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

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

Star Health and Allied Insurance (SHAI), the largest private health and retail health insurance company in India, plans to raise around US$1.0bn in its India IPO. It is backed by Westbridge and Rakesh Jhunjhuwala. Owing to the latter, it will draw a lot of retail interest. SHAI insured 20.5m people in FY21. SHAI primarily offers retail health insurance which accounted for 87.9% of its FY21 GWP. Individual agents accounted for 97% of its FY21 GWP. Its GWP has grown by 72.6% over FY19-21 on the back of 58.6% growth in agents and 62.5% growth in the number of policies. SHAI has consistently grown faster than the industry over the past few years resulting in a steady increase in its market share. With a gross written premium (GWP) of INR93.5bn in FY21, SHAI had a market share of 15.8% in the Indian health insurance market and 31.3% in the retail health insurance market. Along with growing fast, SHAI has also managed to remain profitable since FY16 with its claims ratio remaining below 67% in most years. Although, the company recorded a loss in FY21 on the back of higher claims due to COVID-19 and reinsurance related adjustments. In addition, as the second COVID-19 wave only peaked in 1Q22, FY22 will be impacted as well.

Star Health and Allied Insurance (SHAI), the largest private health and retail health insurance company in India, plans to raise around US$1.0bn in its India IPO. It is backed by Westbridge and Rakesh Jhunjhuwala. Owing to the latter, it will draw a lot of retail interest. SHAI insured 20.5m people in FY21. SHAI primarily offers retail health insurance which accounted for 87.9% of its FY21 GWP. Individual agents accounted for 97% of its FY21 GWP. Its GWP has grown by 72.6% over FY19-21 on the back of 58.6% growth in agents and 62.5% growth in the number of policies. SHAI has consistently grown faster than the industry over the past few years resulting in a steady increase in its market share. With a gross written premium (GWP) of INR93.5bn in FY21, SHAI had a market share of 15.8% in the Indian health insurance market and 31.3% in the retail health insurance market. Along with growing fast, SHAI has also managed to remain profitable since FY16 with its claims ratio remaining below 67% in most years. Although, the company recorded a loss in FY21 on the back of higher claims due to COVID-19 and reinsurance related adjustments. In addition, as the second COVID-19 wave only peaked in 1Q22, FY22 will be impacted as well.

Star Health Insurance Pre-IPO - Leading the Retail Healthcare Insurance Space

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

Taiwan Semiconductor (TSMC) / Technical Analysis

Emerging market equities have been one of the worst areas to invest in 2021, but we see early signs of positive change. With the US dollar failing to break above resistance at $93.50 and the MSCI EM ETF (EEM-US) displaying a false breakdown at $52, we believe now is an opportune time to add exposure to emerging market equities. To be clear, we are not getting overly bullish on EM; we have favored developed int’l (EAFE) over EM since May, and we are now shifting back to a neutral stance between the two. We see reason to believe the tide is shifting in EM’s favor. Below we highlight attractive and actionable themes within EM.

Emerging market equities have been one of the worst areas to invest in 2021, but we see early signs of positive change. With the US dollar failing to break above resistance at $93.50 and the MSCI EM ETF (EEM-US) displaying a false breakdown at $52, we believe now is an opportune time to add exposure to emerging market equities. To be clear, we are not getting overly bullish on EM; we have favored developed int’l (EAFE) over EM since May, and we are now shifting back to a neutral stance between the two. We see reason to believe the tide is shifting in EM’s favor. Below we highlight attractive and actionable themes within EM.

Shifting Exposure To Emerging Markets; Buying TSMC/Taiwan Semi, ICICI Bank, Many Others

Aditya Birla Sun Life AMC / Equity Capital Markets

Aditya Birla Sun Life Asset Management Company’s (ABSL) shareholders aim to raise around US$300m via reducing their stake in the company’s Indian IPO. ABSL is the largest non-bank affiliated asset management company (AMC) in India by quarterly average assets under management (QAAUM) and the fourth largest AMC in India. according to CRISIL.ABSL managed total AUM of INR2.9tn across mutual funds, portfolio management services, offshore and real estate offerings, as of Jun 21.ABSL enjoys a strong brand name in the country. However, unlike other AMC’s it lacks a strong parent, i.e. a bank for it to piggyback on its network. Therefore, the company has lagged its larger peers in terms of equity AUM exposure, which flows down to it having lower profitability as well.

Aditya Birla Sun Life Asset Management Company’s (ABSL) shareholders aim to raise around US$300m via reducing their stake in the company’s Indian IPO. ABSL is the largest non-bank affiliated asset management company (AMC) in India by quarterly average assets under management (QAAUM) and the fourth largest AMC in India. according to CRISIL.ABSL managed total AUM of INR2.9tn across mutual funds, portfolio management services, offshore and real estate offerings, as of Jun 21.ABSL enjoys a strong brand name in the country. However, unlike other AMC’s it lacks a strong parent, i.e. a bank for it to piggyback on its network. Therefore, the company has lagged its larger peers in terms of equity AUM exposure, which flows down to it having lower profitability as well.

Aditya Birla Sun Life AMC Pre-IPO - Strong Profit Growth but It's Losing Market Share

Nuvoco Vistas (NV) raised around US$673m in its India IPO. It is promoted by the Nirma Group and has recently acquired Emami’s cement business.Nuvoco Vistas (NV) is the fifth largest cement company in India and the largest cement company in East India, in terms of capacity. It had a total consolidated capacity of 22.32 MMTPA across 11 cement plants, comprising five integrated units, five grinding units and one blending unit. It also operates a RMX business with 49 RMX plants across India. As of Dec 2020, its cement production capacity constituted approximately 4.2% of total cement capacity in India and 17% of total cement capacity in East India.The company’s past revenue growth has been subdued, largely owing to COVID-19 impact. Although, it has managed to expand its EBITDA margin, especially in FY20, thus shoring up EBITDA growth. However, there is nothing particularly alluring about the stock that makes it stand out versus its peers. We covered the background of the company in our previous note, <a href="https://www.smartkarma.com/insights/nuvoco-vistas-ipo-don-t-see-any-strong-reason-to-buy" target="_blank" rel="noopener">Nuvoco Vistas IPO - Don’t see any strong reason to buy.</a>In this note, we will talk about the trading dynamics.

Nuvoco Vistas (NV) raised around US$673m in its India IPO. It is promoted by the Nirma Group and has recently acquired Emami’s cement business.Nuvoco Vistas (NV) is the fifth largest cement company in India and the largest cement company in East India, in terms of capacity. It had a total consolidated capacity of 22.32 MMTPA across 11 cement plants, comprising five integrated units, five grinding units and one blending unit. It also operates a RMX business with 49 RMX plants across India. As of Dec 2020, its cement production capacity constituted approximately 4.2% of total cement capacity in India and 17% of total cement capacity in East India.The company’s past revenue growth has been subdued, largely owing to COVID-19 impact. Although, it has managed to expand its EBITDA margin, especially in FY20, thus shoring up EBITDA growth. However, there is nothing particularly alluring about the stock that makes it stand out versus its peers. We covered the background of the company in our previous note, Nuvoco Vistas IPO - Don’t see any strong reason to buy.In this note, we will talk about the trading dynamics.

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)

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

Star Health Insurance Pre-IPO - Leading the Retail Healthcare Insurance Space

Star Health and Allied Insurance (SHAI), the largest private health and retail health insurance company in India, plans to raise around US$1.0bn in...

Sumeet Singh

Shifting Exposure To Emerging Markets; Buying TSMC/Taiwan Semi, ICICI Bank, Many Others

We see early signs of positive change within EM, and we present a strong case as to why we believe now is an opportune time to add exposure.

Vermilion Research

Nuvoco Vistas IPO Trading - Tepid Demand

Nuvoco Vistas (NV) raised around US$673m in its India IPO. It is promoted by the Nirma Group and has recently acquired Emami’s cement business.

Sumeet Singh

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