Consumer Analyst / Channel Surveillance Specialist, Trudence Capital Advisors

Pranav Bhavsar

Consumer Analyst / Channel Surveillance Specialist

Trudence Capital Advisors

Trudence Capital Advisors Private Limited is a SEBI-registered Research Analyst, holding SEBI registration number INH000015747. Our firm is dedicated to providing independent and unbiased research on Indian mid to large-cap companies. Trudence Capital is known for its counter-consensus views, with a focus on forensic research and on-ground primary investigations. Our research approach is thorough, involving detailed analysis of accounting practices and governance, alongside extensive channel checks.

Independent & Unbiased Research

Equity Bottom-Up

<ul>
<li>We interact with four DSC managers of Bandhan Bank, two managers of AU Bank and Manappuram Finance. </li>
<li>For <a href="https://www.smartkarma.com/entities/bandhan-bank-ltd" target="_blank" data-smartkarma-citation="entities:26705:1" rel="noopener">Bandhan Bank Ltd (BANDHAN IN)</a> and <a href="https://www.smartkarma.com/entities/manappuram-finance-ltd" target="_blank" data-smartkarma-citation="entities:12559:1" rel="noopener">Manappuram Finance (MGFL IN)</a> collections remain a challenge. </li>
<li>For <a href="https://www.smartkarma.com/entities/au-small-finance-bank-limited" target="_blank" data-smartkarma-citation="entities:24196:1" rel="noopener">AU Small Finance Bank Limited (AUBANK IN)</a> loan growth in Wheels segment could be challenging. </li>
</ul>


We interact with four DSC managers of Bandhan Bank, two managers of AU Bank and Manappuram Finance. 
For Bandhan Bank Ltd (BANDHAN IN) and Manappuram Finance (MGFL IN) collections remain a challenge. 
For AU Small Finance Bank Limited (AUBANK IN) loan growth in Wheels segment could be challenging. 


India Channel Insight #22 | Bandhan Bank, AU Bank, Manappuram

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

*Ignoring Credit Deterioration, Results Improve: HDFC Ltd (HDFC.IN) [HDFC] reported FY 2Q22 results of INR 37.3 bn, increasing INR 9.8 bn (35.5%) linked quarter basis. HDFC witnessed positive operating jaws; a massive linked quarter increase in dividends; robust loan growth; a drop in loss provisions; and a lower tax rate. Nothing like pulling on every earnings lever to achieve the result you want; and*Credit Quality Worsens: Given the INR 3.8 bn in net recovery during FY 2Q22, net new NPLs accelerated to INR 22.1 bn and increased 51.1% on an annualized basis. We also find that HDFC’s reserve still needs shoring up by another INR 200 bn or over a year of PBT.

*Ignoring Credit Deterioration, Results Improve: HDFC Ltd (HDFC.IN) [HDFC] reported FY 2Q22 results of INR 37.3 bn, increasing INR 9.8 bn (35.5%) linked quarter basis. HDFC witnessed positive operating jaws; a massive linked quarter increase in dividends; robust loan growth; a drop in loss provisions; and a lower tax rate. Nothing like pulling on every earnings lever to achieve the result you want; and*Credit Quality Worsens: Given the INR 3.8 bn in net recovery during FY 2Q22, net new NPLs accelerated to INR 22.1 bn and increased 51.1% on an annualized basis. We also find that HDFC’s reserve still needs shoring up by another INR 200 bn or over a year of PBT.  

*Credibility Gap Continues To Widen: LIC Housing Finance (LICHF.IN) [LIC] reported FY 2Q22 bottom-line results of INR 2.5 bn, increasing INR 945 mn (61.6%) linked quarter. Results were simply odd, and driven by a loss provision cut of nearly INR 2.0 bn (23.4%) whilst problem loans continued to modestly tick higher. The oddness, in our view, came from now zero NCOs during FY 2Q22; and*Lack Of Clarity On Credit Delta: Despite the lack of NCOs, net new NPLs at LIC still increased 2.4% annualized versus 190.3% at FY 1Q21. By our calculation, LIC management ought to think about adding another INR 144 bn to the reserve.

*Credibility Gap Continues To Widen: LIC Housing Finance (LICHF.IN) [LIC] reported FY 2Q22 bottom-line results of INR 2.5 bn, increasing INR 945 mn (61.6%) linked quarter. Results were simply odd, and driven by a loss provision cut of nearly INR 2.0 bn (23.4%) whilst problem loans continued to modestly tick higher. The oddness, in our view, came from now zero NCOs during FY 2Q22; and*Lack Of Clarity On Credit Delta: Despite the lack of NCOs, net new NPLs at LIC still increased 2.4% annualized versus 190.3% at FY 1Q21. By our calculation, LIC management ought to think about adding another INR 144 bn to the reserve.

LIC Housing Finance – No NCOs Whatsoever?

*ChallengesMount: HDFC Ltd (HDFC.IN) [HDFC] reported FY 1Q22 results of INR 30.0 bn, decreasing INR 1.8 bn (5.6%) on a linked quarter basis. However, core operating results came in at INR 24.7 bn, declining INR 2.7 bn (9.9%) over the same period – despite net interest income improving INR 819 mn  (2.0%) off of a 20 bp NIM improvement to 3.70% and managed loan growth of 0.2%; and*Credit Quality Worsens: Given the INR 5.0 bn in NCOs during FY 1Q22, net new NPLs accelerated to INR 19.0 bn and increased 65.5% on an annualized basis versus INR 3.6 bn or 14.2% on an annualized basis in FY 1Q21. We would have preferred that HDFC be even more vigilant given the continued growing uncertainty of COVID-19. As such, we still find that HDFC’s reserve still needs shoring up by another INR 83 bn or over three quarters of core operating results.

*ChallengesMount: HDFC Ltd (HDFC.IN) [HDFC] reported FY 1Q22 results of INR 30.0 bn, decreasing INR 1.8 bn (5.6%) on a linked quarter basis. However, core operating results came in at INR 24.7 bn, declining INR 2.7 bn (9.9%) over the same period – despite net interest income improving INR 819 mn  (2.0%) off of a 20 bp NIM improvement to 3.70% and managed loan growth of 0.2%; and*Credit Quality Worsens: Given the INR 5.0 bn in NCOs during FY 1Q22, net new NPLs accelerated to INR 19.0 bn and increased 65.5% on an annualized basis versus INR 3.6 bn or 14.2% on an annualized basis in FY 1Q21. We would have preferred that HDFC be even more vigilant given the continued growing uncertainty of COVID-19. As such, we still find that HDFC’s reserve still needs shoring up by another INR 83 bn or over three quarters of core operating results. 

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Shanghai Stock Exchange Composite Index / Technical Analysis

Cracks are beginning to show, particularly in EM/China where the MSCI EM index (EEM-US) is breaking below major $52 base support, the Shanghai Composite is breaking below 3500, the CSI 300 is breaking below 4885, and Hong Kong's Hang Seng is breaking below 27,000 support. Thankfully we have stayed away from areas hardest hit since EM/China has had poor relative performance for quite some time. Despite this being largely self-induced and very China-specific due to China's regulatory crackdown, the overhang could linger as additional Sectors/industries could be targeted. Moreover, it certainly does not help our already cautious and neutral outlook, but rather reinforces it.

Cracks are beginning to show, particularly in EM/China where the MSCI EM index (EEM-US) is breaking below major $52 base support, the Shanghai Composite is breaking below 3500, the CSI 300 is breaking below 4885, and Hong Kong's Hang Seng is breaking below 27,000 support. Thankfully we have stayed away from areas hardest hit since EM/China has had poor relative performance for quite some time. Despite this being largely self-induced and very China-specific due to China's regulatory crackdown, the overhang could linger as additional Sectors/industries could be targeted. Moreover, it certainly does not help our already cautious and neutral outlook, but rather reinforces it.

Weakness Contained To EM & China Thus Far; Actionable Themes: Tech, Utilities, Financials, Materials

India

Manappuram Finance Ltd. is a non-banking finance company. The Company offers loans against gold collateral, business loans, vehicle loans, foreign exchange and money transfer services; and sells gold coins.

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Manappuram Finance (MGFL IN)

India Channel Insight #22 | Bandhan Bank, AU Bank, Manappuram

We interact with four DSC managers of Bandhan Bank, two managers of AU Bank and Manappuram Finance to understand the collection and loan growth...

Pranav Bhavsar

HDFC Ltd. – In the Land of The Blind

HDFC: HDFC reported a QOQ FY 2Q22 results increase of 35.5%, as management pulled on every earnings lever. Net new NPLs increased 51.1% annualized,...

Thomas J. Monaco

LIC Housing Finance – No NCOs Whatsoever?

LIC HOUSING: LIC reported a QOQ FY 2Q22 bottom-line increase of 61.6%, driven by a loss provision cut. Oddly, LIC had zero NCOs and negative loan...

Thomas J. Monaco

HDFC Ltd – Just Getting Worse

HDFC: HDFC reported FY 1Q22 QOQ core result decline of 9.9%. Net new NPLs increased 65.5% annualized basis; HDFC’s reserve needs shoring up INR 83...

Thomas J. Monaco

Weakness Contained To EM & China Thus Far; Actionable Themes: Tech, Utilities, Financials, Materials

Cracks are beginning to show, particularly in EM/China. Key support violations include the MSCI EM index below $52, the Shanghai Comp below 3500,...

Vermilion Research

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