results outperformance;*Credit Still Breaking Down Ex-Supreme Court Ruling: The Supreme Court of India, in a public interest litigation directed that accounts which were not declared NPL through August 31, 2020 shall not be declared as such until further notice. On an apples-to-apples basis, we find that HDFCB’s stated gross NPLs increased 18.1% linked quarter. Inclusive of NCOs of INR 34 bn, we calculate that net new NPLs actually increased INR 65 bn or 151% on an annualized basis; and*Reserve Cover Needs Improvement: At this time, provisions barely cover NCOs – down from 2.4x in FY 3Q21. We would be more comfortable if HDFCB was a bit more aggressive with its provisions – especially during periods when volatile sources of fee revenues give HDFCB a gift to build reserves. By our calculation, reserves are currently short by nearly INR 328 bn or over a year of core operating results based on FY 3Q21 results.

*Strong Results, But Managed: HDFC Bank (HDFCB.IN) [HDFCB] reported FY 3Q21 results of INR 76.5 bn, which increased INR 12.5 bn (16.6%) linked quarter. On a core operating basis, results improved INR 11.5 bn (17.7%) to INR 76.5 bn over the period. Other income drove the results outperformance;*Credit Still Breaking Down Ex-Supreme Court Ruling: The Supreme Court of India, in a public interest litigation directed that accounts which were not declared NPL through August 31, 2020 shall not be declared as such until further notice. On an apples-to-apples basis, we find that HDFCB’s stated gross NPLs increased 18.1% linked quarter. Inclusive of NCOs of INR 34 bn, we calculate that net new NPLs actually increased INR 65 bn or 151% on an annualized basis; and*Reserve Cover Needs Improvement: At this time, provisions barely cover NCOs – down from 2.4x in FY 3Q21. We would be more comfortable if HDFCB was a bit more aggressive with its provisions – especially during periods when volatile sources of fee revenues give HDFCB a gift to build reserves. By our calculation, reserves are currently short by nearly INR 328 bn or over a year of core operating results based on FY 3Q21 results.   

HDFC Bank – Credit Remains A Serious Challenge

Thematic (Sector/Industry)

*Bracing For Even Tougher Times: According to the Reserve Bank of India (RBI), India’s financial sector needs to prepare for even more challenging times given the continued risk of credit deterioration, which remains heightened due to this unrelenting pandemic; and*Open Your Wallets, Indian Financials Need Money: Given the economic uncertainty posed by COVID-19, credit quality in the Indian financial system is likely to present continued economic challenges in 2021. If the RBI is correct, and we believe that it is – although its forecasts appear quite light, FY 2022 will see continued losses and massive levels of capital raised.

*Bracing For Even Tougher Times: According to the Reserve Bank of India (RBI), India’s financial sector needs to prepare for even more challenging times given the continued risk of credit deterioration, which remains heightened due to this unrelenting pandemic; and*Open Your Wallets, Indian Financials Need Money: Given the economic uncertainty posed by COVID-19, credit quality in the Indian financial system is likely to present continued economic challenges in 2021. If the RBI is correct, and we believe that it is – although its forecasts appear quite light, FY 2022 will see continued losses and massive levels of capital raised.   

Reserve Bank of India – Continued Bank Waterboarding

India

ICICI Bank Limited operates as a bank. The Bank offers saving accounts, loans, debit, credit cards, insurance, investments, mortgages, and online banking services. ICICI Bank serves customers worldwide.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

ICICI Bank Ltd (ICICIBC IN)

Federal Bank – Deserving No Credit

FEDERAL BANK: FB FY 3Q21 bottom-line results improved 31.4% linked quarter, as it dropped its provision 29.0% despite its annualized net new...

Thomas J. Monaco

Home First Finance IPO - It’s Not Really Cheap, Banking on Momentum

Home First Finance is an affordable housing finance company aiming to raise around US$160m in its India IPO. It is backed by True North, Warburg,...

Sumeet Singh

Indian Railway Finance IPO - Low Risk, Low Margin, Low Returns

Indian Railway Finance Corporation (IRFC) aims to raise around US$630m via its Indian IPO. IRFC is the dedicated financing arm of the Indian...

Sumeet Singh

HDFC Bank – Credit Remains A Serious Challenge

HDFC BANK: HDFCB reported FY 3Q21 results increased 16.6% linked quarter. Net new NPLs increased 151% annualized, and reserves are currently short...

Thomas J. Monaco

Reserve Bank of India – Continued Bank Waterboarding

RESERVE BANK OF INDIA: India’s financial sector needs to prepare for even more challenging times. If the RBI is correct, FY 2022 will see continued...

Thomas J. Monaco

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)