CURRENT MARKET PRICE: 182 WIEGHT ALLOCATION: 5% RECOMMENDATION : BUY
August 2018, is when the issues relating to MD reappointment came into limelight when RBI gave approval to reappointment only till further notice which was later communicated as 31st January 2019 on a regular basis the reappointment is given for three years.
Though the Board tried for seeking extension till April 2019 but RBI only extended till Feb 2019. This led to certain events taking place in quick succession that impacted the stock prices that can be seen below in the chart.
While managerial issues were raised there was very less impact on the advances and deposits as seen in quarterly results and later clarification given by the management. If the results were looked at IL&FS provision led to increase in NPA which total accounts for Rs.2,600cr that will spill over next quarter to some extent.
NBFCs/HFCs/Reality Sectors Exposure -
The Total Exposures to HFCs is 3.2% of Total Advances including all instruments which is 90% Rated AA or more. NBFCs exposure is 2.6% of Total Advances with 90% Rated A or more. And Developer is 5.6% that is under 60days payments mainly constructions loans as sole lenders.
Deposits –
Time Deposits is up 6%, Savings account is up 6% & Current Account is 4% from 3 Months ago dated November 29th 2018. Liquidity Coverage Ratio is 107-108% from 100% from last results.
Currently Valuation –
Currently it is trading at 1.08x Price to Book Ratio as compared to average of 2.2x Price to Book for past 5yr Average. During the same period the Profit has increased from Rs.1,611cr in 2014 to Rs.4,225cr in 2018. In the same period the market cap is Rs.13,763cr in 2014 to Rs.42,147cr in 2018. This is rational valuation given the profit growth but due to certain events we believe are short term in nature the premium on growth and other strong ability have been removed. This will return over next six – nine months but the price might start to take into account prior that period once the MD is announced and Dec 2018 results show stabilisation.
Risks –
1. MD name announced takes longer and the speculators do not like name.
2. RBI inspection reveals the unknown the factor.
3. December 2018 results show another quarter of higher QoQ NPA
Financials -
Note : We Initiate the stock given a detailed study having a long perspective with BUY rating even if stock sees a downside from the price in short term.