Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Thematic (Sector/Industry)

<ul>
<li>We screen 7 Indian banks for their core profitability and their credit quality credentials, in order to identify banks that are good value and have potential to deliver higher returns going forward</li>
<li>We use a number of metrics including pre-provision and post-provision profit, cost of risk and credit quality, as well as capital adequacy ratios</li>
<li>We expect credit quality to continue to worsen in the coming quarters, especially as the moratorium on new NPL classification began to normalise as from April; yet we believe that certain Indian banks are well positioned and have already taken action to counter the threat of higher delinquencies, through cost of risk charges and write-offs</li>
<li>We highlight <a href="https://www.smartkarma.com/entities/axis-bank-ltd" target="_blank" data-smartkarma-citation="entities:768:1" rel="noopener">Axis Bank Ltd (AXSB IN)</a> as a restructuring and earnings recovery story, and <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-4b6b7a92-9087-468d-9dbe-ab169e77f014" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN)</a> for its high quality balance sheet and premium returns, which are not yet fully reflected in valuations; we also see <a href="https://www.smartkarma.com/entities/state-bank-of-india" target="_blank" data-smartkarma-citation="entities:160:1" rel="noopener">State Bank Of India (SBIN IN)</a> as an attractive value play, despite its lighter core capital ratio</li>
<li>We are cautious on <a href="https://www.smartkarma.com/entities/canara-bank" target="_blank" data-smartkarma-citation="entities:543:1" rel="noopener">Canara Bank (CBK IN)</a>, seeing it as a potential value trap; at first look, <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> looks appealing on prospective PBV ratio to ROE and high pre-provision returns but we are wary of its high share of micro-finance and SME credit risk exposure in the light of rising NPA ratios</li>
<li>Risks to our view include, for our bullish calls, worse than expected credit quality resulting in higher cost of risk, higher than expected opex and weak revenue generation; for our bear calls, better than expected revenues with lower than expected opex and cost of risk leading to higher post-provision returns</li>
</ul>


We screen 7 Indian banks for their core profitability and their credit quality credentials, in order to identify banks that are good value and have potential to deliver higher returns going forward
We use a number of metrics including pre-provision and post-provision profit, cost of risk and credit quality, as well as capital adequacy ratios
We expect credit quality to continue to worsen in the coming quarters, especially as the moratorium on new NPL classification began to normalise as from April; yet we believe that certain Indian banks are well positioned and have already taken action to counter the threat of higher delinquencies, through cost of risk charges and write-offs
We highlight Axis Bank Ltd (AXSB IN) as a restructuring and earnings recovery story, and HDFC Bank (HDFCB IN) for its high quality balance sheet and premium returns, which are not yet fully reflected in valuations; we also see State Bank Of India (SBIN IN) as an attractive value play, despite its lighter core capital ratio
We are cautious on Canara Bank (CBK IN), seeing it as a potential value trap; at first look, Bandhan Bank Ltd (BANDHAN IN) looks appealing on prospective PBV ratio to ROE and high pre-provision returns but we are wary of its high share of micro-finance and SME credit risk exposure in the light of rising NPA ratios
Risks to our view include, for our bullish calls, worse than expected credit quality resulting in higher cost of risk, higher than expected opex and weak revenue generation; for our bear calls, better than expected revenues with lower than expected opex and cost of risk leading to higher post-provision returns


Indian Banks; Screening for Investment Ideas, Despite the Credit Quality Hurdles

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

<div>
<p>The objective of "The Narrative" is to aid us in assessing management commentary, which we can further connect with ground reality via primary checks, aiding us in identifying key catalysts that could be potential drivers of stock returns. </p>
</div>
<div>
<p>For the narrative, we will be covering commentary on Operating environment &amp; outlook, Business performance, Collection &amp; Credit Awareness, Asset Quality &amp; Restructuring, Liability franchise &amp; deposits, Digital banking, Future business drivers &amp; new launches</p>
</div>
<p>Companies covered in this Insight include <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> / <a href="https://www.smartkarma.com/entities/ujjivan-small-finance-bank-ltd" target="_blank" data-smartkarma-citation="entities:28443:1" rel="noopener">Ujjivan Small Finance Bank (USFB IN)</a> / <a href="https://www.smartkarma.com/entities/equitas-small-finance-bank-ltd" target="_blank" data-smartkarma-citation="entities:28834:1" rel="noopener">Equitas Small Finance Bank (ESFB IN)</a></p>


The objective of "The Narrative" is to aid us in assessing management commentary, which we can further connect with ground reality via primary checks, aiding us in identifying key catalysts that could be potential drivers of stock returns. 


For the narrative, we will be covering commentary on Operating environment &amp; outlook, Business performance, Collection &amp; Credit Awareness, Asset Quality &amp; Restructuring, Liability franchise &amp; deposits, Digital banking, Future business drivers &amp; new launches

Companies covered in this Insight include AU Small Finance Bank Limited (AUBANK IN) / Ujjivan Small Finance Bank (USFB IN) / Equitas Small Finance Bank (ESFB IN)

The Narrative | Q1 FY22 | India Small Finance Banks - AUBANK, USFB, ESFB

External broker reports(aggregated public sources), Axis Direct

Axis Direct

External broker reports(aggregated public sources)

Equity Bottom-Up

<p>Bandhan Bank Ltd. (Bandhan) results were above our expectations backed by improved operating performance and NIMs rebounding to normalized levels. The disbursements were impacted due to the regional lockdowns, resulting in a run-off in the loan book on a sequential basis, which was down 8% QoQ. The share of EEB (MFI loans) increased from 64% in Q1FY21 to 66% in Q1FY22. However, the share of group lending decreased from 61% in Q1FY21 to 58% in Q1FY22, in line with the bank’s strategy to de-focus on group lending and shift towards Individual EEB loans.</p><p>We maintain a BUY rating on the stock with a target price of Rs 350/share, implying an upside of 20% from CMP.</p><div class="content-highlight"><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></div>

Bandhan Bank Ltd. (Bandhan) results were above our expectations backed by improved operating performance and NIMs rebounding to normalized levels. The disbursements were impacted due to the regional lockdowns, resulting in a run-off in the loan book on a sequential basis, which was down 8% QoQ. The share of EEB (MFI loans) increased from 64% in Q1FY21 to 66% in Q1FY22. However, the share of group lending decreased from 61% in Q1FY21 to 58% in Q1FY22, in line with the bank’s strategy to de-focus on group lending and shift towards Individual EEB loans.We maintain a BUY rating on the stock with a target price of Rs 350/share, implying an upside of 20% from CMP.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Bandhan Bank: Asset Quality Stress To Persist In Near-Term

External broker reports(aggregated public sources), ICICI Securities Ltd

ICICI Securities Limited

<p>About the stock: Bandhan Bank was incorporated in 2015 as RBI granted a universal banking license. The bank has a strong presence in eastern and northeastern India with MFI loans being its forte.</p><ul><li>Total 66% of loans are from emerging enterprise business (EEB)</li><li>Also, 1152 branches in 34 states, UTs and total customer base of 2.3 crore</li></ul><div class="content-highlight"><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></div>

About the stock: Bandhan Bank was incorporated in 2015 as RBI granted a universal banking license. The bank has a strong presence in eastern and northeastern India with MFI loans being its forte.Total 66% of loans are from emerging enterprise business (EEB)Also, 1152 branches in 34 states, UTs and total customer base of 2.3 croreContent is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Bandhan Bank: Weak Performance; Still Time to Recover

<p><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> is a fine example, reiterating our ability to deliver "qualitative" alpha that is backed with rigorous primary research and channel checks (YTD BANDHAN -26% vs NIFTY at +12%). Our work done on Bandhan stands as a testimony proving our ability to cover channels not just for consumer names but also financials where in spite of wide coverage, primary checks are able to provide the required edge. </p>
<p><strong>Our earlier coverage on Bandhan includes </strong></p>
<ul>
<li>
<a href="https://www.smartkarma.com/insights/india-channel-insight-bandhan-hero-bata-nestle" target="_blank" data-smartkarma-citation="insights:49988" rel="noopener">India Channel Insight | Bandhan, Hero, Bata, Nestle</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/bandhan-bank-bandhan-in-pain-in-assam-likely-to-continue" target="_blank" data-smartkarma-citation="insights:50001" rel="noopener">Bandhan Bank (BANDHAN IN) | Pain in Assam Likely to Continue</a> </li>
<li>
<a href="https://www.smartkarma.com/insights/bandhan-bank-bandhan-in-on-ground-narrative-from-assam-and-west-bengal" target="_blank" data-smartkarma-citation="insights:47495" rel="noopener">Bandhan Bank (BANDHAN IN) | On Ground Narrative from Assam and West Bengal</a> </li>
</ul>
<div class="content-highlight">
<p>We again test the waters by speaking to five DSC managers in top districts in West Bengal with an objective to assess collection, lending practices and expected delinquency. </p>
</div>

Bandhan Bank Ltd (BANDHAN IN) is a fine example, reiterating our ability to deliver "qualitative" alpha that is backed with rigorous primary research and channel checks (YTD BANDHAN -26% vs NIFTY at +12%). Our work done on Bandhan stands as a testimony proving our ability to cover channels not just for consumer names but also financials where in spite of wide coverage, primary checks are able to provide the required edge. 
Our earlier coverage on Bandhan includes 


India Channel Insight | Bandhan, Hero, Bata, Nestle 

Bandhan Bank (BANDHAN IN) | Pain in Assam Likely to Continue 

Bandhan Bank (BANDHAN IN) | On Ground Narrative from Assam and West Bengal 


We again test the waters by speaking to five DSC managers in top districts in West Bengal with an objective to assess collection, lending practices and expected delinquency. 


India

Bandhan Bank Limited operates as a commercial bank. The Bank provides accounts checking, savings deposits, money market, mortgage, and term loans services, as well as card facilities and Internet banking services. Bandhan Bank serves customers in India.

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Bandhan Bank Ltd (BANDHAN IN)

Indian Banks; Screening for Investment Ideas, Despite the Credit Quality Hurdles

Screening for ideas, we are positive on Axis Bank and HDFC Bank, and State Bank of India too; due to credit quality concerns, we are cautious on...

Victor Galliano

The Narrative | Q1 FY22 | India Small Finance Banks - AUBANK, USFB, ESFB

Companies covered in this Insight include AU Small Finance Bank Limited (AUBANK IN) / Ujjivan Small Finance Bank (USFB IN) / Equitas Small Finance...

Pranav Bhavsar

Bandhan Bank: Asset Quality Stress To Persist In Near-Term

We maintain a BUY rating on the stock with a target price of Rs 350/share, implying an upside of 20% from CMP. Bandhan Bank results were above our...

Axis Direct

Bandhan Bank: Weak Performance; Still Time to Recover

Bandhan Bank was incorporated in 2015 as RBI granted a universal banking license. The bank has a strong presence in eastern and northeastern India...

ICICI Securities Limited

Bandhan Bank | Postcard from West Bengal

We again test the waters by speaking to 5 DSC managers in top districts in West Bengal with an objective to assess collection, lending practices...

Pranav Bhavsar

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