Recent Posts

91

Sensex and Nifty Company Analysis / Bernstein - ICICI an Outperformer

« Last post by komal on July 15, 2020, 02:38:13 PM »

Here is an excerpt from Bernstein Equity Research.

ICICI Bank has been a laggard in the current market (~20% under performance to HDFCB), driven by negative surprises in the overseas book. However, it has been on a strong improvement trajectory under the current CEO (~24% annualized CAGR in operating profits last 6 quarters). Its plan to raise capital (Core Tier 1 capital would go from 13.4% to 15.5%) should backstop concerns on its back book and provide it with growth capital. We find the valuation at 1.9x FY20 BV (1.6x FY21E BV, post raise) compelling. We believe the upcoming capital raise may be a good time to participate in the stock.

Going forward, as ICICI's improvement is perceived, we expect the gap to narrow. We value ICICI Bank at 1.9x FY21E P/BV, with target price of INR 430.

92

Indian Retail Forum and Discussion / Post COVID Lockdown Recovery - Varied

« Last post by komal on July 10, 2020, 10:29:20 PM »

With lockdown easing across most cities in India, 80-95% of stores have opened across retailers. However, recovery levels in June vary sharply, with grocery sales (DMart) at 80- 90% of pre-Covid levels. QSR sales are at 50-70% of pre-Covid for June, with JUBI at 60-70% vs 50-60% for WLDL, aided by higher delivery salience. Apparel players are most impacted, with Shoppers Stop at 30- 40% levels vs 45-50% at start-June, as pent-up demand peters out.

93

India Credit Cards / Personal & Business Loans / Simpl Pay - Substitute

« Last post by komal on July 03, 2020, 10:50:51 AM »

Founded in 2015 by Nityanand Sharma and Chaitra Chidanand Mumbai-based Simpl Pay partners online merchants to offer their customers the option to pay for all their purchases over a billing period in a single transaction (i.e. defer their purchase related payments) while making their payment experience faster and convenient in comon to cards and wallets.

They are a layer like your Credit Card but eliminate the Risk of Credit Card Frauds that may happen over the Internet Transactions.

The initial spending limit is set by default, and can be extended based on the spending behaviour and repayment pattern of the individual customer. Billing periods typically work over a 15-day cycle with an additional 5 days of grace period to settle the bills. Simpl claims to have transaction failure rates of less than 1% compared to 20-30% for other payment methods.

As of Oct’19, the company claimed to be processing more than 2 million transactions per month. Some of the platforms that the company offers its payment options include Bigbasket, Zomato, Dunzo, Fassos, Freshmenu and Rapido, among others.

94

Experian-Equifax / How Credit Card Companies Earn ?

« Last post by komal on June 29, 2020, 10:59:46 PM »

The entire gross loan portfolio of the Credit Card Company is not interest earning portfolio. The gross loans (credit card receivables) portfolio is divided into three parts depending upon the interest earning capability:

Transactor receivables: Dues which are paid within the due date of payment and thus company does not earn any interest. Credit Card company earns by way of MDR charged to the Retailer (~ 1% to 2%). Most Corporate Cards are in this Category as they don't believe in paying exorbitant Annual Percentage Rate - APR 24%-36% on Revolving Credit or High Interest on EMI Loans about 15%.

Term loan receivables: Dues are converted in equal monthly payments (EMI) by the customers and thus earn interest income for the company. Term loan usually carries lower interest rate as compared to the Revolver receivables. As per SBI Cards website, the interest on EMI loans is in the range of 14-15%. As per company filings, ~30% of the portfolio is term loan portfolio in 1HFY20 and has been at similar levels in past.

Revolver receivables: Dues which are revolved from current month to next month, earn interest income for the company.

In our study we have found that the Credit Card company's Loan Book is equally split between the above 3 categories.

95

India Credit Cards / Personal & Business Loans / How SBI makes Money on Corporate Card ?

« Last post by komal on June 29, 2020, 07:44:55 PM »

The corporate card business model is characterised by:

Lower loans-to-spend ratio as it is unlikely that corporates would incur 20-40% interest costs on term / revolver loans on cards. The entire loan book would largely comprise only transactor loans, which earn no yields. As the yield on transactor loans is 0% and would have to be funded at the cost of funds, i.e. card issuers do not earn interest from corporate cards.

Revenues driven largely by fee income, within which spend-based MDR would be a large component. Since the spend per card on corporate cards would be significantly higher, the lack of interest income is made up for by fees.

Theoretically, corporate cards are a high RoE business, given large operating leverage and lower capital consumption (lower loans).
However, there are a lot of operational challenges that act as bottlenecks. Low bargaining power against corporate clients also means a meaningful part of the MDR must be passed back to the corporate clients as kickbacks or rewards or interest-free credit periods. Profitability depends on ability to underwrite credit limits and select the right kind of corporate customers.

For SBI Cards, corporate cards account for ~29% of spend, though they account for <1% of cards in- use.

96

Equity Investments, Fundamental Research and Sectors Review / COVID-19 Hits Consumer Buying

« Last post by komal on June 17, 2020, 08:21:29 PM »

Credit Suisse in a Report said that COVID’s uncontained spread extends hit to consumption

COVID continues to spread with a rising number of new reported cases and no flattening of the curve. The worst impacted are the large cities and media reports. They consumers to avoid non-essential out-of-home visits which would extend the impact on consumption.

Pattern of strong foods and weak personal care consumption to extend - (1) strong growth in home categories such as biscuits, noodles, branded tea/coffee, home insecticides; (2) a pick-up in healthcare and hygiene products; and (3) a decline in personal care/out-of-home products such as shampoo, hair oils, skin creams and ice cream.

Consumer discretionary
CS sees highest headwinds for discretionary companies which have a high salience of sales from top 10 cities such as Avenue, Jubilant, Page Industries and Titan.

They Downgrade Avenue Supermart to UNDERPERFORM (from Neutral) and Jubilant to NEUTRAL (from Outperform)

Company -

Stock Target

HUL - 2400
Emami - 240
United Spirits - 575
DMART - 2000
Jubilant 1625
Page Industries - 14100
Asian Paints - 1850
Pidlite - 1100

97

Sensex and Nifty Company Analysis / Morgan Stanley Target on NBFC

« Last post by resh on April 28, 2020, 02:04:42 PM »

After the Debt Market Chaos. Morgan Stanley has done a Stree Test on the Top NBFCs in India and in a report titled India NBFCs: All about Debt Mutual Funds and Interplay with NBFCs has released the Stock / Share Target Prices of the Top NBFCs as under.

HDFC - Rs2,270: sum of the parts, probability-weighted (bull 5%, base 75%, bear 20% - skew reflects challenging conditions for macro economy and NBFCs / HFCs and remote possibility of sharp recovery, in MS' view). Core business: base case target P/B of 2.5x on core Mar-2022 BVPS. Derived from Gordon Growth Formula (cost of equity 12.5%, ROE ~16%, growth ~10%).

M&M Financial Services - Rs285: sum of the parts, probability-weighted (bull 5%, base 55%, bear 40% - skew reflects challenges in macro climate and for NBFCs/HFCs, remote possibility of sharp recovery, in our view). Core auto finance & housing: three-phase RI model (five-year high-growth period, 10- year maturity period, terminal period. Cost of equity 12.5%, terminal growth rate 6%.

98

Experian-Equifax / Multiple Cards + High Utilization Impact

« Last post by cardbhai on April 23, 2020, 09:59:08 PM »

One of the factors your Experian Credit Score depends on is the current balance on your credit cards in comon to the credit limit.

In other words if you have multiple credit cards with a balance that is close to the credit limit / high credit, it is likely that your Credit Score will be impacted. Ensure you do not accumulate huge balances on your card and if you do, always try and pay off the balances on your card to avoid reaching the credit limit.

One of the factors your Experian Score depends on is the number of active loan / credit card accounts reported in the last 24 months that carry a current balance. A high balance on such active accounts will impact your Credit Score. Paying off the balances on the loan and credit card accounts as well as not having too many open lines of credit with current balances will help maintain your Credit Score.

99

CIBIL Credit Report Score / How Monthly Payments affect Score ?

« Last post by cardbhai on April 23, 2020, 09:55:10 PM »

Your CIBIL Score is not only dependent on your timely payments towards loans/credit cards that have been availed but also the amount that has been paid.

E.g. If you have a high credit utilization on a credit card and are making monthly minimum payments by the due date, this will not affect your payment history. However, this will impact your CIBIL Score as the minimum payments made is low in comon to the actual amount payable.

You can maintain your CIBIL Score by making timely payments every time, as well as ensuring you are paying off the balances on the loans/credit cards. Paying more than the minimum due will help bring down the total outstanding on the accounts.

100

CIBIL Credit Report Score / Total SBI Cards Outstanding

« Last post by resh on April 23, 2020, 03:42:03 PM »

SBI Cards & Payments Services is a payment solutions provider in India and is a subsidiary of the SBI - India's Largest PSU Bank.

SBI Cards & Payments Services has reported outstanding borrowings by retail Indian customers worth Rs 17,362.86 crore as on March 31, 2020. The company had the highest credit rating during the previous fiscal year ended March 2020 with AAA/ Stable rating by Crisil and ICRA.

RBI has issued a Moratorium on Credit Card Payments for Consumers who are in distress due to COVID-19 Issue. However, interest will continue to accrue on the Credit Card Account until the balance is Paid off. However, NO Negative CIBIL Reporting can be Done for the period ending till June-30.