Published on 11/01/2021 10:56:37 AM | Source: Yes Securities Ltd

Infrastrucure and Logistics Sector - Q3 FY21 Earnings Preview By Yes Securities

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* Sequential loan growth would be strong for most banks/SFBs under coverage due to a) surprisingly strong pick‐up in economic activity, b) better‐than‐expected festive season and c) sharp recovery in demand for all categories of retail loans. Thus, Q3 may not witness any meaningful deceleration in annual loan growth (this will surprise the Street).

* Large private banks are expected to report firm NIM on the back of absorption of BS liquidity, retail‐led growth and reduction in deposit cost. Smart recovery in fee income would also continue.

* Our channel checks indicate that both restructuring and NPL spike would be much lower than feared before due to better‐than‐anticipated bounce trends and encouraging resolutions in collection buckets. Consequently, the large private banks are unlikely to see a material increase in credit cost run‐rate. Also, they had created meaningful provisioning buffer in preceding quarters.

* SFBs could report significant AUM expansion in Q3 FY21. However, their earnings performance would be impeded by a likely higher credit cost as they witness relatively larger restructuring and NPL accruals. Further, the had built limited provisioning buffer.

* NBFCs & HFCs in our coverage to report disparate growth trends underpinned by dynamics like portfolio mix, stance on liquidity and growth, vulnerability to competition and required focus on collections/customer engagement.

* BAF should report a heathy portfolio accretion given seasonally robust period for its large consumer finance segment. Diversified and less impacted (from Covid) vehicle financiers like CIFC could report an overall resilient performance.

* Large HFCs like HDFC and LIC HF who are gaining market share will report better disbursement and loan growth. Well‐run MFIs such as CREDAG and SPANDANA likely to report robust disbursements and a reasonably large cycle‐completing provisions.

* Gold loan companies may witness a modest growth with not much tailwind from gold prices during the quarter and sluggish tonnage trends.


Key things to watch out:

* Monthly collection efficiency trends and gap from pre‐COVID levels

* Quantum of restructuring and increase in proforma NPLs (w/o SC dispensation)

* Commentary on sustainability of demand recovery in various retail products and consequent loan growth outlook

* Assessment of improvement in financial health of the self‐employed and business class.


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