Brief India: India Payments and more

In this briefing:

1. India Payments
2. Axis Bank Board’s Motto: Trust Only in Strangers
3. Asian Bank Asset Quality: “One Overdue, Two Bad” 一逾两呆 The Complex Journey of the NPL
4. Asian Telecom Tower Trends: A General Improvement with China Tower Leading the Way
5. China’s New Semiconductor Thrust – Part 2: Commodities as a Quick Path to Success

1. India Payments

Can Alibaba Group Holding (BABA US) ‘s Alipay and Tencent Holdings (700 HK) WeChat pay replicate their success in India? With the world’s second highest mobile phone users and more than 45 pre-paid Payment Instruments providers, India is witnessing a fiercely competitive payments landscape. In this Insight, we explore options available for public market and VC/PE investors to play the Indian payments theme. We also provide an overview of Indian investments of Alibaba Group Holding (BABA US) , Ant Financial (1051260D CH) , Softbank Group (9984 JP) , Wal Mart Stores (WMT US) , Naspers Ltd (NPN SJ) , Alphabet Inc Cl C (GOOG US) & Sequoia Capital India.  Paytm, PhonePe, Amazon Pay and Mobikwik are the ones that really matter.

As payment providers move up from pure transactions to more value-added services like Wealth Management & Offline payments, we also suggest possible channel checks for the focus companies with a view of understanding economics and competitive intensity. 

2. Axis Bank Board’s Motto: Trust Only in Strangers

The Reserve Bank of India’s (RBI) approval of the selection of Amitabh Chaudhry, the then HDFC Standard Life Insurance Chief Executive Officer (CEO), as the Axis Bank CEO on August 8, 2018, and his taking charge on January 1, 2019, were celebrated by the market. Analysts and the media were also favourably inclined towards his lateral new hires in the senior management, all of whom had spent many years in HDFC Bank. Unfortunately, these developments actually revealed a strategic fault line in the organisation. The Axis Bank board in its quarter century of existence has not only failed to groom internal candidates for the top-most job, but also recently has been unable to nurture or to trust internal candidates being appointed as executive directors and other critical posts (exception of Chief Risk Officer) in senior management. Recently, it has announced a voluntary retirement scheme which is virtually devoid of benefits to the retiring personnel; over 50 senior management personnel are being eased out at the end of April 2019 with little more than Mediclaim and unexercised stock options to show for their years of service. Such a step is likely to send demoralising tremors down the entire organisation. When the board of Axis Bank believes that only outsiders can be trusted in critical posts in senior management, and these posts are denied to the in-house cadre, how can the bank achieve the present CEO’s performance objectives of a sustainable ROE of 18% and doubling the market capitalisation?  

3. Asian Bank Asset Quality: “One Overdue, Two Bad” 一逾两呆 The Complex Journey of the NPL

• Asset Quality recognition is something of a black art with varied definitions for non-performing loans (“NPLs”).
• Firstly, we analyse what a NPL is.
• We then evaluate provisioning changes across Asia. We rank countries.
• We further analyse specific underlying NPL recognition issues in China.
• We then rank a sample of regional banks and countries by NPL recognition.
• Later, we take a look at how different systems come under NPL stress and how they cope often in a crisis environment.
• Finally, we wrap things up with some concluding insights about the cultural backdrop which defines systemic asset quality.

4. Asian Telecom Tower Trends: A General Improvement with China Tower Leading the Way

In our latest Asian Tower Trends report, Chris Hoare looks at the listed telecom tower industry across the region. During 4Q18, we became more optimistic on the Asian tower space. 

• China: Last December, we upgraded what is by far the largest towerco globally, China Tower (788 HK), after it became clear the story was much better than disclosed at the time of the IPO (still a mystery as to why this happened),
• The Indian tower business has been buffeted by rapid industry consolidation but we think it is now near a bottom, and recently raised Bharti Infratel (BHIN IN) to Neutral, and
• Growth is improving in Indonesia with increased investment ex Java from the smaller operators. Protelindo (TOWR IJ) our preferred name, but Tower Bersama (TBIG IJ) has lagged badly recently and may be due some catch up. 

With the 5G investment cycle a key theme for coming years, we are now more constructive on the telecom tower space in general. 

5. China’s New Semiconductor Thrust – Part 2: Commodities as a Quick Path to Success

China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities.  This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.

This second part of the series explains how China chose commodity semiconductors (DRAM and NAND flash memory chips) as the best technology to pursue.