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

<div>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$200m in its India IPO. It is backed by True North, GIC and Bessemer and has recently obtained an investment from Warburg Pincus as well.</div><div>HFF has grown rapidly over the past few years, driven by an expansion in its branch network and large number of new customers. Over FY17-19, HFF’s loan grew at CAGR of 70%, while its earnings grew even faster with NII growing at 76.2%, PPoP at 145% and PAT at 160% CAGR.  It still remains largely focussed on housing loans and has pristine asset quality.</div><div>
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 dependant.
I have covered various aspects of the deal in, <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>. In this note I’ll talk about the updates from the company’s re-filed DRHP.
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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$200m 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 FY17-19, HFF’s loan grew at CAGR of 70%, while its earnings grew even faster with NII growing at 76.2%, PPoP at 145% and PAT at 160% 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 dependant.
I have covered various aspects of the deal in, Home First Finance Pre-IPO - Riding on affordable housing. In this note I’ll talk about the updates from the company’s re-filed DRHP.


Home First Finance Pre-IPO - Earnings Not Showing the COVID Strain but Other Metrics Are

Silver Point

Thomas J. Monaco

Independent Insight Provider

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

Equity Bottom-Up

*Management Call Doesn’t Allay Fears: FY 2Q21 results were significantly driven a loan loss provision decline of INR 18.1 bn (16.0%) despite much weaker credit metrics.  We find that reserves were light in the neighborbood of INR 1.1 tn  - nearly four years of pre-tax results or 61% of market-cap. The recent virtual call held by a competitor unfortunately did not allay our concern; and*Other Items Discussed: State Bank of India (SBIN.IN) [SBI] did reiterate its guidance for problem loan formation (slippages and restructuring) at 2.5% of loans outstanding in FY21. While SBI’s CET 1 ratio stood at 10.5% as of FY 2Q21,our calculated loss reserve shortfall would suggest that SBI has further wood to chop in this area.In addition, SBI is confident that it will be able to enhance its digital platform YONO into a more robust and scalable platform.

*Management Call Doesn’t Allay Fears: FY 2Q21 results were significantly driven a loan loss provision decline of INR 18.1 bn (16.0%) despite much weaker credit metrics.  We find that reserves were light in the neighborbood of INR 1.1 tn  - nearly four years of pre-tax results or 61% of market-cap. The recent virtual call held by a competitor unfortunately did not allay our concern; and*Other Items Discussed: State Bank of India (SBIN.IN) [SBI] did reiterate its guidance for problem loan formation (slippages and restructuring) at 2.5% of loans outstanding in FY21. While SBI’s CET 1 ratio stood at 10.5% as of FY 2Q21,our calculated loss reserve shortfall would suggest that SBI has further wood to chop in this area.In addition, SBI is confident that it will be able to enhance its digital platform YONO into a more robust and scalable platform.

State Bank of India – Reserve Shortfall Needs To Be Addressed

Specialist in Indian Banking and Economic Research

Hemindra Hazari

It was unfortunate that <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>decided to provide selective disclosure at a <a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/bb1870e3-1806-443f-8dc0-c81358e0d28a.pdf" target="_blank" rel="noopener">conference call</a> hosted by Jefferies. Only 63 institutional investors participated on the evening of December 9, 2020, where the bank publicly disclosed what went wrong at its recent digital outages. More importantly, in the opinion of this analyst, it provided market sensitive information in the form of the time span it would take to rectify some of the information technology issues raised by the Reserve Bank of India (RBI).  The bank disclosed the conference audio link to the exchanges nearly 16 hours later (at the latter half of the trading day). Such sensitive information should have been disclosed via a specially arranged press conference followed by an analyst conference, instead of providing such information to an exclusive audience of 63 institutional investors. Pertinently, HDFC Bank’s share price on December 10 closed 1.5% lower than the previous day, as compared with a 0.4% fall in the Nifty-50. This analyst understands that in future the Bank will disburse such information through a wider dissemination rather than such selective disclosure.At the conference call, the Bank acknowledged that its critical disaster recovery system required manual intervention to be activated, and that it would take 3 weeks for the automation to be implemented. This is a very important disclosure as this was not communicated to customers in its  <a href="https://v1.hdfcbank.com/htdocs/common/other/download/app1.html" target="_blank" rel="noopener">'Forget Cash...Go Digital'</a>  publicity campaign or in its ‘Digital 2.0’ strategy to stakeholders. It is disappointing that even though the RBI released guidelines for Business Continuity Planning (BCP) in <a href="https://www.rbi.org.in/SCRIPTs/BS_CircularIndexDisplay.aspx?Id=6366" target="_blank" rel="noopener">April 2011</a>, more than 9 years later, India’s most valuable bank, which markets its digital prowess, has been found to being so exposed and vulnerable at its backbone of banking operations.

It was unfortunate that HDFC Bank (HDFCB IN) decided to provide selective disclosure at a conference call hosted by Jefferies. Only 63 institutional investors participated on the evening of December 9, 2020, where the bank publicly disclosed what went wrong at its recent digital outages. More importantly, in the opinion of this analyst, it provided market sensitive information in the form of the time span it would take to rectify some of the information technology issues raised by the Reserve Bank of India (RBI).  The bank disclosed the conference audio link to the exchanges nearly 16 hours later (at the latter half of the trading day). Such sensitive information should have been disclosed via a specially arranged press conference followed by an analyst conference, instead of providing such information to an exclusive audience of 63 institutional investors. Pertinently, HDFC Bank’s share price on December 10 closed 1.5% lower than the previous day, as compared with a 0.4% fall in the Nifty-50. This analyst understands that in future the Bank will disburse such information through a wider dissemination rather than such selective disclosure.At the conference call, the Bank acknowledged that its critical disaster recovery system required manual intervention to be activated, and that it would take 3 weeks for the automation to be implemented. This is a very important disclosure as this was not communicated to customers in its  'Forget Cash...Go Digital'  publicity campaign or in its ‘Digital 2.0’ strategy to stakeholders. It is disappointing that even though the RBI released guidelines for Business Continuity Planning (BCP) in April 2011, more than 9 years later, India’s most valuable bank, which markets its digital prowess, has been found to being so exposed and vulnerable at its backbone of banking operations.

Selective Disclosure of Sensitive Information? HDFC Bank’s Conference Call on Its Digital Outages

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

<a href="https://www.smartkarma.com/entities/yes-bank-ltd" target="_blank" data-smartkarma-citation="entities:767:1" rel="noopener">YES Bank's (YES IN)</a> US$-bond hit par-value recently. Par is plenty for investors. Having delivered 20 price points in return since our Buy recommendation, pre-rescue in February, Smartkarma readers should be satiated with this above average return. Upside is now much less likely, although temporarily pricing slightly over par could occur during the next few months. As such, we move to Underweight YES Bank’s 3 ¾% coupon Nov. 2023 maturity bond, from Overweight on a relative value basis.We put YES Bank’s recent bond outperformance down to a combination of a broad risk asset rally and positive news flow plus the lack of negative news regarding the recovery of the institution. The Reserve Bank of India’s take-over of <a href="https://www.smartkarma.com/entities/lakshmi-vilas-bank-ltd" target="_blank" data-smartkarma-citation="entities:17552:1" rel="noopener">Lakshmi Vilas Bank (LVB IN)</a> has both removed the spotlight from YES Bank and reminded investors that this entity was rescued.Delivery on management’s restructuring goals remains to be seen while headwinds build for India, post-COVID-19. As such, with less than two-years to maturity and spreads at less than one-half their levels of one-year ago, now is not the time to jump in. We believe it is time to lighten allocation to this security and reposition elsewhere.

YES Bank's (YES IN) US$-bond hit par-value recently. Par is plenty for investors. Having delivered 20 price points in return since our Buy recommendation, pre-rescue in February, Smartkarma readers should be satiated with this above average return. Upside is now much less likely, although temporarily pricing slightly over par could occur during the next few months. As such, we move to Underweight YES Bank’s 3 ¾% coupon Nov. 2023 maturity bond, from Overweight on a relative value basis.We put YES Bank’s recent bond outperformance down to a combination of a broad risk asset rally and positive news flow plus the lack of negative news regarding the recovery of the institution. The Reserve Bank of India’s take-over of Lakshmi Vilas Bank (LVB IN) has both removed the spotlight from YES Bank and reminded investors that this entity was rescued.Delivery on management’s restructuring goals remains to be seen while headwinds build for India, post-COVID-19. As such, with less than two-years to maturity and spreads at less than one-half their levels of one-year ago, now is not the time to jump in. We believe it is time to lighten allocation to this security and reposition elsewhere. 

YES Bank: Par Is Plenty- Move to Underweight

The Reserve Bank of India’s (RBI) decision to temporarily put a halt to all digital launches of <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>’s financial products and also cease all new issuances of credit cards by the bank brings to the fore the huge reputational risk on account of the bank ignoring its technology issues. But further, it impacts its future revenue, especially from its highly lucrative credit cards business. The bank is the market leader in credit cards, with a 31.4% share by card spend, and its 3 month average (July-September) addition was 136,044 cards per month, which is the likely loss to the bank as rivals compete for these additional cards in the following months. In FY2020, <a href="https://www.hdfcbank.com/content/bbp/repositories/723fb80a-2dde-42a3-9793-7ae1be57c87f/?path=/Footer/About%20Us/Investor%20Relation/Detail%20PAges/inverstor%20relation/PDF%27s/Q3FY20%20Rev.pdf" target="_blank" rel="noopener">95%</a> of customers initiated transactions via its digital (internet and mobile) channel and as on September 30, the bank had consolidated assets of US$ 225 bn. In <a href="https://hemindrahazari.com/2019/12/09/hdfc-banks-digital-disaster-no-recovery-plan/" target="_blank" rel="noopener">December 2019</a>, this analyst was one of the few to highlight the obvious deficiencies in HDFC Bank’s digital operations, the lack of clear and relevant communication to the public and to customers by the bank, and, most worryingly, the absence of a disaster recovery plan, which should have been taken up on a war footing by the bank’s board of directors.The RBI’s order specifies that the “Bank’s board examines the lapses and fixes accountability”, which indicates that in the past year the HDFC Bank’s high profile <a href="https://www.hdfcbank.com/personal/about-us/corporate-governance/composition-of-the-board" target="_blank" rel="noopener">board of directors</a> has not given this issue the importance it deserves by examining the cause for the failure of its digital operations, and the remedial actions to be adopted to prevent its recurrence; nor has it fixed accountability. A professional board would have given such a basic task high priority soon after the lengthy digital outages of last December. That it takes a humiliating public directive from the banking regulator to remind the HDFC Bank’s Board to do its job is indicative of the corporate governance practiced in India’s most valuable bank.

The Reserve Bank of India’s (RBI) decision to temporarily put a halt to all digital launches of HDFC Bank (HDFCB IN)’s financial products and also cease all new issuances of credit cards by the bank brings to the fore the huge reputational risk on account of the bank ignoring its technology issues. But further, it impacts its future revenue, especially from its highly lucrative credit cards business. The bank is the market leader in credit cards, with a 31.4% share by card spend, and its 3 month average (July-September) addition was 136,044 cards per month, which is the likely loss to the bank as rivals compete for these additional cards in the following months. In FY2020, 95% of customers initiated transactions via its digital (internet and mobile) channel and as on September 30, the bank had consolidated assets of US$ 225 bn. In December 2019, this analyst was one of the few to highlight the obvious deficiencies in HDFC Bank’s digital operations, the lack of clear and relevant communication to the public and to customers by the bank, and, most worryingly, the absence of a disaster recovery plan, which should have been taken up on a war footing by the bank’s board of directors.The RBI’s order specifies that the “Bank’s board examines the lapses and fixes accountability”, which indicates that in the past year the HDFC Bank’s high profile board of directors has not given this issue the importance it deserves by examining the cause for the failure of its digital operations, and the remedial actions to be adopted to prevent its recurrence; nor has it fixed accountability. A professional board would have given such a basic task high priority soon after the lengthy digital outages of last December. That it takes a humiliating public directive from the banking regulator to remind the HDFC Bank’s Board to do its job is indicative of the corporate governance practiced in India’s most valuable bank.

HDFC Bank’s Digital Irresponsibility: RBI’s Novel Penalty Hits Where It Hurts

India

HDFC Bank Ltd. offers a wide range of services to the global corporate sector. The Bank provides corporate banking and custodial services and is active in the treasury and capital markets. HDFC also markets project advisory services and capital market products such as Global Deposit Receipts, Euro currency loans, and Euro currency bonds.

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HDFC Bank (HDFCB IN)

Home First Finance Pre-IPO - Earnings Not Showing the COVID Strain but Other Metrics Are

Home First Finance is an affordable housing finance company targeting first time home buyers. It aims to raise US$200m in its India IPO. It is...

Sumeet Singh

State Bank of India – Reserve Shortfall Needs To Be Addressed

STATE BANK OF INDIA: Recent Call Suggests No Real Progress On Significant Reserve Shortfall, And That Another Capital Raise Not Out Of Question

Thomas J. Monaco

Selective Disclosure of Sensitive Information? HDFC Bank’s Conference Call on Its Digital Outages

HDFC Bank provided sensitive information in the form of the time span it would take to rectify some of the IT issues raised by the RBI at a sell...

Hemindra Hazari

YES Bank: Par Is Plenty- Move to Underweight

Despite incredibly poor asset quality, goals that are years from being realized and liquidity which remains well overstated, YES Bank’s US$-bond...

Hank Calenti, CFA

HDFC Bank’s Digital Irresponsibility: RBI’s Novel Penalty Hits Where It Hurts

That it takes a humiliating public directive from the banking regulator to remind the HDFC Bank’s Board to do its job is indicative of the...

Hemindra Hazari

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