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.

Equity Bottom-Up

<ul>
<li>Our profitability and credit quality screens were generally, in terms of credit quality metrics to end-December 2021, more constructive than the prior quarter, whilst core profitability signals improved slightly</li>
<li>The threat of worsening credit quality in the coming quarters is still real, in our view, with the financial difficulties of Future Retail indicating potential corporate credit quality deterioration</li>
<li>We like quality play HDFC Bank, turn constructive on State Bank of India and we remain negative on Canara Bank and Bandhan Bank; neutral on Kotak Mahindra and ICICI Bank</li>
</ul>


Our profitability and credit quality screens were generally, in terms of credit quality metrics to end-December 2021, more constructive than the prior quarter, whilst core profitability signals improved slightly
The threat of worsening credit quality in the coming quarters is still real, in our view, with the financial difficulties of Future Retail indicating potential corporate credit quality deterioration
We like quality play HDFC Bank, turn constructive on State Bank of India and we remain negative on Canara Bank and Bandhan Bank; neutral on Kotak Mahindra and ICICI Bank


Indian Banks; Further Question Marks on Credit Quality

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

<ul>
<li>SBI results were highly managed in FY 2Q22, and going forward it’s difficult for anyone to take both these results and this bank very seriously; </li>
<li>SBI reported FY 3Q22 results of INR 84.3 bn, improving INR 8.1 bn (10.6%) linked quarter. Volatility between loss provisions and operating expenses continued; and </li>
<li>Net new NPLs accelerated 18.5% annualized, and SBI’s reserves are short INR 568 tn – over five quarters of pre-tax results. </li>
</ul>


SBI results were highly managed in FY 2Q22, and going forward it’s difficult for anyone to take both these results and this bank very seriously; 
SBI reported FY 3Q22 results of INR 84.3 bn, improving INR 8.1 bn (10.6%) linked quarter. Volatility between loss provisions and operating expenses continued; and 
Net new NPLs accelerated 18.5% annualized, and SBI’s reserves are short INR 568 tn – over five quarters of pre-tax results. 


State Bank of India – Rules Don’t Apply

<ul>
<li>HDFC Ltd (HDFC.IN) [HDFC] reported FY 3Q22 results of INR 30.5 bn, decreasing INR 6.2 bn (16.9%) linked quarter basis reflecting a lack of dividends received; </li>
<li>Given the INR 4.2 bn in NCO during FY 3Q22, net new NPLs increased INR 11.7 bn or 23.3% on an annualized basis; and </li>
<li>We also find that HDFC’s reserve still needs shoring up by another INR 185 bn or over a year of PBT.   </li>
</ul>


HDFC Ltd (HDFC.IN) [HDFC] reported FY 3Q22 results of INR 30.5 bn, decreasing INR 6.2 bn (16.9%) linked quarter basis reflecting a lack of dividends received; 
Given the INR 4.2 bn in NCO during FY 3Q22, net new NPLs increased INR 11.7 bn or 23.3% on an annualized basis; and 
We also find that HDFC’s reserve still needs shoring up by another INR 185 bn or over a year of PBT.   


Alpha-Centric ESG Research

Kyle Rudden

<ul>
<li>In a recent Insight, <a href="https://www.smartkarma.com/insights/regulating-esg-ratings-in-india-outline-of-sebi-s-proposed-regulatory-framework" target="_blank" data-smartkarma-citation="insights:64468" rel="noopener">Regulating ESG Ratings in India: Outline of SEBI's Proposed Regulatory Framework</a>, I summarised SEBI's proposed regulatory framework for ESG ratings in India. </li>
<li>This Insight goes a bit further, looking at implications of regulation on stocks of ESG ratings providers (ERPs), especially Credit Rating Agencies (CRAs) and Research Analysts (RAs).</li>
<li>Downside risk are minimal for ERPs, but a few scenarios and stipulations related to conflicts of interest and compensation (how ERPs are paid, and by whom) could have an impact.</li>
</ul>


In a recent Insight, Regulating ESG Ratings in India: Outline of SEBI's Proposed Regulatory Framework, I summarised SEBI's proposed regulatory framework for ESG ratings in India. 
This Insight goes a bit further, looking at implications of regulation on stocks of ESG ratings providers (ERPs), especially Credit Rating Agencies (CRAs) and Research Analysts (RAs).
Downside risk are minimal for ERPs, but a few scenarios and stipulations related to conflicts of interest and compensation (how ERPs are paid, and by whom) could have an impact.


Credit Rating Agency Stocks Most Impacted by SEBI Regulation of ESG Ratings in India

<ul>
<li>IndusInd reported FY 3Q22 bottom-line results improved 4.8% linked quarter, driven by stronger core revenues and a lower provision; </li>
<li>NCOs remain elevated and show no sign of abating, and net new NPLs increased 31.6% annualized; and </li>
<li>IndusInd’s reserve needs to increase closer to 75% with a shortfall of INR 30 bn – representing two quarters of pre-tax results. </li>
</ul>


IndusInd reported FY 3Q22 bottom-line results improved 4.8% linked quarter, driven by stronger core revenues and a lower provision; 
NCOs remain elevated and show no sign of abating, and net new NPLs increased 31.6% annualized; and 
IndusInd’s reserve needs to increase closer to 75% with a shortfall of INR 30 bn – representing two quarters of pre-tax results. 


India

State Bank of India provides a wide range of banking and financial services to corporate, institutional, commercial, agricultural, industrial and individual customers throughout India.  The Bank also provides international banking to its Indian customers and has operations in other countries.

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State Bank Of India (SBIN IN)

Indian Banks; Further Question Marks on Credit Quality

We still have NPL concerns on Indian banks; yet we like quality play HDFC Bank, turn positive on State Bank of India & we stay negative on Canara &...

Victor Galliano

State Bank of India – Rules Don’t Apply

SBI: It’s difficult for anyone to take this bank very seriously. SBI reported a QOQ FY 3Q22 results increase of 10.6%, as volatility between loss...

Thomas J. Monaco

HDFC Ltd. – Lack of Conservatism

HDFC: HDFC reported FY 3Q22 results decline of 16.9% QOQ. Net new NPLs increased 23.3% on an annualized basis, and HDFC’s reserve still needs...

Thomas J. Monaco

Credit Rating Agency Stocks Most Impacted by SEBI Regulation of ESG Ratings in India

The potential impacts of SEBI's proposed framework for regulating ESG ratings are unclear at this stage, but a few things (related to conflicts of...

Kyle Rudden

IndusInd Bank – Stabilizing Somewhat

INDUSIND BANK: IndusInd reported FY 3Q22 bottom-line results improvement of 4.8% linked quarter, driven by stronger core revenues. NCOs remain...

Thomas J. Monaco

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