Sector Update | 13 December 2019
Sector Update | Financials
Financials – NBFC
Technology
GNPL ratio (%)
Product
Home loans
Aff. HL
Vehicle
Unsecured MSME
LAP
Personal
CD
FY19 FY21E
0.9
1.3
CY20 to be a year of consolidation; Asset quality a key monitorable
2.4
2.6
4.8
6.3
We attended CRISIL’s annual NBFC sector summit where the general consensus among
4.5
5.0
participants was that the sector is still not out of the woods and it would take another
2.9
3.8
four quarters for recovery.
2.5
2.8
2.2
2.8
The near term is likely to be a period of consolidation; managements have prioritized
Source: CRISIL
further diversification of the liability structure, enhancement of tech capabilities, etc.
Recovery a few quarters away
Real estate portfolio mix (%)
Source: CRISIL
Growth would take a backseat. CRISIL estimates AUM of the NBFC sector (ex-
government owned NBFCs) to grow 6-8% YoY in FY20 followed by 8-10% CAGR over
FY20-22. This would be driven by 12-13% CAGR in retail loans offset by negative 3-4%
CAGR in wholesale lending over FY20-22.
The auto sector is expected to witness divergent trends. Most participants expect
recovery in CVs (especially M&HCVs) to be delayed due to industry overcapacity.
Recovery in this space is at least 3-4 quarters away. On the other hand, recovery in
passenger cars is expected sooner.
Household debt to GDP is on an increasing trend, leading to a rise in retail
delinquencies. While it is still benign, it is being watched closely. CRISIL expects 150bp
rise in the GNPL ratio to 6.3% for the vehicle finance sector and ~100bp rise in the
GNPL ratio to 3.8% for LAP over FY19-21.
The wholesale lending segment is being closely watched as ~40% of the book is under
moratorium. While the GNPL ratio has increased 150bp to 3.3% during Mar-Sep’19, it
masks the difficult underlying situation. If one were to adjust for the loan book under
moratorium as well as the LRD book (which has benign delinquencies), the 90dpd+ for
the industry’s construction finance book is ~10%.
Another year to be out of the woods
There was a general consensus among participants that only the top 25-50 NBFCs
are able to manage the liability side pressure; the rest are struggling to raise
liquidity. While banks have been disbursing loans to the sector, the mutual fund
(MF) sector has not been very receptive.
This is on account of a few reasons – (a)
the debt mutual fund industry’s AUM has shrunk by ~INR2t from its peak two
years ago, (b) reduction in sectoral caps (from 40% to 30% for NBFCs + HFCs) as
mandated by SEBI, and (c) until recently, there was no clear cut insolvency
management framework for financial services companies, thus making MFs
hesitant to lend.
The situation is likely to persist for a while.
Government’s initiatives to help in resolving some problems
The participants were positive on two recent government initiatives – (a) Partial
Credit Guarantee (PCG) scheme and (b) the INR250b AIF fund. On the PCG scheme,
there were some operational issues earlier, which have now been sorted out.
Loans
worth INR40-50b are expected to be securitized in Dec’19 alone under the PCG
scheme. Participants are of the view that the AIF will be able to address 30-40% of
stressed projects.
However, it is imperative for existing creditors to agree to the
entry of a new lender.
Research Analyst: Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com);+91 22 6129 1526 |
Piran Engineer
(Piran.Engineer@MotilalOswal.com); +91 22 6129 1539
Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |
Divya Maheshwari
(Divya.Maheshwari@motilaloswal.com); +91 22 6129 1540
13 December
are advised to refer
Investors
2019
1
through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Sector Update | Financials
Bank borrowings/securitization the key funding drivers; Bond issuances
slow down
Banking sector lending to NBFCs has increased 30% YoY to INR7.1t in 1HFY20 as the
capital markets have dried up for most corporates. Even for parent-backed NBFCs,
the quantum of bond issuances was down 50% in Oct-Nov’19 compared to 3QFY19.
Several companies have resorted to loan sell-downs as a mean to raise capital.
Securitization volumes were up 50% YoY to INR600b in 1HFY20 for asset-backed
loans and up 33% YoY to INR400b for mortgage-backed loans. Even ECB applications
have more than doubled to INR480b in the first seven months of this fiscal
compared to that in 1HFY19.
Modest deterioration in asset quality across segments
Household debt to GDP is on an increasing trend, leading to a rise in retail
delinquencies.
For home loans, the GNPL ratio has increased 30bp to 0.9% over the
past two years and is expected to increase another 30-40bp over the next two
years.
In the SME segment, some participants alluded to the increasing
delinquencies in unsecured SME lending. As a result, most companies have
increased their loan application rejection rates meaningfully.
Also, secured SME
(LAP) loans with ticket size of over INR20m are witnessing higher signs of
delinquency, while those in rural areas with lower ticket size are doing well.
The
wholesale lending segment is being closely watched as ~40% of the book is under
moratorium. While the GNPL ratio has increased 150bp to 3.3% between Mar-
Sep’19, it masks the difficult underlying situation.
If one were to adjust for the loan
book under moratorium as well as the LRD book (which has benign delinquencies),
the 90dpd+ for the industry’s construction finance book is ~10%.
13 December 2019
2
 Motilal Oswal Financial Services
Sector Update | Financials
Story in charts
Exhibit 1:
Share of NBFC credit in total credit (FY19)…
12
18
PSU Banks
Pvt. Banks
44
NBFCs+HFCs (non
Govt.)
26
FI+NBFCS (Gov.)
31
Exhibit 2:
…to modestly decline by FY22
12
17
40
PSU Banks
Pvt. Banks
NBFCs+HFCs (non
Govt.)
FI+NBFCS (Gov.)
Source: MOFSL, CRISIL
Source: MOFSL, CRISIL
Exhibit 3:
Total NBFC AUM to touch INR30t by FY22, implying 9% CAGR over FY20-22…
AUM (INR t)
20.8
23.7
25.4
30.0
10.8
12.5
14.9
17.7
Source: MOFSL, CRISIL; Note: excludes government NBFCs
Exhibit 4:
…driven largely by parent-backed NBFCs, while AUM of wholesale NBFCs
declined
48
Wholesale Focused
47
44
18
17
25
21
Retail Focused
Parent backed
20
21
20
9
13
-2
5
-8
6
4
-3
FY20E
11
7
-4
FY22E
FY16
FY17
FY18
FY19
1HFY20E
Source: MOFSL, CRISIL
13 December 2019
3
 Motilal Oswal Financial Services
Sector Update | Financials
Exhibit 5:
AUM mix of the NBFC sector (FY19, %)
HL
16
4
3
8
9
19
34
VF
LAP
Unsecured
Gold
Infra
Str Fin & RE
Source: MOFSL, CRISIL
Exhibit 6:
AUM mix by issuer (FY19, %)
Parent backed NBFC
(Incl. HDFC)
Retail NBFCs
7
23
70
Wholesale NBFCs
Source: MOFSL, CRISIL
Exhibit 7:
Incremental borrowings as of 3QFY19 (%)
8
8
Bonds
19
65
ECBs
Others
Source: MOFSL, CRISIL
Banks (incl. sec)
Exhibit 8:
Incremental borrowings as of 2QFY20 (%)
2
7
Banks (incl. sec)
Bonds
35
56
ECBs
Others
Source: MOFSL, CRISIL
Exhibit 9:
Bank lending to the NBFC sector rising (INR t)
Exhibit 10:
Trend in bond issuances (INR b)
234
3QFY19
3QFY20
3.9
5.0
5.5
6.4
7.1
108
41
15
22
2
Mar'17
Mar'18
Sep'18
Mar'19
Sep'19
Parent backed
Retail Focused
Wholesale Focused
Source: MOFSL, CRISIL
Source: MOFSL, CRISIL, Note: 3QFY20 data as of Nov ‘19
Exhibit 11:
Mortgage-backed securitization volumes (INR t)
Exhibit 12:
Asset-backed securitization volumes (INR t)
0.9
0.4
0.4
0.4
0.5
0.5
1.0
0.4
FY19
1HFY19
0.6
0.3
FY19
1HFY19
FY17
FY18
1HFY20
FY17
FY18
1HFY20
Source: MOFSL, CRISIL
Source: MOFSL, CRISIL
13 December 2019
4
 Motilal Oswal Financial Services
Sector Update | Financials
Exhibit 13:
Household debt has been inching up…
23.6
Household Savings (% of GDP)
Household Debt (% of GDP)
22.5
20.3
19.6
18.0
17.1
17.2
Exhibit 14:
…yet remains below that of other countries
Household Debt (% of GDP)
75.0
68.9
68.0
53.6
53.6
17.5
16.9
11.7
8.9
9
9
9.3
10.1
10.5
11.2
11.7
Source: MOFSL, CRISIL
Source: MOFSL, CRISIL
Exhibit 15:
GNPLs in home loans on the rise
2yr lagged GNPA %
1
0.9
0.7
0.7
0.6
0.8
0.9
0.6
0.7
90dpd+ %
1.1
1.1
1.25
1.35
Exhibit 16:
GNPL ratio in affordable housing much higher
2yr lagged GNPA-AHL %
5.1
3.7
4.1
2.9
1.1
2.4
2.6
90 +dpd -AHL %
4.9
5.1
0.5
1
0.7
2.1
Source: MOFSL, CRISIL
Source: MOFSL, CRISIL
Exhibit 17:
Vehicle finance GNPL ratio to rise 150bp over
FY19-21E
90dpd+
9.9
10.1
90dpd+ (ex of domestic captives)
9.7
Exhibit 18:
2W/3W GNPL ratio stable, while that in other
products increasing (%)
Mar'19
6.6
7.5
5.1
5.2
4.6
5.3
4.7
5.5
Sep'19
7.9
7.5
4.8
5.5
5.2
6.3
6.3
5.4
7.2
6.6
5.9
5.2
4.8
Tractors
Source: MOFSL, CRISIL
2/3W
CV &CE
Cars and Uvs
Source: MOFSL, CRISIL
Exhibit 19:
GNPL ratio trend in MSME financing (%)
Unsecured
4.3
4.2
LAP
4.5
4.4
5.0
Exhibit 20:
GNPL ratio trend in consumer finance (%)
Personal Loans
3.1
2.1
3.8
2.2
2.6
2.5
CD loans
2.5
2.2
2.7
2.4
2.75
2.75
3.2
3.9
1.6
1.9
2.6
2.7
2.9
3.3
1.7
1.0
2.0
Mar'15 Mar'16 Mar'17 Mar'18 Mar'19
Sep'19 Mar'21E
Source: MOFSL, CRISIL
Source: MOFSL, CRISIL
13 December 2019
5
 Motilal Oswal Financial Services
Sector Update | Financials
Exhibit 21:
Segregation of players based on Top-10
exposures as % of networth
Exhibit 22:
Credit profile of 35 largest exposures
High Risk
42%
33%
25%
17%
<50%
50-100%
>100%
Source: MOFSL, CRISIL; Note: Excluding HDFC exposure
Source: MOFSL, CRISIL; Note: includes players with at least 10% of
AUM as wholesale exposure
45%
38%
Low Risk
Medium Risk
Exhibit 23:
Real estate portfolio mix
In moratorium
30%
40%
LRD
Exhibit 24:
50% of projects under moratorium to come out
of it by FY21
Year wise lapse of the moratorium %
40
Out of
moratorium
10
FY20
Source: MOFSL, CRISIL
FY21
20
FY22
30
30%
FY23
Source: MOFSL, CRISIL
Exhibit 25:
Profitability of various product segments going forward
Product
Home Loans
Vehicle Finance
Unsecured Loans
LAP
Struct Fin &RE
Competition intensity
Very High
Very High
Low
High
Low
Funding Costs
Medium
Medium
Medium
Medium
Very High
Credit Costs
Low
Medium
Medium
High
Extremely High
Existing RoA
1.8-2.0%
2.0-2.2%
3.0-3.2%
1.8-2.0%
3.0-3.2%
Expected RoA
1.6-1.8%
1.8-2.0%
~3.0%
1.5-1.7%
1.8-2.0%
Source: CRISIL
13 December 2019
6
 Motilal Oswal Financial Services
Sector Update | Financials
Valuation matrix
Rating
66
ICICIBC*
HDFCB
AXSB
KMB*
IIB
RBL
Private Aggregate
SBIN (cons)*
PNB
BOI
BOB
Public Aggregate
FY21E
Buy
Buy
Buy
Neutral
Buy
Buy
Buy
Neutral
Neutral
Buy
CMP
(INR)
537
1,263
752
1,692
1,487
345
333
64
71
102
Mcap
(USDb)
48.8
97.6
28.7
46.2
12.2
2.0
40.5
4.0
3.2
5.3
P/E (x)
FY20E
25.2
25.8
31.3
36.5
16.6
21.2
10.9
-13.1
-89.2
18.8
FY21E
14.6
20.4
16.2
30.1
12.0
11.8
8.1
8.4
8.8
5.2
P/BV (x)
FY20E
2.4
4.1
2.4
4.9
2.8
1.8
1.1
0.8
0.5
0.7
FY21E
2.1
3.5
2.1
4.2
2.3
1.6
1.0
0.7
0.4
0.6
RoA (%)
FY20E
1.1
2.0
0.8
1.9
1.9
0.8
0.6
-0.3
0.0
0.2
FY21E
1.6
2.1
1.3
2.0
2.2
1.1
0.8
0.6
0.3
0.8
RoE (%)
FY20E
10.1
16.8
8.4
14.1
18.6
8.9
11.1
-5.4
-0.5
3.2
FY21E
15.7
18.4
14.0
15.0
21.1
14.4
14.1
8.5
4.7
12.0
HFCs
HDFC*
Buy
2,353
56.3
24.9
18.7
3.7
2.8
1.9
2.0
15.8
LICHF
Buy
438
3.1
7.8
7.2
1.2
1.1
1.3
1.3
16.3
PNBHF
Buy
431
1.0
5.2
4.8
0.8
0.7
1.6
1.7
17.4
REPCO
Buy
306
0.3
6.3
5.9
1.1
0.9
2.6
2.5
18.2
Vehicle financiers
SHTF
Buy
1,105
3.5
8.6
8.0
1.4
1.2
2.7
2.6
17.2
MMFS
Buy
341
2.9
13.5
10.3
1.8
1.6
2.2
2.5
14.0
CIFC
Buy
316
3.5
17.2
14.7
3.3
2.7
2.3
2.3
21.0
Diversified
BAF
Neutral
4,071
33.0
38.5
30.4
9.4
7.4
4.1
4.0
27.2
SCUF
Buy
1,400
1.3
8.5
7.9
1.3
1.1
3.7
3.8
15.7
LTFH
Buy
116
3.2
9.4
8.2
1.5
1.3
2.3
2.5
16.8
MUTH
Neutral
717
4.0
10.8
9.4
2.6
2.2
6.4
6.5
26.2
INDOSTAR
Buy
178
0.2
7.2
5.5
0.5
0.5
2.0
2.7
7.3
MAS
Buy
810
0.6
25.1
20.6
4.3
3.7
4.5
4.6
19.4
Wholesale
ABCL
Buy
100
3.1
11.6
8.6
1.2
0.9
1.9
2.0
11.9
UR=Under Review*Multiples adj. for value of key ventures/Investments; For ICICI Bank and HDFC Ltd BV is adjusted for investments in
subsidiaries
15.9
15.6
16.4
16.6
16.0
16.4
20.4
27.2
14.9
16.5
25.2
8.8
20.2
11.6
13 December 2019
7
 Motilal Oswal Financial Services
Sector Update | Financials
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30 days take appropriate measures to make the recommendation consistent
with the investment rating legend.
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6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to
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(the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOFSL has entered into a chaperoning agreement with a U.S. registered broker-
dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule
2711 and NYSE Rule 472 restrictions on communication with a subject CRISIL, public appearances and trading securities held by a research analyst account.
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discontinue any use of this Report and inform MOCMSPL.
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The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced
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Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be
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Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult
its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-
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Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The
CRISIL reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from time to time, effect or have effected an own
account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any CRISIL referred to in this
report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly
accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the CRISIL may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not
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described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors,
employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. The person accessing this
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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website www.motilaloswal.com.
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Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate
Agent: CA0579 ;PMS:INP000006712. Motilal Oswal Asset Management CRISIL Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group CRISIL of MOFSL. Motilal Oswal Wealth Management Ltd.
(MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group CRISIL of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real
Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group CRISIL of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group CRISIL of MOFSL. Research &
Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is subject to market risk,
read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National CRISIL Law Tribunal, Mumbai Bench.
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