Specialist in Indian Banking and Economic Research

Hemindra Hazari

A notable feature in <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> and <a href="https://www.smartkarma.com/entities/kotak-mahindra-bank-ltd" target="_blank" data-smartkarma-citation="entities:126:1" rel="noopener">Kotak Mahindra Bank (KMB IN)</a> (KMB) is the historical absence of any commercial banking expertise amongst the independent directors on the boards. The founders ( <a href="https://www.smartkarma.com/entities/housing-development-finance" target="_blank" data-smartkarma-citation="entities:252:1" rel="noopener">HDFC Limited (HDFC IN) </a>and Uday Kotak) and the Nomination and Remuneration Committee in both banks, as a deliberate strategy, have tried to ensure that only non-independent directors have commercial banking expertise. This is unusual, as other private sector banks such as <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>, <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>,  <a href="https://www.smartkarma.com/entities/indusind-bank-ltd" target="_blank" data-smartkarma-citation="entities:1558:1" rel="noopener">Indusind Bank (IIB IN)</a> and <a href="https://www.smartkarma.com/entities/federal-bank-ltd" target="_blank" data-smartkarma-citation="entities:11784:1" rel="noopener">Federal Bank (FB IN)</a> have former commercial bankers as independent directors on their boards.Banking, being a specialised and highly regulated sector with an economy-wide systemic impact, needs that some directors have commercial banking expertise separate and distinct from the executive.The absence of such independent functional expertise on the board is a sign that the executive/controlling shareholders do not want to be challenged or to have close oversight in the banks’ core area of operations. HDFC Bank and KMB are poster banners for private sector banking in India, with a combined market capitalisation of US$ 159 bn. They have achieved this without the presence of former commercial bankers as independent directors. Both Aditya Puri (erstwhile HDFC Bank CEO) and Uday Kotak maintained an iron-clad grip on asset quality, which is visible in their track record of profitability and stock market valuation. However, banking should not be individual-based, but based on appropriate systems. A diversified board of directors, including those with commercial banking expertise independent of the executive, should be mandatory in all banks. Regardless of their track record and valuation, banks which deliberately exclude such critical functional expertise on their boards must be hauled up by the Reserve Bank of India, credit rating analysts and the capital markets. The fact that HDFC Bank and KMB have rewarded shareholders manifold without such independent expertise on their boards should not be an excuse for such an anomaly to continue, nor should it be replicated in other banks.

A notable feature in HDFC Bank (HDFCB IN) and Kotak Mahindra Bank (KMB IN) (KMB) is the historical absence of any commercial banking expertise amongst the independent directors on the boards. The founders ( HDFC Limited (HDFC IN) and Uday Kotak) and the Nomination and Remuneration Committee in both banks, as a deliberate strategy, have tried to ensure that only non-independent directors have commercial banking expertise. This is unusual, as other private sector banks such as ICICI Bank Ltd (ICICIBC IN), Axis Bank Ltd (AXSB IN),  Indusind Bank (IIB IN) and Federal Bank (FB IN) have former commercial bankers as independent directors on their boards.Banking, being a specialised and highly regulated sector with an economy-wide systemic impact, needs that some directors have commercial banking expertise separate and distinct from the executive.The absence of such independent functional expertise on the board is a sign that the executive/controlling shareholders do not want to be challenged or to have close oversight in the banks’ core area of operations. HDFC Bank and KMB are poster banners for private sector banking in India, with a combined market capitalisation of US$ 159 bn. They have achieved this without the presence of former commercial bankers as independent directors. Both Aditya Puri (erstwhile HDFC Bank CEO) and Uday Kotak maintained an iron-clad grip on asset quality, which is visible in their track record of profitability and stock market valuation. However, banking should not be individual-based, but based on appropriate systems. A diversified board of directors, including those with commercial banking expertise independent of the executive, should be mandatory in all banks. Regardless of their track record and valuation, banks which deliberately exclude such critical functional expertise on their boards must be hauled up by the Reserve Bank of India, credit rating analysts and the capital markets. The fact that HDFC Bank and KMB have rewarded shareholders manifold without such independent expertise on their boards should not be an excuse for such an anomaly to continue, nor should it be replicated in other banks.

HDFC Bank and KMB Carefully Select Independent Directors - For Their Lack of Banking Knowledge

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

Devyani International  / Equity Capital Markets

Devyani International Limited (DIL), Yum Brand’s largest franchisor in India, raised around US$250m via its Indian IPO. DIL operates a chain of quick service restaurants (QSRs) in India. Its core business is to operate KFC, Pizza Hut and Costa Coffee in India. It operated 655 stores across 155 cities in India, as of Mar 2021. These include 264 KFC stores, 297 Pizza Hut stores and 44 Costa Coffee stores. It also operates stores in Nepal and Nigeria for KFC and Pizza Hut. In addition, it also runs its own brands Vaango, Food Street, Masala Twist, Ile Bar, Amreli, and Ckrussh Juice Bar in India. Yum owns over 4% stake in the company.We covered various aspects of the deal in our previous notes,<ul>
<li>
<a href="https://www.smartkarma.com/insights/devyani-pre-ipo-might-not-do-another-burger-king-india-but-should-be-good" target="_blank" rel="noopener">Devyani Pre-IPO - Might not do another Burger King India but should be good</a>,  <a href="https://www.smartkarma.com/insights/devyani-pre-ipo-peer-comparison-slots-in-neatly" target="_blank" rel="noopener"></a>
</li>
<li>
<a href="https://www.smartkarma.com/insights/devyani-pre-ipo-peer-comparison-slots-in-neatly" target="_blank" rel="noopener">Devyani Pre-IPO - Peer Comparison - Slots in Neatly</a>, <a href="https://www.smartkarma.com/insights/devyani-pre-ipo-thoughts-on-valuation" target="_blank" rel="noopener"></a>
</li>
<li><a href="https://www.smartkarma.com/insights/devyani-pre-ipo-thoughts-on-valuation" target="_blank" rel="noopener">Devyani Pre-IPO - Thoughts on Valuation, and</a></li>
<li><a href="https://www.smartkarma.com/insights/devyani-ipo-still-some-upside-on-un-adjusted-ebitda-basis" target="_blank" rel="noopener">Devyani IPO - Still Some Upside on Un-Adjusted EBITDA Basis</a></li>
</ul>In this note, we will talk about the trading dynamics.

Devyani International Limited (DIL), Yum Brand’s largest franchisor in India, raised around US$250m via its Indian IPO. DIL operates a chain of quick service restaurants (QSRs) in India. Its core business is to operate KFC, Pizza Hut and Costa Coffee in India. It operated 655 stores across 155 cities in India, as of Mar 2021. These include 264 KFC stores, 297 Pizza Hut stores and 44 Costa Coffee stores. It also operates stores in Nepal and Nigeria for KFC and Pizza Hut. In addition, it also runs its own brands Vaango, Food Street, Masala Twist, Ile Bar, Amreli, and Ckrussh Juice Bar in India. Yum owns over 4% stake in the company.We covered various aspects of the deal in our previous notes,

Devyani Pre-IPO - Might not do another Burger King India but should be good,  


Devyani Pre-IPO - Peer Comparison - Slots in Neatly, 

Devyani Pre-IPO - Thoughts on Valuation, and
Devyani IPO - Still Some Upside on Un-Adjusted EBITDA Basis
In this note, we will talk about the trading dynamics.

Devyani IPO Trading - Strongest of the Lot

Aptus Value Housing Finance India / Equity Capital Markets

Aptus Value Housing Finance (AVHF) aims to raise around US$375m in its India IPO. The company is backed by a host of investors including WestBridge, Malabar Investments, Sequoia, Madison and Steadview CapitalAptus Value Housing Finance India Limited (AVHF) is a retail focussed housing finance company (HFC) primarily serving low and middle income self-employed customers in the rural and semi-urban markets in India. AVHF was one of the largest HFC’s in South India in terms of AUM, as of Mar 21. AVHF’s net interest income has grown by 38-55% pa over FY18-FY21, while its Pre-provision operating profit has done even better with 40-63% pa growth. Earnings growth has been driven by its rapid loan growth which has been between 28-58% pa over the past three years.Although loan growth has been slowing down and disbursements growth had already declined from 47% YoY in FY19 to just 2% YoY in FY21.In this note, we will look at the company’s past performance, run the deal through our ECM framework and talk about pricing

Aptus Value Housing Finance (AVHF) aims to raise around US$375m in its India IPO. The company is backed by a host of investors including WestBridge, Malabar Investments, Sequoia, Madison and Steadview CapitalAptus Value Housing Finance India Limited (AVHF) is a retail focussed housing finance company (HFC) primarily serving low and middle income self-employed customers in the rural and semi-urban markets in India. AVHF was one of the largest HFC’s in South India in terms of AUM, as of Mar 21. AVHF’s net interest income has grown by 38-55% pa over FY18-FY21, while its Pre-provision operating profit has done even better with 40-63% pa growth. Earnings growth has been driven by its rapid loan growth which has been between 28-58% pa over the past three years.Although loan growth has been slowing down and disbursements growth had already declined from 47% YoY in FY19 to just 2% YoY in FY21.In this note, we will look at the company’s past performance, run the deal through our ECM framework and talk about pricing

Aptus Value Housing Finance IPO - Valuation Is Too Rich, Especially with an Over-Capitalised Book

Pay obscene salaries to a favoured few, completely out of sync with the already inflated salary structure in the industry, silently watch as they bring the bank to near collapse – this was <a href="https://www.smartkarma.com/entities/yes-bank-ltd" target="_blank" data-smartkarma-citation="entities:767:1" rel="noopener">Yes Bank (YES IN)</a> ’s policy for senior management. It is not surprising that this was done under the earlier CEO, Rana Kapoor. The surprise is that the some of the grossly overpaid mismanagers were gracefully allowed to continue in their posts under the new owners, the <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>-led consortium, including prominent names in private financial capital. <a href="https://www.linkedin.com/in/agraashish/?originalSubdomain=in" target="_blank" rel="noopener">Ashish Agarwal</a> , the current Head-Wholesale Banking and the former Chief Risk Officer (CRO), who was also in charge of corporate credit appraisal, earned a salary (including staggered bonus) of nearly Rs 72 mn in FY2018, significantly higher than peers who were managing much larger balance sheets. Agarwal, who played a critical role in appraising and approving dodgy credit, has been allowed by the new board of  <a href="https://www.yesbank.in/about-us/our-team" target="_blank" rel="noopener">directors</a> to continue (like some of his senior colleagues) on a reduced remuneration. It is shocking that the new consortium of owners, which includes <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>, <a href="https://www.smartkarma.com/entities/kotak-mahindra-bank-ltd" target="_blank" data-smartkarma-citation="entities:126:1" rel="noopener">Kotak Mahindra Bank (KMB IN)</a>, <a href="https://www.smartkarma.com/entities/housing-development-finance-corporation" target="_blank" data-smartkarma-citation="entities:252:1" rel="noopener">HDFC Limited (HDFC IN), </a><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><a href="https://www.smartkarma.com/entities/housing-development-finance-corporation" target="_blank" data-smartkarma-citation="entities:252:1" rel="noopener"> </a> and others, continues to employ an individual with such a track record. While Rana Kapoor, the erstwhile CEO, was the main culprit, extravagantly paid individuals like Ashish Agarwal made their own contributions to the downfall of the bank by failing to raise stringent objections, complain directly to the banking regulator or resign from the bank. The attractive financial package that such individuals were rewarded with by a servile Nominations and Remuneration Committee compromised professionalism, and an incompetent/complicit Credit and Risk Management Committees failed in its oversight responsibilities.  Supposedly, the free market rewards superior performance and punishes non-performance, but this role of the free market appears to have bypassed Yes Bank and its new board of directors.

Pay obscene salaries to a favoured few, completely out of sync with the already inflated salary structure in the industry, silently watch as they bring the bank to near collapse – this was Yes Bank (YES IN) ’s policy for senior management. It is not surprising that this was done under the earlier CEO, Rana Kapoor. The surprise is that the some of the grossly overpaid mismanagers were gracefully allowed to continue in their posts under the new owners, the State Bank Of India (SBIN IN)-led consortium, including prominent names in private financial capital. Ashish Agarwal , the current Head-Wholesale Banking and the former Chief Risk Officer (CRO), who was also in charge of corporate credit appraisal, earned a salary (including staggered bonus) of nearly Rs 72 mn in FY2018, significantly higher than peers who were managing much larger balance sheets. Agarwal, who played a critical role in appraising and approving dodgy credit, has been allowed by the new board of  directors to continue (like some of his senior colleagues) on a reduced remuneration. It is shocking that the new consortium of owners, which includes Axis Bank Ltd (AXSB IN), Kotak Mahindra Bank (KMB IN), HDFC Limited (HDFC IN), ICICI Bank Ltd (ICICIBC IN)  and others, continues to employ an individual with such a track record. While Rana Kapoor, the erstwhile CEO, was the main culprit, extravagantly paid individuals like Ashish Agarwal made their own contributions to the downfall of the bank by failing to raise stringent objections, complain directly to the banking regulator or resign from the bank. The attractive financial package that such individuals were rewarded with by a servile Nominations and Remuneration Committee compromised professionalism, and an incompetent/complicit Credit and Risk Management Committees failed in its oversight responsibilities.  Supposedly, the free market rewards superior performance and punishes non-performance, but this role of the free market appears to have bypassed Yes Bank and its new board of directors.

Yes Bank’s New Owners Keep Overpaid Mismanagers in Place

External broker reports(aggregated public sources), Axis Direct

Axis Direct

External broker reports(aggregated public sources)

Equity Bottom-Up

We maintain BUY on the stock with a revised target price of Rs 810 (SOTP basis core book at 2.6x FY23E and Rs 176 Subsidiary Value).<div class="content-highlight">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.</div>

We maintain BUY on the stock with a revised target price of Rs 810 (SOTP basis core book at 2.6x FY23E and Rs 176 Subsidiary Value).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.

ICICI Bank: Strong Operating Performance Continues

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)

HDFC Bank and KMB Carefully Select Independent Directors - For Their Lack of Banking Knowledge

The absence of independent commercial banking expertise on the board is a sign that the executive do not want to be challenged or to have close...

Hemindra Hazari

Devyani IPO Trading - Strongest of the Lot

Devyani International Limited (DIL), Yum Brand’s largest franchisor in India, raised around US$250m via its Indian IPO. In this note we will talk...

Sumeet Singh

Aptus Value Housing Finance IPO - Valuation Is Too Rich, Especially with an Over-Capitalised Book

Aptus Value Housing Finance aims to raise around US$375m in its India IPO. It is backed by a host of investors including WestBridge, Malabar...

Sumeet Singh

Yes Bank’s New Owners Keep Overpaid Mismanagers in Place

In Yes Bank’s fall, while Rana Kapoor was the main culprit, he was ably assisted by his handsomely paid favoured few in critical posts, some like...

Hemindra Hazari

ICICI Bank: Strong Operating Performance Continues

We maintain BUY on the stock with a revised target price of Rs 810 (SOTP basis core book at 2.6x FY23E and Rs 176 Subsidiary Value).

Axis Direct

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