Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary:  A flattening US interest rate yield curve changed the dynamics for credit investors for most of the month of April, in complete contrast to how interest rates behaved in March. The narrative changed to one that was Treasury bond supportive, and this supported shorter-duration securities. Meanwhile yield curve flattening pushed credit spreads in the opposite direction longer out the curve.The sweet spot for total return investors moved dramatically. Investors that were positioned in higher duration bonds witnessed underperformance on a total return basis. Meanwhile, investors in lower duration bonds outperformed on a total return basis. However, as the month ended, we began to witness a return of the reflation trade with US interest rates ending the month on an upswing. May could see a repeat of March’s carry-trade performance.From a pure credit spread perspective, ignoring movements in the risk-free rate, Asia’s bank bonds had a mixed performance with one-third of the +100 bonds that we track widening during the month. Vaccine versus virus concerns led to lower economic growth projections by the market than seen in the prior month. Expectations for an unsynchronized global recovery also factored. Taken together, this would delay the much needed catch-up in credit fundamentals to match the monetary accommodation driven spread compression over the last year. As such, bond spread tightening was less ebullient while widening lessened the amount of fundamental performance needed to justify lofty spread levels.

Executive Summary:  A flattening US interest rate yield curve changed the dynamics for credit investors for most of the month of April, in complete contrast to how interest rates behaved in March. The narrative changed to one that was Treasury bond supportive, and this supported shorter-duration securities. Meanwhile yield curve flattening pushed credit spreads in the opposite direction longer out the curve.The sweet spot for total return investors moved dramatically. Investors that were positioned in higher duration bonds witnessed underperformance on a total return basis. Meanwhile, investors in lower duration bonds outperformed on a total return basis. However, as the month ended, we began to witness a return of the reflation trade with US interest rates ending the month on an upswing. May could see a repeat of March’s carry-trade performance.From a pure credit spread perspective, ignoring movements in the risk-free rate, Asia’s bank bonds had a mixed performance with one-third of the +100 bonds that we track widening during the month. Vaccine versus virus concerns led to lower economic growth projections by the market than seen in the prior month. Expectations for an unsynchronized global recovery also factored. Taken together, this would delay the much needed catch-up in credit fundamentals to match the monetary accommodation driven spread compression over the last year. As such, bond spread tightening was less ebullient while widening lessened the amount of fundamental performance needed to justify lofty spread levels.

Bank Credit Compass: Total Return Sweet Spot Moves, but May Rebound

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

*Improved Operating Performance: ICICI Bank (ICICIBC.IN/IBN.US) [ICICI] reported FY 4Q21 earnings of INR 44.0 bn, decreasing INR 5.4 bn (10.9%) linked quarter. Excluding gains, FY 4Q21 core operating results increased INR 2.5 bn (6.5%) over the same period. In our view, ICICI’s results were of higher quality than last quarter; and*Credit Improvement Coming: With NCOs of INR 42.2 bn, we find that net new NPLs actually continued to increase - up INR 34.9 bn or at a decelerated pace of 33.1% on an annualized basis. With credit quality continuing to breakdown at ICICI and virtually every financial institution in India, we find that ICICI – like its competitors, is still short on reserves to the tune of INR 229 bn or four quarters of PBT.

*Improved Operating Performance: ICICI Bank (ICICIBC.IN/IBN.US) [ICICI] reported FY 4Q21 earnings of INR 44.0 bn, decreasing INR 5.4 bn (10.9%) linked quarter. Excluding gains, FY 4Q21 core operating results increased INR 2.5 bn (6.5%) over the same period. In our view, ICICI’s results were of higher quality than last quarter; and*Credit Improvement Coming: With NCOs of INR 42.2 bn, we find that net new NPLs actually continued to increase - up INR 34.9 bn or at a decelerated pace of 33.1% on an annualized basis. With credit quality continuing to breakdown at ICICI and virtually every financial institution in India, we find that ICICI – like its competitors, is still short on reserves to the tune of INR 229 bn or four quarters of PBT.

Specialist in Indian Banking and Economic Research

Hemindra Hazari

<a href="https://www.smartkarma.com/entities/icici-bank-ltd" target="_blank" data-smartkarma-citation="entities:547:1" rel="noopener">ICICI Bank Ltd (ICICIBC IN)</a> posted strong results for 4QFY2021 with standalone net profits up 260% yoy, but 11% down qoq to Rs 44 bn. While the analyst consensus and the capital market may view the results as a positive, investors need to monitor the bank’s focus on mortgages, which it has used to drive asset growth. As compared with the industry, ICICI Bank has accelerated its mortgages from 3QFY2021, and this has further spurted in 4QFY2021. Within mortgages, the loan against property portfolio needs to be carefully monitored, as such loans can result in higher losses when there is a downturn. Although mortgages are secured, the asset value can plummet when lenders sell the security to realise the loan.  It is interesting to observe that, while <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> is de-emphasising retail loans, ICICI Bank still continues to aggressively grow retail. Like HDFC Bank, however, it has continue to increase its net deferred taxes (DTA), thereby inflating its net profits.

ICICI Bank Ltd (ICICIBC IN) posted strong results for 4QFY2021 with standalone net profits up 260% yoy, but 11% down qoq to Rs 44 bn. While the analyst consensus and the capital market may view the results as a positive, investors need to monitor the bank’s focus on mortgages, which it has used to drive asset growth. As compared with the industry, ICICI Bank has accelerated its mortgages from 3QFY2021, and this has further spurted in 4QFY2021. Within mortgages, the loan against property portfolio needs to be carefully monitored, as such loans can result in higher losses when there is a downturn. Although mortgages are secured, the asset value can plummet when lenders sell the security to realise the loan.  It is interesting to observe that, while HDFC Bank (HDFCB IN) is de-emphasising retail loans, ICICI Bank still continues to aggressively grow retail. Like HDFC Bank, however, it has continue to increase its net deferred taxes (DTA), thereby inflating its net profits.  

ICICI Bank: Go Corporate-Heavy in a Corporate Slump, Retail-Heavy in a Pandemic

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

Sona Blw Precision Forgings Lt / Equity Capital Markets

Sona Comstar (Sona) aims to raise around US$800m in its Indian IPO. The company is backed by Blackstone, which held a 66.2% stake prior to listing.Sona is an automotive technology company, designing, manufacturing and supplying highly engineered, mission critical automotive systems and components to automotive OEMs across US, Europe, India and China, for both electrified and non-electrified powertrain segments.Sona delivered a steady performance in 2019 with revenue up 16.6% and PAT up 24.1%. However, its revenue fell by 14.5% in FY20, although it still managed to grow its PAT by 4%. In addition, its 9M21 performance was propped by a single EV customer. While the company enjoys a long customer relationship, its largest customers haven’t consistently grown their contribution to revenue over the past few years.

Sona Comstar (Sona) aims to raise around US$800m in its Indian IPO. The company is backed by Blackstone, which held a 66.2% stake prior to listing.Sona is an automotive technology company, designing, manufacturing and supplying highly engineered, mission critical automotive systems and components to automotive OEMs across US, Europe, India and China, for both electrified and non-electrified powertrain segments.Sona delivered a steady performance in 2019 with revenue up 16.6% and PAT up 24.1%. However, its revenue fell by 14.5% in FY20, although it still managed to grow its PAT by 4%. In addition, its 9M21 performance was propped by a single EV customer. While the company enjoys a long customer relationship, its largest customers haven’t consistently grown their contribution to revenue over the past few years.

Sona Comstar Pre-IPO - Inconsistent Growth, Patchy Disclosures

India Financials

Saumya Agarwal

ICICI Bank, India’s second largest private sector Bank, reported its Q4FY21 results today.In what appears to be an interesting contrast, India’s two largest private sector Banks have been driving growth in two diametrically opposite directions. ICICI bank continues to be a retail-dominant bank and drive growth in the Retail segment while its competitor and India’s largest private sector Bank (HDFC Bank) has transformed into a corporate-focused bank amid the pandemic, while driving growth in the Corporate segment.  However, Profits increased manifold for ICICI bank, in Q4FY21, led by strong revenue drivers and moderation in credit costs. Asset quality of the Retail portfolio remains manageable even as the Bank has built ample provision cover.

ICICI Bank, India’s second largest private sector Bank, reported its Q4FY21 results today.In what appears to be an interesting contrast, India’s two largest private sector Banks have been driving growth in two diametrically opposite directions. ICICI bank continues to be a retail-dominant bank and drive growth in the Retail segment while its competitor and India’s largest private sector Bank (HDFC Bank) has transformed into a corporate-focused bank amid the pandemic, while driving growth in the Corporate segment.  However, Profits increased manifold for ICICI bank, in Q4FY21, led by strong revenue drivers and moderation in credit costs. Asset quality of the Retail portfolio remains manageable even as the Bank has built ample provision cover. 

ICICI Bank Q4FY21- India’s Two Largest Private Sector Banks Driving Growth in 2 Different Directions

India

ICICI Bank Limited operates as a bank. The Bank offers saving accounts, loans, debit, credit cards, insurance, investments, mortgages, and online banking services. ICICI Bank serves customers worldwide.

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ICICI Bank Ltd (ICICIBC IN)

Bank Credit Compass: Total Return Sweet Spot Moves, but May Rebound

The sweet spot for total return investors moved dramatically in April. However, as the month ended, the reflation trade returned. May could see a...

Hank Calenti, CFA

ICICI Bank – Much Better

ICICI BANK: ICICI reported a 6.5% linked quarter improvement in FY 4Q21 operating results. Credit weakness is still there, but the breakdown in net...

Thomas J. Monaco

ICICI Bank: Go Corporate-Heavy in a Corporate Slump, Retail-Heavy in a Pandemic

While ICICI Bank’s results are impressive, its growing emphasis on retail, especially at a time when the pandemic is expected to engulf retail,...

Hemindra Hazari

Sona Comstar Pre-IPO - Inconsistent Growth, Patchy Disclosures

Sona Comstar (Sona) aims to raise around US$800m in its Indian IPO. The company is backed by Blackstone, which held a 66.2% stake prior to listing.

Sumeet Singh

ICICI Bank Q4FY21- India’s Two Largest Private Sector Banks Driving Growth in 2 Different Directions

In what appears to be an interesting study of contrast, India’s two largest private sector Banks are driving growth in two different directions,...

Saumya Agarwal

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