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

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Home First Finance (HFF), an affordable housing finance company targeting first time home buyers in low and middle-income groups, raised 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.
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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>,  <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> and <a href="https://www.smartkarma.com/insights/home-first-finance-ipo-it-s-not-really-cheap-banking-on-momentum" target="_blank" rel="noopener">Home First Finance IPO - It’s Not Really Cheap, Banking on Momentum</a>.
In this note, I'll talk about deal updates and provide a table with implied valuations at different share price levels.
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Home First Finance (HFF), an affordable housing finance company targeting first time home buyers in low and middle-income groups, raised 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.


I have covered various aspects of the deal in my earlier notes,  Home First Finance Pre-IPO - Riding on affordable housing,  Home First Finance Pre-IPO - Earnings not showing the COVID strain but other metrics are and Home First Finance IPO - It’s Not Really Cheap, Banking on Momentum.
In this note, I'll talk about deal updates and provide a table with implied valuations at different share price levels.


Home First Finance IPO Trading - Hot Space but Limited Discount

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

*Poor Quality Result: ICICI Bank (ICICIBC.IN) [ICICI] reported FY 3Q21 earnings of INR 49.4 bn, increasing INR 6.9 bn (16.2%) linked quarter. Excluding gains, FY 3Q21 core operating results increased INR 4.6 bn (12.5%) over the same period. In our view, ICICI’s results were of poor quality; and*Increasing Credit Losses Ahead: With NCOs of INR 16.9 bn, we find that net new NPLs actually continued to increase  - up INR 44.1 bn linked quarter or 43.7% on an annualized basis. Despite to continued increase in NPLs, reserve cover declined in both instances. We find that ICICI –is short on reserves to the tune of INR 286 bn or five quarters of PBT.

*Poor Quality Result: ICICI Bank (ICICIBC.IN) [ICICI] reported FY 3Q21 earnings of INR 49.4 bn, increasing INR 6.9 bn (16.2%) linked quarter. Excluding gains, FY 3Q21 core operating results increased INR 4.6 bn (12.5%) over the same period. In our view, ICICI’s results were of poor quality; and*Increasing Credit Losses Ahead: With NCOs of INR 16.9 bn, we find that net new NPLs actually continued to increase  - up INR 44.1 bn linked quarter or 43.7% on an annualized basis. Despite to continued increase in NPLs, reserve cover declined in both instances. We find that ICICI –is short on reserves to the tune of INR 286 bn or five quarters of PBT.

ICICI Bank – Lower Provision Despite Increasing Credit Risk

*Results Down, Credibility Continues To Increase: We applaud for LIC Housing Finance (LICHF.IN) [LIC] for having the fortitude to properly manage its balance sheet during this difficult pandemic period. Its now paying off with respect to credit quality, with credit leverage fully anticipated in FY 4Q21.  As for the actual bottom-line, LIC reported FY 3Q21 INR 721.1 crs - declining INR 68.6 crs (8.7%) linked quarter. We fully anticipate bottom-line improvement in FY 4Q21; and*Credit Continues To Mend:  We note that net new NPLs at LIC were negative again as well – declining INR 47.3 crs for an annualized rate of NPL decline of 3.2% (versus a decline of 4.0% in the previous quarter). Reserves are likely where they need to be unlike most other Indian financials who have massive shortfalls.

*Results Down, Credibility Continues To Increase: We applaud for LIC Housing Finance (LICHF.IN) [LIC] for having the fortitude to properly manage its balance sheet during this difficult pandemic period. Its now paying off with respect to credit quality, with credit leverage fully anticipated in FY 4Q21.  As for the actual bottom-line, LIC reported FY 3Q21 INR 721.1 crs - declining INR 68.6 crs (8.7%) linked quarter. We fully anticipate bottom-line improvement in FY 4Q21; and*Credit Continues To Mend:  We note that net new NPLs at LIC were negative again as well – declining INR 47.3 crs for an annualized rate of NPL decline of 3.2% (versus a decline of 4.0% in the previous quarter). Reserves are likely where they need to be unlike most other Indian financials who have massive shortfalls.

LIC Housing Finance – This Is How It Should Be Done

*Bottom-line Worse Than It Looks: Axis Bank (AXSB.IN) [Axis] reported FY 3Q21 results of INR 11.2 bn, declining INR 5.7 bn (33.8%) on a linked quarter basis. Given the hefty increase in net new NPLs, results would appear to be incredibly overstated. The largest delta during the quarter was an INR 8.2 bn (19.3%) increase in operating expenses, led by a compensation increase of 18.9% and an other opex increase of 19.6%; and *Poor Provisions: Without accounting for the linked quarter increase in restructured loans, we find that Axis’ net new NPL growth is extremely elevated at 84.5% - which is troubling even for an Indian bank. We would like to see Axis add INR 321 bn or 146% to loss reserves. Instead of overstating profit figures, Axis needs to begin taking the requisite losses in order to buttress reserves. Axis reserve shortfall, in our view, represents over five years of PBT and 25% plus of stated equity.

 *Bottom-line Worse Than It Looks: Axis Bank (AXSB.IN) [Axis] reported FY 3Q21 results of INR 11.2 bn, declining INR 5.7 bn (33.8%) on a linked quarter basis. Given the hefty increase in net new NPLs, results would appear to be incredibly overstated. The largest delta during the quarter was an INR 8.2 bn (19.3%) increase in operating expenses, led by a compensation increase of 18.9% and an other opex increase of 19.6%; and *Poor Provisions: Without accounting for the linked quarter increase in restructured loans, we find that Axis’ net new NPL growth is extremely elevated at 84.5% - which is troubling even for an Indian bank. We would like to see Axis add INR 321 bn or 146% to loss reserves. Instead of overstating profit figures, Axis needs to begin taking the requisite losses in order to buttress reserves. Axis reserve shortfall, in our view, represents over five years of PBT and 25% plus of stated equity.  

*Weakened Results: Kotak Mahindra Bank (KMB.IN) [KMB] reported FY 3Q21 results of INR 18.5 bn, declining INR 3.3 bn (15.2%) linked quarter. Results were challenged by two factors: a) an INR 2.3 bn (62.5%) increase in loss provisions which still appears light given the continued and accelerated breakdown in credit quality; and b) an INR 1.9 bn (9.2%) increase in costs led by a 14.0% increase in other operating expenses; and*Credit Risks Substantially Increasing: While KMB’s metrics were not nearly as ugly as Yes Bank’s (YES.IN), KMB’s credit break is tracking the financial sector - which is not exhibiting any sign of recovery. By our calculation, we find that both net new NPLs and impaired loans increased excessively with annualized growth rates of 122.8% and 143.2%, respectively. Given the worsening of KMB’s credit metrics and current weak reserve cover, we find that reserves at FY 3Q21 fall short by INR 78 bn - about three quarter of stated PBT.

*Weakened Results: Kotak Mahindra Bank (KMB.IN) [KMB] reported FY 3Q21 results of INR 18.5 bn, declining INR 3.3 bn (15.2%) linked quarter. Results were challenged by two factors: a) an INR 2.3 bn (62.5%) increase in loss provisions which still appears light given the continued and accelerated breakdown in credit quality; and b) an INR 1.9 bn (9.2%) increase in costs led by a 14.0% increase in other operating expenses; and*Credit Risks Substantially Increasing: While KMB’s metrics were not nearly as ugly as Yes Bank’s (YES.IN), KMB’s credit break is tracking the financial sector - which is not exhibiting any sign of recovery. By our calculation, we find that both net new NPLs and impaired loans increased excessively with annualized growth rates of 122.8% and 143.2%, respectively. Given the worsening of KMB’s credit metrics and current weak reserve cover, we find that reserves at FY 3Q21 fall short by INR 78 bn - about three quarter of stated PBT.

Kotak Mahindra Bank – Credit Falling Off Of A Cliff

India

LIC Housing Finance Limited provides housing finance services to individuals for purchase, construction, repair and renovation of new or existing flats and houses. The Company also provides finance on existing property for business, personal needs and gives loans to professionals for purchase, construction of clinics, nursing homes, diagnostic centers, and office space throughout India.

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LIC Housing Finance (LICHF IN)

Home First Finance IPO Trading - Hot Space but Limited Discount

Home First Finance, an affordable housing finance company targeting first time home buyers in low and middle-income groups, raised around US$160m...

Sumeet Singh

ICICI Bank – Lower Provision Despite Increasing Credit Risk

ICICI BANK: ICICI had a linked quarter FY 3Q21 poor quality earnings increase of 16.2%. Net new NPLs increased 43.7% on an annualized basis, and a...

Thomas J. Monaco

LIC Housing Finance – This Is How It Should Be Done

LIC HOUSING FINANCE: We applaud for LIC for properly managing its balance sheet. FY 3Q21 results declined 8.7% linked quarter but expect bottom...

Thomas J. Monaco

Axis Bank – Evil Result

AXIS BANK: Axis reported a 33.8% decline in linked quarter FY 3Q21 results. Given the hefty increase in net new NPLs, results make little sense....

Thomas J. Monaco

Kotak Mahindra Bank – Credit Falling Off Of A Cliff

KOTAK MAHINDRA BANK: KMB reported FY 3Q21 linked quarter results decline of 15.2%, driven primarily by a 62.5% increase in provisions which still...

Thomas J. Monaco

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