Asia focused research insights & advisory, Asia Advisors

Vinay Patel

Asia focused research insights & advisory

Asia Advisors

Asia Advisors is an independent financial advisory and research firm working closely with corporates and institutions to provide consulting solutions & research insights. We provide advisory services including capital solutions, business strategy and investment insights.
Firm is headed by Vinay Patel who has close to two decades of experience in research and business development at large, international investment banks such as HSBC and ICICI Securities. Led research efforts in areas of Macroeconomics, Asset Allocation & Investment Strategy for close to a decade in global & domestic research teams. As a business head in Singapore, advised top global investment management firms & Portfolio managers in Asia for India related investments.
Vinay was recently joined by Swapnil Manish, an investment banker and ex-ecommerce entrepreneur with more than 12 years of experience. Swapnil was the TMT banker at BNP Paribas and was part of several large M&A and ECM transactions (Bharti-Zain, Bharti Infratel IPO, Schneider-Zicom among several others). He's also had a stint as an ecommerce entrepreneur having launched & led Mumbai's first online grocery player.

Thematic (Sector/Industry)

NBFCs along with global PE funds have provided almost 80% of Real estate sector financing needs in the last 5 years as banks slowly reduced exposure to the sectorGiven the prevalent slowdown in the real estate sector, much of the lending was simply a refinancing of loans between NBFCs and also from banks to NBFCs. Developers meanwhile managed to sell just about enough apartments to service the debtHigh competition among NBFCs resulted in significantly lower yields for construction finance, from 18-20% in FY16 down to 13-14% in FY18. With NBFCs carrying exposure to B category builder, the NPL risks run highNBFCs had a false sense of security by having geeks structure these loans nicely (compared to PSU banks) and also took comfort in higher collateral (basically more unfinished apartments!).  Several NBFCs face a double whammy as mortgage finance for the end user has also dried up and so has firms ability to refinance construction finance loans. NBFCs with higher exposure to developer loans are witnessing large sell-off in the markets (see table below)

NBFCs along with global PE funds have provided almost 80% of Real estate sector financing needs in the last 5 years as banks slowly reduced exposure to the sectorGiven the prevalent slowdown in the real estate sector, much of the lending was simply a refinancing of loans between NBFCs and also from banks to NBFCs. Developers meanwhile managed to sell just about enough apartments to service the debtHigh competition among NBFCs resulted in significantly lower yields for construction finance, from 18-20% in FY16 down to 13-14% in FY18. With NBFCs carrying exposure to B category builder, the NPL risks run highNBFCs had a false sense of security by having geeks structure these loans nicely (compared to PSU banks) and also took comfort in higher collateral (basically more unfinished apartments!).  Several NBFCs face a double whammy as mortgage finance for the end user has also dried up and so has firms ability to refinance construction finance loans. NBFCs with higher exposure to developer loans are witnessing large sell-off in the markets (see table below) 

Real Estate Loans Blow up Has Been Cooking For NBFC As High Competition Drove Down Quality & Yields

Value investor- India mid & small caps

Bhaskar Chakraborty

<ul>
<li>NBFC sector is facing a credit squeeze that has grown so acute over the last month that it is forcing major players to curtail/stop disbursements.</li>
<li>Even bank lending to the sector has slowed considerably.</li>
<li>In such a situation of stress, there was no way RBI could have raised rates.</li>
<li>Instead of firmly stating that it would ensure adequate liquidity for NBFCs, RBI chose to highlight risks at a time when markets are already low on confidence. The time for tighter regulations was when the going was good and not the current situation exacerbated by IL&amp;FS’ default.</li>
<li>RBI’s commentary could further raise friction in credit availability to the sector in the near-term.</li>
</ul>


NBFC sector is facing a credit squeeze that has grown so acute over the last month that it is forcing major players to curtail/stop disbursements.
Even bank lending to the sector has slowed considerably.
In such a situation of stress, there was no way RBI could have raised rates.
Instead of firmly stating that it would ensure adequate liquidity for NBFCs, RBI chose to highlight risks at a time when markets are already low on confidence. The time for tighter regulations was when the going was good and not the current situation exacerbated by IL&amp;FS’ default.
RBI’s commentary could further raise friction in credit availability to the sector in the near-term.


Why RBI Didn't Raise Rates Yesterday: NBFCs Are Facing Credit Squeeze

Equity Bottom-Up

PNB Housing Finance Ltd / Equity Bottom-Up

<ul><li><a href="https://www.smartkarma.com/entities/23613" target="_blank" data-smartkarma-citation="entities:23613:1">PNB Housing Finance Ltd (PNBHOUSI IN)</a> is India’s 5th largest housing finance company (HFC) focused on the mass affluent segment.</li><li>India’s housing finance market is growing at 18% Cagr, with PNB Housing registering a Cagr of 54% over the same period.</li><li>Its current branch network is 1/4th the size of its 4 larger competitors. With increased penetration, it can sustain its loan growth longer than its competitors.</li><li>Focus on mass affluent segment in home finance and granular loan book in corporate finance has ensured industry-leading asset quality.</li><li>Though spreads are likely to narrow a bit, there is significant room to improve ROE via financial leverage.</li><li>Company is trading at 1 SD below its mean Price to Book. With superior growth and asset quality and improving ROE outlook, we find valuations attractive. BUY for 30% upside.</li></ul>

PNB Housing Finance Ltd (PNBHOUSI IN) is India’s 5th largest housing finance company (HFC) focused on the mass affluent segment.India’s housing finance market is growing at 18% Cagr, with PNB Housing registering a Cagr of 54% over the same period.Its current branch network is 1/4th the size of its 4 larger competitors. With increased penetration, it can sustain its loan growth longer than its competitors.Focus on mass affluent segment in home finance and granular loan book in corporate finance has ensured industry-leading asset quality.Though spreads are likely to narrow a bit, there is significant room to improve ROE via financial leverage.Company is trading at 1 SD below its mean Price to Book. With superior growth and asset quality and improving ROE outlook, we find valuations attractive. BUY for 30% upside.

<ul><li><a href="https://www.smartkarma.com/entities/2023" target="_blank" data-smartkarma-citation="entities:2023:1">Motilal Oswal Financial Services Limited (MOFS IN)</a>’s affordable housing finance business reports a spike in NPAs from 0.6% as of FY17 to 4.6% as of 3QFY18.</li><li>The home loan book is unseasoned with more than 50% of the loans less than 2 years old. We think more bad news will emerge as the book ages and the company will have to provision far more than it has set aside till date.</li><li>Its funding strategy is aggressive with market borrowings making up 100% of its liabilities.</li><li>Business growth has reduced to a crawl, costs are increasing and profitability has been wiped out.</li><li>RBI’s recent report on Affordable Housing finance market noted that the segment is growing much faster than the overall home loan market and the segment has many-fold higher NPAs than the higher ticket segments.</li><li>We think the party could end badly for players like Aspire Home Finance who chase growth indiscriminately employing aggressively funding strategies while compromising on their underwriting process.</li></ul>

Motilal Oswal Financial Services Limited (MOFS IN)’s affordable housing finance business reports a spike in NPAs from 0.6% as of FY17 to 4.6% as of 3QFY18.The home loan book is unseasoned with more than 50% of the loans less than 2 years old. We think more bad news will emerge as the book ages and the company will have to provision far more than it has set aside till date.Its funding strategy is aggressive with market borrowings making up 100% of its liabilities.Business growth has reduced to a crawl, costs are increasing and profitability has been wiped out.RBI’s recent report on Affordable Housing finance market noted that the segment is growing much faster than the overall home loan market and the segment has many-fold higher NPAs than the higher ticket segments.We think the party could end badly for players like Aspire Home Finance who chase growth indiscriminately employing aggressively funding strategies while compromising on their underwriting process.

Howler from Motilal's Affordable Housing Finance Business Shows This Is No Cakewalk

<ul><li>Borrowing costs are increasing at the short as well as long end as banking liquidity approaches neutral zone</li><li>Housing finance companies (HFCs) had rapidly increased the share of market borrowings in their liability profiles to benefit from lower rates. Now, with borrowings turning dear, we expect pressure on NIMs on increase over FY19 as many HFCs have significant ALM mismatches in the short end.</li><li>Intense competition reflecting in elevated repayment rates will further pressure NIMs</li><li>NBFC valuations that had reached lifetime high levels should compress in our view as earnings growth slows over FY19-20.</li></ul>

Borrowing costs are increasing at the short as well as long end as banking liquidity approaches neutral zoneHousing finance companies (HFCs) had rapidly increased the share of market borrowings in their liability profiles to benefit from lower rates. Now, with borrowings turning dear, we expect pressure on NIMs on increase over FY19 as many HFCs have significant ALM mismatches in the short end.Intense competition reflecting in elevated repayment rates will further pressure NIMsNBFC valuations that had reached lifetime high levels should compress in our view as earnings growth slows over FY19-20.

India Housing Fin Cos: At the Cusp of a De-Rating

India

PNB Housing Finance Ltd. (PNBHFL) provides lending services. The Company offers housing loans to individuals and corporate bodies for construction, purchase, repair, and upgradation of houses, as well as loans for commercial space, loan against property, and loan for purchase of residential plots. PNBHFL serves customers in India.

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PNB Housing Finance Ltd (PNBHOUSI IN)

Real Estate Loans Blow up Has Been Cooking For NBFC As High Competition Drove Down Quality & Yields

NBFCs along with global PE funds have provided almost 80% of Real estate sector financing needs in the last 5 years as banks slowly reduced...

Asia Advisors

Why RBI Didn't Raise Rates Yesterday: NBFCs Are Facing Credit Squeeze

NBFC sector is facing a credit squeeze that has grown so acute over the last month that it is forcing major players to curtail/stop...

Bhaskar Chakraborty

PNB Housing: Growth on the Menu, BUY

PNB Housing Finance Ltd (PNBHOUSI IN) is India’s 5th largest housing finance company (HFC) focused on the mass affluent segment. India’s housing...

Bhaskar Chakraborty

Howler from Motilal's Affordable Housing Finance Business Shows This Is No Cakewalk

Motilal Oswal Financial Services Limited (MOFS IN)’s affordable housing finance business reports a spike in NPAs from 0.6% as of FY17 to 4.6% as...

Bhaskar Chakraborty

India Housing Fin Cos: At the Cusp of a De-Rating

Borrowing costs are increasing at the short as well as long end as banking liquidity approaches neutral zone Housing finance companies (HFCs) had...

Bhaskar Chakraborty

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)