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

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Equity Bottom-Up

The idea that large corporate loans and especially those related to infrastructure projects, are the main credit risk for India’s banks, may be generally true. But it does not mean that NBFCs or even banks, are not seeing stresses appear in their traditionally stronger loan buckets. Where NBFCs are highly leveraged, it puts this risk into a different perspective, and especially where credit metrics are seeing meaningful deterioration. <a href="https://www.smartkarma.com/entities/can-fin-homes-ltd" target="_blank" data-smartkarma-citation="entities:17447:1" rel="noopener">Can Fin Homes (CANF IN)</a> is one of India’s most leveraged NBFCs, at least out of the largest 20 by assets, where its surge in bad loans, is of particular concern. See <a href="https://www.smartkarma.com/insights/lic-housing-dizzying-gearing-soaring-bad-loans" target="_blank" rel="noopener">our latest report</a> on LIC Housing for further thoughts on the risks here and in that note, with even higher gearing than Can Fin. It is worthwhile remembering, that <a href="https://www.smartkarma.com/entities/canara-bank" target="_blank" data-smartkarma-citation="entities:543:1" rel="noopener">Canara Bank (CBK IN)</a> last year sought to sell its stake in Can Fin, where reportedly it had 12 bidders in September which fell to 1 bidder by November, and where the bank has just announced - this week - its plan to cancel its planned sell. This can not be a positive sign.

The idea that large corporate loans and especially those related to infrastructure projects, are the main credit risk for India’s banks, may be generally true. But it does not mean that NBFCs or even banks, are not seeing stresses appear in their traditionally stronger loan buckets. Where NBFCs are highly leveraged, it puts this risk into a different perspective, and especially where credit metrics are seeing meaningful deterioration. Can Fin Homes (CANF IN) is one of India’s most leveraged NBFCs, at least out of the largest 20 by assets, where its surge in bad loans, is of particular concern. See our latest report on LIC Housing for further thoughts on the risks here and in that note, with even higher gearing than Can Fin. It is worthwhile remembering, that Canara Bank (CBK IN) last year sought to sell its stake in Can Fin, where reportedly it had 12 bidders in September which fell to 1 bidder by November, and where the bank has just announced - this week - its plan to cancel its planned sell. This can not be a positive sign. 

Can Fin Homes – Mortgage Lending Not Totally Safe, In India

The risks are obvious even if it’s housing lending. Debt/equity is 996% for <a href="https://www.smartkarma.com/entities/lic-housing-finance-ltd" target="_blank" data-smartkarma-citation="entities:15667:1" rel="noopener">LIC Housing Finance (LICHF IN)</a>, higher than any other NBFC in India as at 2Q20. Funding risk is high and we know from the downfall at IL&amp;FS that this can be more important than credit risk. But for LIC, credit risk is also a major concern.  Credit costs as a percentage of operating profit rose from 9.4% to 24.0%, from FY19 to 2Q20 at LIC. There are few NBFCs seeing this magnitude of growth in impairment costs.  It’s only likely to worsen in 3Q20 and in coming quarters.  New GDP forecasts just out by the Modi government are the lowest in 11 years. The shock in oil prices will not help and where sharp interest rate reductions are nearly impossible, given the currency - besides the fact that banks are have not been passing on lower RBI rates.  The reality is that we are well past the much-touted bank recapitalization plan, reshaping of new NPL laws and the elections, but the banking and economic situation only worsens.

The risks are obvious even if it’s housing lending. Debt/equity is 996% for LIC Housing Finance (LICHF IN), higher than any other NBFC in India as at 2Q20. Funding risk is high and we know from the downfall at IL&amp;FS that this can be more important than credit risk. But for LIC, credit risk is also a major concern.  Credit costs as a percentage of operating profit rose from 9.4% to 24.0%, from FY19 to 2Q20 at LIC. There are few NBFCs seeing this magnitude of growth in impairment costs.  It’s only likely to worsen in 3Q20 and in coming quarters.  New GDP forecasts just out by the Modi government are the lowest in 11 years. The shock in oil prices will not help and where sharp interest rate reductions are nearly impossible, given the currency - besides the fact that banks are have not been passing on lower RBI rates.  The reality is that we are well past the much-touted bank recapitalization plan, reshaping of new NPL laws and the elections, but the banking and economic situation only worsens.  

LIC Housing – Dizzying Gearing, Soaring Bad Loans

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

Adding to last week’s concerns reiterated above, additional developments which have further dampened our overall outlook include a breakdown in the global Discretionary vs. Staples ratio, price and RS deterioration for mainland China, Germany, and European Technology, and new lows in the NASDAQ Global Automobile index. Aside from Germany, other major indexes remain above support in Europe/UK and Japan.  We highlight a number of attractive opportunities in “defensive” Financials including electronic exchanges/markets, insurance, commercial/consumer financing, and select asset managers.

Adding to last week’s concerns reiterated above, additional developments which have further dampened our overall outlook include a breakdown in the global Discretionary vs. Staples ratio, price and RS deterioration for mainland China, Germany, and European Technology, and new lows in the NASDAQ Global Automobile index. Aside from Germany, other major indexes remain above support in Europe/UK and Japan.  We highlight a number of attractive opportunities in “defensive” Financials including electronic exchanges/markets, insurance, commercial/consumer financing, and select asset managers.

Global Equity Strategy: More Cracks Begin to Show

As new numbers are released, we have a better glimpse of where we are in the bad loan cycle, and the data is not reassuring. And we see that it is not only about risk with infrastructure or corporate loans in India, even if these are the most well-known credit risks. Housing loans are not immune from the economic malaise that remains in place. Non-bank financial company (NBFC) <a href="https://www.smartkarma.com/entities/17447" target="_blank" data-smartkarma-citation="entities:17447:1">Can Fin Homes (CANF IN)</a> shows exceptionally high quarterly bad loan growth in the latest period. Recalling <a href="https://www.smartkarma.com/insights/india-banks-rbi-forces-prompt-corrective-action" target="_blank">our note</a> on HDFC Bank, consumer loans more generally, may not be as robust as most believe.  And there are others.

As new numbers are released, we have a better glimpse of where we are in the bad loan cycle, and the data is not reassuring. And we see that it is not only about risk with infrastructure or corporate loans in India, even if these are the most well-known credit risks. Housing loans are not immune from the economic malaise that remains in place. Non-bank financial company (NBFC) Can Fin Homes (CANF IN) shows exceptionally high quarterly bad loan growth in the latest period. Recalling our note on HDFC Bank, consumer loans more generally, may not be as robust as most believe.  And there are others.

India Banks – Consumer and Mortgage Also a Risk

India

Can Fin Homes Ltd provides housing finance.  The company offers long term housing loans to middle and lower income individuals or corporate bodies for construction and acquiring houses/flats.

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Can Fin Homes (CANF IN)

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

Can Fin Homes – Mortgage Lending Not Totally Safe, In India

The idea that large corporate loans and especially those related to infrastructure projects, are the main credit risk for India’s banks, may be...

Daniel Tabbush

LIC Housing – Dizzying Gearing, Soaring Bad Loans

The risks are obvious even if it’s housing lending. Debt/equity is 996% for LIC Housing Finance (LICHF IN), higher than any other NBFC in India as...

Daniel Tabbush

Global Equity Strategy: More Cracks Begin to Show

Adding to last week’s concerns reiterated above, additional developments which have further dampened our overall outlook include a breakdown in the...

Vermilion Research

India Banks – Consumer and Mortgage Also a Risk

As new numbers are released, we have a better glimpse of where we are in the bad loan cycle, and the data is not reassuring. And we see that it is...

Daniel Tabbush

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