India Morning Report: Why exactly is IOC available so cheaply?

Of course, Infy will lead the bullish breakout on the Index, and the profit prognosis again at a Cons INR 28.75 Bln is much more to look forward to than the Cons Revenues of INR 130 Bln but the dip in Revenue growth , braked to 0.5% on Q2 Dollar data is still probably excusable. The jump from Infy to the Earnings season that starts in earnest next week.

However, IOC is as expected delayed on the divestment news but mainly because the Oil ministry got the fangs to file a dissent note as the Energy co’s price has slumped to lower than 200 (on the average of prev 6 month closing prices) There are many benefits to divestment and in fact a bargain such as IOC at these prices would be an investor bonanza par extraordinaire. BPCL (up 7%) and HPCL(up 3% probably) gain on the news of the delay but the question to who are the agencies involved in muting the price performance of India’s best navratna after ONGC remains important to answer unfortunately for the BJP fueled markets and the outgoing Congress government

The Delhi Power audit will also ensnare Relinfra as it owns 2 out of 3 Delhi Power distcos with more than 30 mln subscribers and three-quarters of the Peak Demand. Delhi takes in a huge 7.5GW of Power Capacity of the installed 130 GW nationally but the share is much larger in utilised Power capacity

The Pharma companies, the other beneficiary of India’s global largess in currency trading, will also be busy making aggressive deals in the US Pharma market while rejuvenating their domestic Pharma businesses, with Torrent and Auro completing deals this quarter in Elder (domestic) and Celon. ¬†Lupin delivered another USFDA win along expected lines with Twynsta generic being allowed to both Lupin and Torrent. Fresh buying is impossible even in Lupin, Cadila ( 850-1350 nah?)

The market is not really ranged and while Infy may not be able to envelop all India expectations ever again at the start of the results season, it still clears most markers impeding a new rally post earnings. Bank earnings deliver the second infusion of realistic optimism on India Inc in a few days when the upward edges of the range are exected to stand up to better levels. Meanwhile Infy should crawl to the top of its 3400-3650 range benefitting the rare speculator who punted positively for them , most having to square out written calls, even as the markets face resistance offered by such shorts and Infy sets the grounds for more positive surprises down the line with NRN back at the helm. The changes in the Executive would be the easiest to explain.

A problem of plenty as I use images from Google with the syndicated image burner feed disappearing from WP?? ūüėČ

The RBI governor would be probably hoping that the month end policy becomes a non-event considering the positive mpact just from holding rates and the challenges from inflation growing by his side. BofA’s Axis Bank ugrade may still be too little and too late as Axis battles NPA spam with PNB , counted for its days with the PSU crowd

Indices should not see a meltdown thus at 6150 and you should get one bang out of the score if you sell 6100 Puts getting cheaper by the minute at the open and even 6200 ones. If you cover them do cover them with buys in the OTM range(buy) at 6700 ( assuming 6500 in  a close future top of the market ) The bottom of the index range should thus become more volatile funding the shorts glued in to the market bearing down for over 6 weeks now but they will probably tire out this time, Vol allowing a long-range upside on its own nevertheless as India VIX continues to ride low on a stuck to the tea leaves recovery, which will still trend higher and not lower like in China

Bank Results season (India Earnings) : Yes Bank starts back from 390 levels despite overnight straits

Yes Bank covered a lot of ground after publishing results yesterday, as the Net Interest Income jumped 2 in 5 on year or net profits increased more than 10% sequentially on INR 0.94 Bln in Investment gains on bonds /debt . The NII of INR 65.9 Bln was sufficiently larger by our benchmarks as the bank remains one of the few posting robust gains in Fee Income and advisory income including retail charges as at bigger brother HDFC Bank, the lines have gone relatively stale on such income in the Indian scenario.

Other Income was INR 44.2 Bln looking to equal contributions from NII going ahead as is the wont of this income stream in robust bank models. While private banks set quite a standard for robust corporate governance without due transparency in such old habits in Indian Banking a s a consolidated other income figure unexplained, the reforms in banking would still have covered more ground than it is internationally. the higher interest savings led CASA increase to 20% at the bank is still miles away from reaching an entrenched player status but that is just a n indicator of this bank’s potential to grow faster and stronger than the ICICI Banks and the HDFC Banks.

Retail assets remain a priority ¬†at the bank with total book still ahead of other “midcaps” as Kotak and indusind dependent on corporate treasuries ( variously wholesale deposits/short funding linked to the usurius 10% = call rates pushed by RBI’s interim policy) with assets of INR 612 Bln

The yields, cost of funds a dynamic provision coverage shared by the bank(click¬†here) continue to reflect the continuing profitability of the bank’s model and its relative closeness to NBFC models in vogue, currently trying to reprocess themselves as banks but the existing players will settle up much higher in any status ranking of the candidates yet remaining a respectful outsider in loan syndicates and loan melas

 

India Earnings Season: Institutionalising housing infrastructure (HDFC results)

HDFC again underlines India’s NBFC structure / Institutional structures for finance & Credit companies across Infrastructure and Housing.

Additionally it emphasises that India’s disappointment riddled 2011 still means a more than 20% in sales year on year and 12 % profit QOQ. HDFC manages a 30% increase in Sales and 23% increase in profits for the quarter. Sales are up to $947 million for the quarter and Profits are an important 25% margin at $285.5mln (Net Profits after tax) with Net NPAs at NIL

Provisions have been maintained as mandated by NHB

Defaults are more likely if interest rate hikes continue into 2012 howwever fresh lending maybe under pressure immediately after the 50 bps hike

HDFC maintained spreads at 2.3% and including tail income from securitised/sold assets it upped NIMs to 4.57%

Construction companies had a great FY11, Sobha Developers for example intends to build an inventory of 11 million sft up ahead and is currently carrying only 130k inventory in fully built units and of the 2.7 mln sft under construction, less than 30% inventory is unsold.

Sobha was one of the unleveraged players having reduced debt to $350 mln at March 2010 Profits were more even than last time going to $11 mln for the Quarter at an ave realisation of INR4500 psft or $112.0 while for the year profits rose to $45mln at an average realisation of $100 psft (INR4000)

Meanwhile, Healthcare – Pharma major Ranbaxy PAT dropped from 20% or $240 mln last March to less than 15% to $75 million this quarter while sales were also lower at an expected $535mln clip

Defining the new YES Bank

Finally, the cat is out of the bag. 
Yes Bank albeit a little late or cautious, 
has decided to step into the Institutional market. It will be asking investors to pick up a $250m QIP stake to shore up its capital. In the meantime, as reported earlier, they have also put on hold their diversification and market development plans on the board for the last 2 years now as they get into some serious consolidation in its core banking business. They have a good sleeping brand and their recent cost cutting efforts would also bear fruit. However, their focus on SME business might change now as the current ticket size is very unremunerative for them. There was some recent murmur when Rabobank announced its plans to enter the country directly, but that is a non-starter since Yes Bank would not go for the stake sale by Rabobank without making sure the house is in order as a deeper recession is equally likely in the next 12 months.

Yes would need a little serious selling with big ticket business¬†while¬†continuing¬†to¬†present¬†simple¬†and¬†generous¬†options¬†for retail and SME customers. Their non presence in asset management and broking would hardly raise any eyebrows as the business entirely survives on institutional volumes and even a¬†Kotakstreet and a¬†sharekhan are essentially struggling with their current “low” period.
I wonder how any bank with a brand like Yes can today crack open the expat market which has a few relatively unknown niche players ( Geojit, recently acquired by HSBC) It would need key leadership experience to realise a valid entry point. One option however, at the barest minimum requirement, is to go for a PSB or a local bank in UK and Australia or the Middle east. That requires capital but any other option leaves you with a performance like ICICI Bank which has managed only rep offices in all its overseas expansion and have not been able to generate the required trust without a retail presence on the ground, leaving the field seemingly open for players like ING and HSBC.
Regulatory level liaison with developed markets would sadly continue to maintain the respectable disconnect that exists as emerging markets can barely acknowledge their requirements of the day as they are seemingly extended to the rest of the world. It remains to be seen if that home brewn recipee of the Basel and BoE would ever land in some drifting current and be taken care of. A way must be found for India to spare the cash and show their value in the developed world and invest in these international markets before much more will come out to bear on market shares of all the players. This is not to belittle current efforts from either side but I didn’t see it on the agenda in these last few years at work. It is never too late to start?
The scrip remains a good buy in Indian exchanges and I look forward to even more QIP issuance from YES Bank.

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Rejuvenating Banking after the crash of ’08

I wonder how any bank with a brand like Yes or Kotak can today crack open the expat market which has a few relatively unknown niche players ( Geojit, recently acquired by HSBC) It would need key leadership experience to realise a valid entry point. One option however, at the barest minimum requirement, is to go for a PSB or a local bank in UK and Australia or the Middle east. That requires capital but any other option leaves you with a performance like ICICI Bank which has managed only rep offices in all its overseas expansion and have not been able to generate the required trust without a retail presence on the ground, leaving the field seemingly open for players like ING and HSBC. They do have some presence now in London.
 
Regulatory level liaison with developed markets would sadly continue to maintain the respectable disconnect that exists as emerging markets can barely acknowledge their requirements of the day as they are seamlessly extended to the rest of the world. It remains to be seen if that home brewn recipe of the Basel and BoE would ever land in some drifting current and be taken care of. A way must be found for India to spare the cash and show their value in the developed world and invest in these international markets before much more will come out to bear on market shares of all the players. This is not to belittle current efforts from either side but I didn’t see it on the agenda in these last few years at work. It is never too late to start?
 
All the PSB scrips remains a good buy in Indian exchanges and I look forward to even more QIP issuance from YES Bank. But sooner than later the investing denizens will realize our SME status in the global market and unlike China, here Private Enterprise is free to make its own market rules, which is not something we have made good use of till now.
 
The other priority and now a key priority is of course our spreading into the hinterland as we strengthen distribution and support the microcredit revolution and the farmers. This spread would require immediate action by the banks as the government has al but given the keys to the treasury for the banks to lend and spend and while Corporate credit may be lukewarm, the hinterland beckons.
 
Last but not the least, the banks are key to the Indian consumer treasure now that it is all about lifestyle and disposable spending. While unsecured credit would not be remunerative, as we cannot go beyond the current systemized and sometimes too painfully detailed back office ops required to support the credit.
 
As a banker I probably wonder why the boom did not last, but then nothing lasts forever and as far as emerging markets are concerned , it remains a s good as it gets as Class B towns and Metros keep growing incessantly and people continue to spend on retail, lifestyle and entertainment. Infrastructure financing will attract the big bucks and the retail lifestyle spending will grow as fast as ever within the next 12 months, the magic being in access and prompt delivery by the banks.
 
Predictions: Interest rates are headed lower and Treasuries are going to be fatter and richer but still incomparable to the riches in the global markets
 
[Category India]
[Tags India infrastructure, Banking, Bank stocks, Wealth, Retail Lifestyle, Amitonomics, Lifestyle Economy, India, Economy, Finance]
 
Amit Mittal
mittalster@gmail.com
 
Amit Mittal
Mob: 919972442877
amit.mittal@me.com
MD, Advantage Research Pvt Ltd
@Innovative Film City, Bidadi 562109
On the web Advantage ‘zyaada’ http://advantages.us/zya
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SBI and PNB results

PNB has just been upgraded by JP Morgan to a price target of 850 ..

State Bank of India and Punjab National Bank both effectively proved size does matter. Their growth absorbed a growth in deposit rates ( 38% for SBI) effectively absorbing the stimulus and passing on rates by RBI unlike their MNC and private bank counterparts that have ‘managed’ their deposit rate cost by instantly cutting rates early and then keeping credit down, almost artificially probably as they waited to be sold off for pennies by the head offices. I am almost sad and apologetic at sounding like a parochial small trader / farmer but the facts on ground are now out for everyone to see.

 State Bank of India’s quarterly profits grew 42% and restructured loans upwards of Rs 11000 Crs in time. While ICICI plans a paltry Rs 1500 Cr restructuring while NPAs kept rising at the private sector banks and are expected to rise further into the 3%+ zone, PNB and SBI NPAs are controlled and have fallen consequent to the restructuring. SBI has also managed to attract huge deposits in this period reflecting higher confidence in the behemoth ( also true for PNB) while Income from advances has grown at a lower 23%. Net Interest Income had earlier grown in FY09 to Rs 17000 CR ( USD $3.4 billion) while Consolidated Net Income climbed by 33% to INR 23000 Crs ( $460 million – $480 million at current FX rate ) beating the Bloomberg survey by 20%

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ICICI Bank has lost its mandate

ICICI Bank Q1 net up 21 pct | Financial Services, Reuters

India’s No.2 lender, on Saturday beat forecast with a 20.6 percent rise in net profit helped by higher trading income.

zyakaira notes: Axis Bank and SBI results were superlative in comparison, even Kotak did a nice job. Despite assurances, Chanda Kochchar’s stamp of return to old ways of significant bank intervention in all subsidoary businesses like investment banking and private equity and conservative underwriting practices along with slow moves in rural infrastructure and micro credit would mean a very slow H2 2009 and H1 2010. The current freeze in personal lines will continue to impact spread as well.

Net Interest Income is Down, and the bank is artificially holding Interest rates at ransom? Provisions are up almost 33% and NPAs are up to 2.33% from 1.81% – a result of malpractices across operations, cabalization and induction of criminals in its personal lines. I would like to think I’m being logical and not just posting a rant. Also, ICICI Bank considerably weakens India’s competitive position vis-a-vis MNC players and even the bellwether stock HDFC Bank which is otherwise only serving the small shopkeeper community instead of planning any rural distribution.

HDFC Bank results this week have been spectacular with a Net Profit growth of 30% compared to a meagre 21% for ICICI Bank. As insiders would say, ICICI Bank has lost itself in the melee they called growth but as markets would make obvious, ICICI Bank misused its mandate and has shown the potential to ignore any sensible advice from any quarter and proceed much like a drunk junk trawler on the high seas than like a responsible corporate leader.

HDFC Bank NIM is 4.1% compared to just 2% for ICICI Bank, even though they are not aggressively courting suspect business anymore. Deepak Parekh is retiring and Aditya Puri has spent 15 odd years at the helm of the bank but HDFC Bank has stayed with SME business and not ever been in the same league as ICICI after it outgrew its initial discipline and rigor in the mid 90s. ICICI’s CASA at 30.9% is a cause of concern for the bank agast 45% for HDFC Bank the only worthy direct competitor. But now, ICICI Bank is likely to lose the ball to PSBs like SBI after their consolidation exercise and even Axis Bank. HDFC Bank Net Income increased 25% while fees and commission helped Non Interest Income increase by 75.9% HDFC Bank (1416 branches in 550 cities) Balance sheet has increased to INR 186115 Crs ($3.8 billion) and Retail lines are 58% of the overall advances with CAR at 15%

ICICI, which grew loans by a third in the past few years by boosting retail, personal loans and credits, has changed tack to concentrate on the safer corporate and housing loans. India bank loan growth has slid to 16 percent in June from nearly double that in the year to March 2008 as demand for credit fell in a slowing economy.

Having backed these two banks earlier in my career, it has been excruciating to watch them take the nation down in the last few years and hopefully, the PSBs and the Yes Banks would obviate the need for these megaliths much like we outgrew Indian Financial institutions in the mid 90s..

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