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Please refer to important disclosures at the end of this report
Equity Research June 5, 2020
BSE Sensex: 33981
ICICI Securities Limited is the author and distributor of this report
BFSI
Thematic
NBFC
Trifecta of tight liquidity, de-risking and de-leveraging will force business model reset
In this report, we have comprehensively analysed borrowing dynamics of shadow banks (liability profile, CP/bond issuances, maturity calendar, roll-overs, corporate spreads) to gauge how liquidity constraints and risk aversion can lead to a structural business model reset for many. Some prominent and some evolving indicators suggest shadow banks will be forced to reorient and rebalance their business models in the near to medium term via de-risking of balance sheet, co-origination, syndicate/sell-down, merger, etc. Consolidation towards stronger players imminent - HDFC, Aavas, AU SFB, Cholamandalam – our top picks in the space. Prominent names derisking due to liability constraints and leverage are IHFL and PNB Housing; due to risk aversion are Piramal, L&T Finance, etc. Also, Repco, Magma, and Shriram City Union Finance could be potential acquisition targets (niche business available at beaten-down valuations).
NBFCs/HFCs’ borrowing dynamics undergoing acute transition: A trifecta of tight liquidity, steady decline in debt AUMs and risk aversion led to: 1) sharp fall in share of market borrowing from ~60% in FY17 to 40-42% in Apr’20 (chart 1); 2) CPs, once the darling, are now being viewed as a scourge (chart 9,10) – MFs’ investment in their CPs is down >75% (from its peak of Rs2.7trn in July 2018 to <Rs700bn now). However, banks in the driver's seat managed to salvage the situation – ramping up their lending to NBFCs more than 2x to Rs8.1trn in Apr’20 (~30% CAGR since FY17); bank borrowing by NBFCs has risen by 10% to >30% by FY20.
Is re-leveraging off for a while? Rollover rates down to 60-80% (chart 13,14,15) and extreme risk aversion from debt market participants constrained shadow banks’ borrowing capacity forcing them to de-leverage. Bank lending to NBFCs hitting 9% of bank credit will incrementally face sectoral cap restrictions. Covid-19 uncertainty and volatility has further hampered and derailed risk appetite. Therefore, despite extremely comfortable systemic liquidity and RBI initiatives to channelise funding into NBFCs/HFCs/MFIs, risk aversion towards shadow banks is not going to reduce in a hurry. It will take a while before animal spirits return and they start re-leveraging.
Business model reorientation imminent: Prolonged disruption – started with the liquidity crisis, transcended into confidence crisis and now the Covid-19 crisis – has led NBFCs to sacrifice growth, prune balance sheets and become asset light. This is especially for players landing from high growth phase into liquidity/Covid-19 crisis, namely Piramal, L&T Finance, PNB Housing, etc. Given that it will not be business as usual in the near to medium term, many niche players like Shriram City, Magma, etc. will reorient towards co-lending and being a sourcing agents for banks. Also, sell-downs and retail issuances will take precedence on the liability side of the book.
Adversity conducive for strategic acquisitions: Lack of confidence further aggravated by market cap erosion has made the space conducive for strategic acquisitions and consolidation. The current adversity gives banks, corporate groups and leading NBFCs an opportunity to acquire an NBFC’s niche business at alluring valuations. Many are available at sub-par book and at values less than 10% of AUM despite superior return profile (table 14).
Consolidation and capital raising in the offing: Anomaly of spike in borrowing costs for many with not easy access to liquidity while corporate-backed and top-rated players being able to raise money at competitive rates, will lead to consolidation of market share towards stronger players (HDFC, Aavas in housing finance; AU SFB, Cholamandalam in auto financing, etc) – our top picks in the space. Despite beaten down valuations, there will be wave of capital raising – we estimate USD3.5-4.5bn of equity raising from shadow banks - call it risk or preservation or confidence or growth/opportunity capital.
INDIA
Research Analysts:
Kunal Shah [email protected] +91 22 6637 7572
Abhijit Tibrewal, CFA [email protected] +91 22 6637 7230
Renish Bhuva [email protected] +91 22 6637 7465
Sandeep Joshi [email protected] +91 22 6637 7658
NBFCs June 5, 2020 ICICI Securities
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NBFCs/HFCs borrowing dynamics undergoing acute transition
We have comprehensively analyzed borrowing dynamics of non-bank lenders to
gauge how liquidity constraints can usher in a few structural business model changes.
Amidst the liquidity crisis, net borrowings for non-bank lenders have remained broadly
stable from Mar’18 to Sep’19 (as per RBI). As a matter of fact, looking at individual
NBFCs/HFCs’ performance, consolidation trend continued even post Sep’19 till Mar’20
and non-bank lenders as a sub-segment have further lost market share. Amidst the
Covid-19 pandemic, we do not expect the conditions to be conducive, hence rundown
in advances will only get accentuated.
A hard look at trends over the past two years suggests NBFCs’ borrowing dynamics
and mix have undergone acute transition:
Chart 1: Fall in market borrowings, banks salvage the situation
50.2 50.1 49.1 49.0 47.4 45.3 42.4 42.1 41.5 41.1 40.80
21.2 20.1 20.4 22.3 23.6 24.0 27.7 28.1 29.2 29.4 30.8
9.0 9.4 10.5 8.4 8.5 9.8 9.5 8.1 7.6 6.1 4.2
19.6 20.4 20.0 20.3 20.5 21.0 20.4 21.7 21.7 23.5 24.2
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
Mar-
17
Jun-1
7
Sep-1
7
Dec-
17
Mar-
18
Jun-1
8
Sep-1
8
Dec-
18
Mar-
19
Sep-1
9
Mar-
20
(%)
Debentures Bank CPs Others
Source: RBI, I-Sec Research
A trifecta of tight liquidity, steady decline in debt AUMs (since Aug’18) and
significant risk aversion (especially towards NBFCs/HFCs) led to sharp fall in the
share of market borrowings (CPs + bonds/debentures) from ~60% in FY17 to
~47% in Sep’19. Further, issuances/MFs’ holding data suggest it would have only
contracted further to around 40-42% in Apr’20.
CPs, once the darling, are now being viewed as a scourge. Investment into CPs of
NBFCs/HFCs is down >75% from its peak (from Rs2.7trn in July 2018 to less than
Rs700bn now) and the proportion of CPs in overall borrowing is down from 10-
12% (in Sep’2017) to less than 5%. However, this ill-treatment of CPs is restricted
to NBFCs/HFCs and commercial papers of corporates have not reflected such
disinterest.
Banks in the driver’s seat managed to salvage the situation by ramping up their
lending to NBFCs more than twofold (almost 30% CAGR) from Rs3.9trn in Mar’17
to Rs8.1trn in Apr’20) – the proportion being up from 20% in FY17 to >30% by
FY20.
NBFCs June 5, 2020 ICICI Securities
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Also, sell-downs (assignments/securitisation) as a source of borrowing was closely
relied upon, especially post the IL&FS crisis.
A huge divergence in borrowing instruments (long-term papers preferred over CPs) is
evident. Preference for longer-tenure debentures/bonds is increasing with cumulative
bond issuances over the past five months being higher than those issued prior to
Sep’18. Post the IL&FS crisis, CPs, once a reliable instrument to fund incremental
growth, have now become a scourge. System-wide outstanding CPs (short-term
borrowings) are down 25% in past one year to Rs4.3trn (down >30% since its peak in
Sep’18 at Rs6.4trn).
Chart 2: CPs down >30% from its peak Chart 3: Long term bonds preferred over CPs
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Jun
-11
Dec-1
1
Jun
-12
Dec-1
2
Jun
-13
Dec-1
3
Jun
-14
Dec-1
4
Jun
-15
Dec-1
5
Jun
-16
Dec-1
6
Jun
-17
Dec-1
7
Jun
-18
Dec-1
8
Jun
-19
Dec-1
9
(Rs tn)
Outstanding CPs
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
'Jun-1
0
Dec-1
0
Jun
-11
Dec-1
1
Jun
-12
Dec-1
2
Jun
-13
Dec-1
3
Jun
-14
Dec-1
4
Jun
-15
Dec-1
5
Jun
-16
Dec-1
6
Jun
-17
Dec-1
7
Jun
-18
Dec-1
8
Jun
-19
Dec-1
9
(Rs tr)
Outstanding bonds
Source: RBI, I-Sec Research
Source: SEBI, I-Sec Research
Chart 4: CPs - once the darling, now being viewed as a scourge
Chart 5: Incremental funding met via bonds
6100
7854
6067 6259 61315660 5347
4521
2403
500
2000
3500
5000
6500
8000
9500
Q1F
Y19
Q2F
Y19
Q3F
Y19
Q4F
Y19
Q1F
Y20
Q2F
Y20
Q3F
Y20
Q4F
Y20
Q1F
Y21 (
QT
D)
Issuance of CPs
1225 1328
17462009
1411
17201885
2359
1398
0
500
1000
1500
2000
2500
Q1F
Y19
Q2F
Y19
Q3F
Y19
Q4F
Y19
Q1F
Y20
Q2F
Y20
Q3F
Y20
Q4F
Y20
Q1F
Y21 (
QT
D)
Issuance of NCD/Bonds
Source: Industry databases, I-Sec Research
Source:Industry databases, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
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Chart 6: NBFCs/HFCs proportion in overall issuances down to 15-20%
8 12 114 5 9
1613 13
14 711
12 6 6 11
3
3
10 2114 18
1613
5447
57 54
69 64
0%
20%
40%
60%
80%
100%
Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20
Proportion in total (NCD + CP) issuances
HFCs NBFCs Other FIs Public FIs Corporate
Source:Industry databases, I-Sec Research
Interestingly, the proportion of bank investments in these CPs has risen sharply from
15% to 28% while mutual funds have turned extremely risk-averse to these
instruments. The proportion of MF investment in CPs is down from 75-80% to 65% in
last one year (in absolute terms, down >30% in past one year and >40% from its peak
in Aug’18). More importantly, MFs have specifically shied away from NBFCs/HFCs as
a sub-segment; their investments are down to Rs640bn (>60% in past one year from
Rs1.7trn and >75% from its peak at Rs2.7trn).
Chart 7: Banks in driver’s seat during tight liquidity; lending to NBFCs up >2x
Chart 8: Bank’s participation in CP market has also risen in past one year
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Ap
r-08
Oct
-08
Ap
r-09
Oct
-09
Ap
r-10
Oct
-10
Ap
r-11
Oct
-11
Ap
r-12
Oct
-12
Ap
r-13
Oct
-13
Ap
r-14
Oct
-14
Ap
r-15
Oct
-15
Ap
r-16
Oct
-16
Ap
r-17
Oct
-17
Ap
r-18
Oct
-18
Ap
r-19
Oct
-19
Ap
r-20
(%)(R
s bn)
Bank credit to NBFCs
Bank lending to NBFC/Bank credit (%)
10.0
16.0
22.0
28.0
34.0
40.0
2,000
3,000
4,000
5,000
6,000
7,000
Ap
r-17
Jul-1
7
Oct
-17
Jan
-18
Ap
r-18
Jul-1
8
Oct
-18
Jan
-19
Ap
r-19
Jul-1
9
Oct
-19
Jan
-20
Ap
r-20
(%)(R
s bn)
Outstanding CPs Prop of bank's invt in CPs
Source: RBI, I-Sec Research
Source: RBI, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
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Chart 9: MFs extremely risk averse to NBFCs/HFCs
Chart 10: …as well to CPs as an instrument
1.4 1.4 1.3 1.2 1.4 1.0
0.6 0.4 0.5
0.8 1.0 0.5 0.5
0.5
0.5
0.4 0.2 0.3
1.8 1.7
2.0 1.8
2.4
1.9
1.9
1.6 2.1
-
1.0
2.0
3.0
4.0
5.0
Jun
-18
Se
p-1
8
Dec-1
8
Ma
r-19
May-1
9
Se
p-1
9
Dec-1
9
Ma
r-20
Ap
r-20
(Rs tn)
NBFC CPs HFC CPs Other CPs
33.6 29.3
24.1
11.6 10.0
3.9 7.1
4.3 2.2 -
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Jun
-18
Au
g-1
8
Oct-
18
Dec-1
8
Fe
b-1
9
Ap
r-19
Jun
-19
Au
g-1
9
Oct-
19
Dec-1
9
Fe
b-2
0
Ap
r-20
(%)
Proportion of overall debt AUMs
Overall CPs NBFC CPs HFC CPs
Source: Industry databases, I-Sec Research
Chart 11: Similar risk aversion not witnessed for bonds
Source: Industry databases, I-Sec Research
Chart 12: …and investment in bonds up 13-15% points in general and flat for NBFCs/HFCs
1.9 1.8 1.8 1.9 2.0 1.8 1.9 1.9 1.9
0.9 0.8 0.8 0.9 1.0 1.0 1.0 1.0 0.9
2.8 2.7 2.9 2.9 2.9 3.8
4.1 4.1 4.0
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Jun
-18
Se
p-1
8
Dec-1
8
Mar-
19
May-1
9
Oct-
19
Dec-1
9
Mar-
20
Ap
r-20
(Rs tn)
NBFC bonds HFC bonds Other bonds
46.4 47.7
58.4
15.8 15.9 16.1
7.2 7.5 8.6 -
10.0
20.0
30.0
40.0
50.0
60.0
70.0Jun
-18
Au
g-1
8
Oct-
18
Dec-1
8
Fe
b-1
9
Ap
r-19
Jun
-19
Au
g-1
9
Oct-
19
Dec-1
9
Fe
b-2
0
Ap
r-20
(%)
Proportion of overall debt AUMs
Overall bonds NBFC bonds HFC bonds
Source: Industry databases, I-Sec Research
Source: Industry databases, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
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Table 1: Liability profile of HFCs (December 2019)
Dec-19 HDFC LICHF PNBHF IBHL Repco Home Can Fin Homes Aavas
Total borrowings (Rs mn) 39,51,280 18,49,660 7,05,590 10,40,890 97,878 NA 60,776
Borrowings mix (%) Term Loans 19% 19% 23% 34% 84% 57% 44%
Debentures and Securities 45% 68% 22% 38% 7% 26% 15% Deposits 32% 6% 19% - - - -- ECB 4% - 6% 4% - - -- CP - 5% 3% - 0% - - Direct Assignment - - 20% 23% - - 28% NHB Term Loans - 1% 7% - 9% 15% 13% Others - 1% - - -- 2% - Total 100% 100% 100% 100% 100% 100% 100%
Source: Company data, I-Sec Research
Table 2: Liability profile of NBFCs (December 2019)
Dec-19 Bajaj Finance MMFS Chola Shriram
Transport Shriram City Piramal
Total borrowings (Rs mn) 12,20,500 5,89,500 5,49,410 9,15,160 2,20,300 5,04,100
Borrowings mix (%) Term Loans 38% 25% 60% 16% 49% 65%
Banks CC and WCDL Debentures and Securities 42% 37% 12% 24% 16% 18%
Deposits 17% 14%
13% 19% ECB 3% 4% 5% 13%
2%
CP - 5% 7% 1% 2% 4% Securitization/Direct Assignment - 15% 9% 24% 14% 8% NHB Term Loans - - -- - - - Others - - 7% 8% - 3% Total 100% 100% 100% 100% 100% 100%
Dec-19 Magma Manappuram Muthoot Sundaram
Finance LTFS
Total borrowings (Rs mn) 1,26,860 1,64,823 3,25,942 2,92,060 9,29,970
Borrowings mix (%) Term Loans 59% 17% 40% 16% 43%
Banks CC and WCDL 27% 46% - - - Debentures and Securities 6% 11% 33% 44% 43% Deposits - - -- 13% - ECB - 2% 10% - 3% CP - 24% 14% 11% 9% Securitization/Direct Assignment - - - 17% - NHB Term Loans - - - - - Others 8% 1% 3% - 2% Total 100% 100% 100% 100% 100%
Source: Company data, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
7
Is re-leveraging off for a while?
The deleveraging of short-term instruments is clearly reflected in CP rollover rates for
shadow banks – down to 60-80% on an average.
Chart 13: Only handful of shadow banks have fully rolled over CPs
159%
112%
100%
98%
89%
88%
87%
85%
83%
80%
77%
75%
73%
70%
64%
64%
59%
48%
39%
35%
0%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
PF
C
ST
FC
IIFL F
inance
TM
F
Piram
al
LTF
H
HD
FC
BA
F
LIC
HF
RE
C
GIC
Housi
ng
Manappur
am
Muth
oot
CanFin
Sundara
m
Hero
Fin
corp
AB
Capita
l
Chola
PN
BH
F
MM
FS
SC
UF
CP Rollovers (Dec-19 to May-20)
Source: Industry databases, I-Sec Research
Chart 14: Average roll-over rate was 60-80% for NBFCs/HFCs
Chart 15: Better rated and corporate backed players take a lead in rollovers
121%
102%
100%
100%
89%
81%
75%
74%
69%
69%
67%
56%
50%
45%
42%
33%
25%
0%
0%
0%
20%
40%
60%
80%
100%
120%
140%
TM
F
Piram
al
GIC
Housi
ng
IIFL F
inance
LTF
H
Hero
Fin
corp
LIC
HF
AB
Capita
l
Sundara
m
HD
FC
Muth
oot
Manappur
am
BA
F
Chola
PN
BH
F
CanFin
MM
FS
Repco
SC
UF
CP Rollovers (Dec-19 to Feb-20)
225%
159%
133%
125%
116%
106%
100%
96%
88%
84%
80%
77%
62%
59%
52%
44%
38%
33%
12%
0%
0%
0%
50%
100%
150%
200%
250%
RE
C
PF
C
HD
FC
CanFin
BA
F
Manappur
am
IIFL F
inance
LIC
HF
MM
FS
LTF
H
Muth
oot
TM
F
Piram
al
Sundara
m
Chola
GIC
Housi
ng
AB
Capita
l
Hero
Fin
corp
ST
FC
PN
BH
F
SC
UF
CP Rollovers (Mar-20 to May-20)
Source: Industry databases, I-Sec Research Source: Industry databases, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
8
Also, bank lending to NBFCs hitting 9% of total bank credit (which will incrementally
face sectoral cap restrictions) and extreme risk aversion from debt market participants
will constrain borrowing capacity for shadow banks. Covid-19 uncertainty and volatility
has further hampered and derailed risk appetite.
Chart 16: With bank’s lending to NBFCs hitting 9%, will bank support continue?
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Ap
r-08
Oct-
08
Ap
r-09
Oct-
09
Ap
r-10
Oct-
10
Ap
r-11
Oct-
11
Ap
r-12
Oct-
12
Ap
r-13
Oct-
13
Ap
r-14
Oct-
14
Ap
r-15
Oct-
15
Ap
r-16
Oct-
16
Ap
r-17
Oct-
17
Ap
r-18
Oct-
18
Ap
r-19
Oct-
19
Ap
r-20
(%)(R
s b
n)
Bank credit to NBFCs Bank lending to NBFC/Bank credit (%)
Source: RBI, I-Sec Research
RBI has taken a number of measures to augment system-level liquidity and channelise
liquidity to specific sectors (particularly NBFCs, HFCs, MFIs as also MSMEs) facing
liquidity constraints.
Interestingly, RBI has widened the gap between reverse repo rate (RRR) and
policy repo rate to 65bps. Despite this, systemic liquidity remained very
comfortable with average daily net absorption under LAF being at Rs5.7tn.
Long-term repo operations (LTROs) executed to provide adequate liquidity at the
longer end of the yield curve, exemptions from CRR for the equivalent of
incremental credit disbursed by banks in certain segments and Targeted LTROs
were well-intentioned measures. RBI has injected Rs1.2trn through OMOs.
Rs880bn was infused through three tranches under TLTRO 1.0 and one tranche
under TLTRO 2.0. However, TLTROs were mostly deployed in primary issuances
by public-sector entities and large corporates. To counter this, RBI introduced
TLTRO 2.0 directed at small and mid-sized NBFCs/MFIs. However, given the
continued risk aversion of banks, the first tranche of TLTRO 2.0 failed to garner
much interest from them (‘bid to cover’ ratio was ~51%).
RBI has also provided special refinancing facilities of Rs500bn to All-India
Financial Institutions (AIFIs) like NABARD, SIDBI and NHB.
As part of Atma-nirbhar (self-sustaining) India package, GoI announced Rs300bn
of special liquidity scheme (fully guaranteed by the GoI) for investment in
investment-grade debt papers of NBFCs/HFCs/MFIs. It also extended the Partial
Credit Guarantee Scheme (PCGS 1.0) to cover primary issuances of bonds/CPs.
PCGS 2.0 would provide for first 20% of the loss and is expected to infuse
~Rs450bn of liquidity for NBFCs/HFCs/MFIs.
NBFCs June 5, 2020 ICICI Securities
9
The above steps have slightly brought down (MoM) the risk aversion towards shadow
banks as liquidity problem for some NBFCs would not translate into a solvency
concern for the next 3-4 months. Debt papers of NBFCs/HFCs, which were witnessing
a sharp spike in yields in the secondary market, have showed some semblance of
normalisation in the last month - visible in the MoM change in spreads (over G-Secs).
However, the spreads for shadow banks yet remain elevated (YoY) indicating that the
risk aversion towards NBFCs is not going to reduce in a hurry. It will take a while
before animal spirits return and they start re-leveraging.
Chart 17: NBFCs/HFCs yields reflects continued risk aversion…
Chart 18: … so do the spreads over G-Sec
6.7
6.8 6.9
6.9
7.0 7.5 7.8 7.9 8.1
8.2 8.7 9.0 9.6 10.0
10.0
10.4
11.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
RE
C
PF
C
HD
FC
LIC
HF
Baja
j Fin
ance
Sundara
m…
AB
Capita
l
Hero
Fin
corp
Chola
mandal
am
Mahin
dra
…
LTF
H
IIFL F
inance
Muth
oot
PN
B H
ous
ing
Aava
s
Shrira
m…
Manappur
am
(%)
Traded Yields (3Y)
212
217
222
252
254 304
306
330
367 418
452
488
513 587 632
0
100
200
300
400
500
600
700
PF
C
RE
C
HD
FC
Baja
j Fin
ance
LIC
HF
Hero
Fin
corp
Sundara
m…
AB
Capita
l
Mahin
dra
…
LTF
H
IIFL F
inance
Chola
mandal
am
PN
B H
ous
ing
Shrira
m…
Muth
oot
(bps)
Spreads to G-Secs (3Y)
Source: Industry databases, I-Sec Research Source: Industry databases, I-Sec Research
Chart 19: Though spreads to G-Sec contracted in the past one month…
Chart 20: … it still remains elevated from a one year perspective
-220
-116
-52-35 -27 -25 -13 -12 -10
25 28 35
-250
-200
-150
-100
-50
0
50
Mahin
dra
Fin
ance
Shrira
m T
ranspor
t
LTF
H
HD
FC
RE
C
PF
C
LIC
HF
Baja
j Fin
ance
PN
B H
ous
ing
AB
Capita
l
Sundara
m F
inance
Muth
oot
(bps)
Change in spreads from last month (3Y)
78 91 102 112131 144
163190 195
226 236
371
0
50
100
150
200
250
300
350
400
PF
C
RE
C
HD
FC
Baja
j Fin
ance
LIC
HF
Sundara
m…
AB
Capita
l
PN
B H
ous
ing
Mahin
dra
…
LTF
H
Muth
oot
Shrira
m…
(bps)
Change in spreads from last year (3Y)
Source: Industry databases, I-Sec Research Source: Industry databases, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
10
Chart 21: Yields on NBFC papers continue to remain elevated
Chart 22: Risk aversion to shadow-banks evident even in AAA NBFC spreads
4
5
6
7
8
9
10
Jan
-18
Mar-
18
May-1
8
Jul-1
8
Se
p-1
8
Nov-1
8
Jan
-19
Mar-
19
May-1
9
Jul-1
9
Se
p-1
9
Nov-1
9
Jan
-20
Mar-
20
May-2
0
(%)
G-Sec (5Y) AAA corp (5Y) AAA NBFC (5Y)
0.0
0.5
1.0
1.5
2.0
2.5
Jan
-18
Mar-
18
May-1
8
Jul-1
8
Se
p-1
8
Nov-1
8
Jan
-19
Mar-
19
May-1
9
Jul-1
9
Se
p-1
9
Nov-1
9
Jan
-20
Mar-
20
May-2
0
(%)
AAA Corp spreads (5Y) AAA NBFC spreads (5Y)
Source: Bloomberg, I-Sec Research Source: Bloomberg, I-Sec Research
Chart 23: Yields on AAA-rated and AA-rated NBFC papers
Chart 24: Spreads of AA NBFC papers over AAA NBFC papers have widened
6.0
7.0
8.0
9.0
10.0
11.0
12.0
Jul-1
2
Dec-1
2
Ma
y-1
3
Oct-
13
Ma
r-14
Au
g-1
4
Jan
-15
Jun
-15
Nov-1
5
Ap
r-16
Se
p-1
6
Fe
b-1
7
Jul-1
7
Dec-1
7
Ma
y-1
8
Oct-
18
Ma
r-19
Au
g-1
9
Jan
-20
(%)
AAA NBFC (5Y) AA NBFC (5Y)
40
50
60
70
80
90
100Jan
-18
Ma
r-18
May-1
8
Jul-1
8
Se
p-1
8
Nov-1
8
Jan
-19
Ma
r-19
May-1
9
Jul-1
9
Se
p-1
9
Nov-1
9
Jan
-20
Ma
r-20
May-2
0
(bps)
Spread of AA NBFC over AAA NBFC
Source: Bloomberg, I-Sec Research Source: Bloomberg, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
11
Re-orienting and de-risking business model imminent
Shadow banks over years have demonstrated their niche and dominance in several
product and business segments and have been ahead of the curve in last mile
connectivity and customer-centricity. However, they have witnessed a prolonged
season of disruption – which started with the liquidity crisis, transcended into
confidence crisis and now accentuated by the Covid-19 crisis. Given that it will not be
business as usual in the near to medium term, several players will be forced to
reinvent their business model and derisk their balance sheets.
Co-origination, sell-down, retail issuance to take prominence
Sacrificing growth, pruning balance sheets and being asset light will be key to
navigating the current crises, amidst constraints on supply side. This will be true
especially for players landing from high-growth phase into liquidity/Covid-19 crisis,
namely Piramal, L&T Finance, PNB Housing, etc.
Chart 25: Players landing from high-growth phase into crisis to consolidate
43
35
31
31
27
23
21
19
18
17
17
16
15
15
14
14
14
13
13
12
10
9
4
0
0.05.0
10.015.020.025.030.035.040.045.0
Aa
vas F
ina
ncie
rs
Ba
jaj F
inan
ce
Hero
Fin
corp
PN
B H
ousin
g
Pira
mal…
Ma
nappura
m
Chola
mandala
m
India
Info
Lin
e…
Mu
thoot
Fin
ance
AB
Capital
RE
C
CanF
in H
om
es
HD
FC
Ma
hin
dra
…
LT
FH
GIC
Housin
g
LIC
Ho
usin
g
Su
ndara
m…
Sh
rira
m…
PF
C
Repco H
om
e
Sh
rira
m C
ity…
India
Bulls
…
Ma
gm
a
(%)
3-yr AUM CAGR (%)
Source: Company data, I-Sec Research
In these circumstances, scope for many non-bank lenders would be restricted to co-
lending and being sourcing agents for banks. NBFCs’ uniqueness in terms of
customer relationship, local knowledge, reach and distribution capabilities can be
leveraged by banks to co-originate loans. Though margin-dilutive, it can provide a
sustainable model through fee income.
NBFCs June 5, 2020 ICICI Securities
12
Also, on liability side, sell-down and retail issuances will take precedence.
Chart 26: Sell-downs (despite March disruption) remained major funding source
359
682
238
277
238
181
934
365
907
185
169
150
174
678
97
270
66
68
68
69
271
17
9 13
8 5 0 26
0
120
0 3 6 0 9
0
200
400
600
800
1000
FY18 FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 FY20
(Rs b
n)
Sell-downs
NBFC HFC NBFC-MFI SFB Others
838
19881918
Source: ICRA Research, I-Sec Research
Consolidation in the offing
Borrowing costs for many players have spiked coupled with not easy access to
liquidity. At the same time, corporate-backed and top-rated players are able to raise
money at competitive rates. This anomaly will lead to consolidation of market share in
the space towards stronger players (HDFC, Aavas in housing finance; AU SFB,
Cholamandalam in auto financing, etc).
Chart 27: Spreads to G-Secs continues to remain elevated
212
217
222
252
254 304
306
330
367 418
452
488
513 587 632
0
100
200
300
400
500
600
700
PF
C
RE
C
HD
FC
Baja
j Fin
ance
LIC
HF
Hero
Fin
corp
Sundara
mF
inance
AB
Capita
l
Mahin
dra
Fin
ance
LTF
H
IIFL F
inance
Chola
mandal
am
PN
B H
ous
ing
Shrira
mT
ransp
ort
Muth
oot
(bps)
Spreads to G-Secs (3Y)
Source: Industry databases, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
13
Adversity conducive for strategic acquisitions
Lack of confidence further exemplified by market cap erosion have made the space
conducive for strategic acquisition and consolidation. The recent instances of NBFC
merger into banks can further intensify – Gruh/Bandhan Bank, Bhafin/Indusind, Capital
First/IDFC Bank. The current adversity gives banks, corporate groups and leading
NBFCs an opportunity to acquire NBFCs’ niche business at alluring valuations. Many
are available at sub-par book and at values less than 10% of AUM despite superior
return profile.
Chart 28: Alluring valuation conducive for buyouts of niche franchise
1.1
0.9
0.8
0.6
0.5
0.5
0.4
0.2
0.2
0.2
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.0
0.0
0.0
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Aava
s F
inancie
rs
Baja
j Fin
ance
Muth
oot Fin
ance
HD
FC
Piram
al E
nte
rpris
es…
Manappur
am
Sundara
m F
inance
AB
Capita
l
CanFin
Hom
es
Chola
mandal
am
Shrira
m C
ity U
nio
n
Mahin
dra
Fin
ance
Shrira
m T
ranspor
t
LTF
H
India
Info
Lin
e F
inance
PF
C
LIC
Housi
ng
RE
C
Repco
Hom
e
India
Bulls
Housi
ng
PN
B H
ous
ing
GIC
Housi
ng
Magm
a
(x)
Mcap/AUM
Source: Company data, I-Sec Research
USD3.5-4.5bn equity raising – call it a risk, preservation, confidence,
or growth capital
Barring a few outliers, most (even the better-rated) NBFCs/HFCs today are trading at,
or less than, their current book value. Even though raising fresh equity capital at such
beaten-down valuations will be dilutive for the existing shareholders, most
NBFCs/HFCs would evaluate an equity capital raise over the next 6-9 months. Given
that the FY21 growth outlook remains muted, most NBFCs/HFCs today would seem
comfortably placed when we look at their tier-1 capital.
Chart 29: HFCs leverage hovering high Chart 30: De-leveraging & de-risking has helped manage leverage; expected to continue
11.9 10.7 10.2 10.2
7.1 6.1 6.1
3.7 3.7
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
LIC
Ho
usi
ng
GIC
Housi
ng
PN
B H
ousi
ng
CanF
in H
om
es
Repco
Hom
e
India
Bulls
Housi
ng
HD
FC
Pira
mal E
nte
rprise
s(F
inanci
al S
erv
ices)
Aa
vas
Fin
anci
ers
Leverage (x)
8.5 7.8 7.5 7.3 7.2
6.5 6.2 6.0 5.9 5.7 5.2 5.1 5.0
4.3 4.2
- 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0
RE
C
Chola
mandal
am
PF
C
LTF
H
India
Info
Lin
e…
Mahin
dra
Fin
ance
Shrira
m T
ranspor
t
Sundara
m F
inance
Magm
a
Hero
Fin
corp
AB
Capita
l
Baja
j Fin
ance
Manappur
am
Shrira
m C
ity U
nio
n
Muth
oot Fin
ance
Leverage (x)
Source: Company data, I-Sec Research Source: Company data, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
14
Chart 31: Tier-1, though comfortable, is low for few players
Chart 32: Equity raising imminent for many players
53.9
29.0 28.525.4
20.416.6 16.6 14.1 12.5
0.0
10.0
20.0
30.0
40.0
50.0
60.0A
avas F
ina
ncie
rs
India
Bulls
Housin
g
Pira
ma
l E
nte
rprise
s(F
inancia
l S
erv
ices)
Repco H
om
e
CanF
in H
om
es
HD
FC
GIC
Hou
sin
g
PN
B H
ousin
g
LIC
Ho
usin
g
(%)
Tier-1 (%)
26.2
25.3
23.8
23.4
21.3
19.7
17.7
17.6
16.8
15.4
15.4
15.3
14.4
13.6
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Muth
oot Fin
ance
Shrira
m C
ity…
Magm
a
Manappur
am
Baja
j Fin
ance
AB
Capita
l
LTF
H
Sundara
m…
Shrira
m T
ranspor
t
RE
C
Mahin
dra
Fin
ance
Chola
mandal
am
PF
C
India
Info
Lin
e…
Tier-1 (%)
Source: Company data, I-Sec Research Source: Company data, I-Sec Research
However, it is important to understand why the NBFCs/HFCs would still want to raise
equity capital in such an environment:
A fresh equity capital raise in this environment serves as confidence capital in the
existing business model of the NBFC/HFC concerned
In many instances, the capital raise will be necessitated to meet the expectations
of the credit rating agencies (CRAs). In this environment, the CRAs have revised
their outlook on many NBFCs/HFCs to ‘Negative’. While this could be construed
as a precursor to rating downgrade, many rating agencies could have
communicated to the NBFCs/HFCs that, given the expectation of higher credit
costs in FY21, they would ideally want higher tier-1 capital of NBFCs/HFCs in this
uncertain environment to get more comfort on them.
In a few rare cases, raising fresh equity capital could serve as a buffer to preserve
liquidity and the fresh issuance could even be used as a cushion for the high
anticipated levels of provisions that the NBFCs/HFCs would be required to make
in FY21.
Lastly, given that some weak NBFCs/HFCs are available today at beaten-down
valuations, they could become potential acquisition targets and the stronger
banks/NBFCs who acquire them might look to raise fresh equity capital for such
inorganic acquisitions.
We estimate USD3.5-4.0bn of equity raising from shadow banks - call it a risk
capital, preservation capital, confidence capital or opportunity/growth capital.
NBFCs June 5, 2020 ICICI Securities
15
Table 3: Valuation summary
Bank CMP Rating TP P/E (x) P/BV (x) P/ABV (x)
FY21E FY22E FY21E FY22E FY21E FY22E
HDFC 1762 BUY 2345 14.8 10.6 1.5 1.4 1.6 1.5 LIC Housing 245 ADD 285 8.6 5.0 0.7 0.6 0.9 0.7 PNB Housing 205 REDUCE 154 99.7 9.8 0.4 0.4 0.5 0.5 Piramal Enterprises 1082 ADD 1050 17.3 14.2 0.8 0.8 - - Repco 98 ADD 130 3.7 2.8 0.3 0.3 0.5 0.4 Aavas 1132 BUY 1350 32.8 25.6 3.8 3.3 3.9 3.4 Shriram Transport 613 HOLD 732 10.2 6.6 0.7 0.7 1.1 1.0 Cholamandalam 143 BUY 187 9.4 6.9 1.2 1.0 1.4 1.2 Shriram City 633 HOLD 708 5.4 3.9 0.5 0.5 0.6 0.6 Magma Fincorp 14 HOLD 15 66.0 5.8 0.1 0.1 0.2 0.2 L&T Financial 58 HOLD 59 8.8 5.4 0.8 0.7 0.9 0.8
Bank CMP Rating TP RoAA (%) RoAE (%)
FY20E FY21E FY22E FY20E FY21E FY22E
HDFC 1762 BUY 2345 3.7 1.6 1.9 22.0 9.8 12.7 LIC Housing 245 ADD 285 1.1 0.6 1.0 13.5 7.9 12.7 PNB Housing 205 REDUCE 154 1.4 0.0 0.4 13.8 0.4 4.1 Piramal Enterprises 1082 ADD 1050 0.0 1.9 2.5 0.1 4.5 6.0 Repco 98 ADD 130 2.0 1.3 1.6 14.8 9.8 11.7 Aavas 1132 BUY 1350 3.7 3.2 3.4 12.7 12.2 13.7 Shriram Transport 613 HOLD 732 2.0 1.0 1.5 16.2 7.3 10.6 Cholamandalam 143 BUY 187 2.2 1.8 2.2 18.2 13.0 15.4 Shriram City 633 HOLD 708 3.5 2.3 3.0 15.9 10.2 12.8 Magma Fincorp 14 HOLD 15 0.3 0.0 0.4 1.7 0.2 2.4 L&T Financial 58 HOLD 59 1.7 1.3 1.9 12.3 8.9 13.4
Source: Company data, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
16
Appendix
Table 4: CP rollover of NBFCs/HFCs over past 6 months
Dec-19 to Feb-20 (3 months) Mar-20 to May-20 (3 months) Dec-19 to May-20 (6 months)
(Rs mn) Issuance Maturity Rollover (%) Issuance Maturity Rollover (%) Issuance Maturity Rollover (%)
HDFC 1,21,750 1,76,500 69% 90,250 68,000 133% 2,12,000 2,44,500 87% LICHF 27,500 36,500 75% 23,500 24,600 96% 51,000 61,100 83% PNBHF 9,500 22,750 42% - 1,750 0% 9,500 24,500 39% Repco - 750 0% - - NA - 750 0% Aavas - - NA - - NA - - NA BAF 50,145 99,645 50% 1,26,500 1,09,250 116% 1,76,645 2,08,895 85% MMFS 10,000 40,000 25% 7,000 8,000 88% 17,000 48,000 35% STFC 16,500 - NA 2,000 16,500 12% 18,500 16,500 112% Chola 19,500 43,720 45% 16,000 31,000 52% 35,500 74,720 48% SCUF - 750 0% - 4,770 0% - 5,520 0% Magma - - NA - - NA - - NA Piramal 53,050 51,885 102% 15,100 24,550 62% 68,150 76,435 89% Muthoot 45,500 67,530 67% 39,000 48,959 80% 84,500 1,16,488 73% Manappuram 22,750 40,500 56% 24,750 23,250 106% 47,500 63,750 75% LTFH 1,98,750 2,23,870 89% 36,000 42,750 84% 2,34,750 2,66,620 88% PFC - - NA 47,750 30,000 159% 47,750 30,000 159% REC - 18,250 0% 22,500 10,000 225% 22,500 28,250 80% AB Capital 84,600 1,13,700 74% 33,800 88,300 38% 1,18,400 2,02,000 59% Sundaram 21,250 30,670 69% 18,250 31,000 59% 39,500 61,670 64% Tata Motors Finance 63,120 52,250 121% 42,500 55,000 77% 1,05,620 1,07,250 98% Hero Fincorp 24,000 29,750 81% 5,500 16,450 33% 29,500 46,200 64% IndiaBulls - - NA - - NA - - NA CanFin 3,000 9,000 33% 7,500 6,000 125% 10,500 15,000 70% GIC Housing 18,000 18,000 100% 5,500 12,500 44% 23,500 30,500 77% IIFL Finance 18,000 18,000 100% 32,000 32,000 100% 50,000 50,000 100%
Source: Industry databases, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
17
Table 5: Maturity, Issuance, and Rollover of NCDs for NBFCs/HFCs
Dec-19 Jan-20 Feb-20
(Rs mn) Issuance Maturity Rollover (%) Issuance Maturity Rollover (%) Issuance Maturity Rollover (%)
HDFC 25,000 22,250 112% 67,050 40,000 168% 95,150 36,430 261% LICHF 7,500 31,020 24% 43,700 26,000 168% 18,500 31,550 59% PNBHF - - NA - - NA - 5,000 0% Repco - - NA - - NA - - NA Aavas - - NA - - NA - - NA BAF - 5,600 0% 17,600 3,140 561% 47,450 3,590 1322% MMFS 2,000 1,000 200% 1,000 2,000 50% 4,050 500 810% STFC - 7,500 0% 1,937 650 298% 22,000 700 3143% Chola 500 5,500 9% 500 - NA 2,600 9,850 26% SCUF - 2,500 0% - - NA 10,000 - NA Magma 3,500 - NA - - NA - - NA Piramal 49,500 - NA 4,500 16,500 27% - - NA Muthoot 12,900 703 1834% 12,900 303 4252% - 2,425 0% Manappuram 7,024 - NA 40 278 14% 11,840 188 6305% LTFH 14,079 15,850 89% 10,706 8,455 127% 35,000 2,350 1489% PFC 47,105 12,200 386% 19,600 17,700 111% 30,000 5,000 600% REC - - NA 36,150 10,000 362% 71,894 10,000 719% AB Capital 1,500 10,600 14% 15,000 34,300 44% 250 1,210 21% Sundaram 2,420 2,000 121% 1,500 3,000 50% 12,500 250 5000% Tata Motors Finance 450 1,000 45% - 10,150 0% 1,950 - NA Hero Fincorp 1,000 - NA - 305 0% 1,000 1,700 59% IndiaBulls - 4,750 0% - 3,000 0% - 11,000 0% CanFin - 3,000 0% - 4,400 0% 2,500 - NA GIC Housing - - NA - - NA - - NA IIFL Finance - 1,750 0% - 175 0% - - NA
Mar-20 Apr-20 May-20
(Rs mn) Issuance Maturity Rollover (%) Issuance Maturity Rollover (%) Issuance Maturity Rollover (%)
HDFC - 54,980 0% 37,500 12,510 300% 75,000 37,500 200% LICHF - 27,550 0% - 13,750 0% - 21,700 0% PNBHF - - NA - 10,250 0% - 2,350 0% Repco - - NA - - NA - - NA Aavas 4,444 - NA - - NA - - NA BAF 100 8,208 1% 2,000 10,949 18% - 14,533 0% MMFS 4,775 7,750 62% 4,750 5,535 86% 2,000 2,322 86% STFC 6,000 33,200 18% - 29,000 0% 2,500 11,250 22% Chola - 500 0% 4,100 2,290 179% - 6,850 0% SCUF 5,750 2,500 230% - 1,150 0% - 3,500 0% Magma - 350 0% - - NA - - NA Piramal 7,500 1,300 577% - - NA 10,000 7,000 143% Muthoot 5,601 438 1280% - - NA - 984 0% Manappuram 2,000 - NA - - NA 5,000 - NA LTFH 950 7,750 12% 10,750 3,498 307% 8,000 15,620 51% PFC 55,000 - NA 69,500 35,500 196% 1,09,123 25,510 428% REC 72,793 40,000 182% 54,850 4,634 1184% 79,050 5,036 1570% AB Capital - 4,650 0% 8,500 4,955 172% - 15,625 0% Sundaram - 4,750 0% 10,000 600 1667% 1,000 1,000 100% Tata Motors Finance - 5,250 0% - 3,860 0% 10,000 2,000 500% Hero Fincorp 250 - NA 3,500 200 1750% - 4,400 0% IndiaBulls - 8,200 0% 2,000 562 356% 10,300 555 1856% CanFin - - NA - 5,000 0% - 2,000 0% GIC Housing - - NA - - NA - - NA IIFL Finance - - NA - 12,433 0% 1,000 830 120%
Source: Industry databases, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
18
Table 6: CP Maturity Schedule for select NBFC/HFC
(Rs bn) 1-15th
June 15-30th
June 1-15th
July 15-31st
July 1-15th
Aug 15-31st
Aug 1-15th
Sept 15-30th
Sept Jun-Sep
20
Aditya Birla Finance 9.8 6.3 2.0 5.0 1.0 10.5 - - 34.6 Aditya Birla Housing Finance 2.0 - - - 3.0 0.5 - - 5.5 Bajaj Finance - 19.0 - - 2.5 30.8 - - 52.3 Bajaj Housing Finance - 0.8 - 4.0 - 0.3 0.1 - 5.2 Canfin Homes 3.3 - 3.0 - - 5.0 - 1.0 12.3 Cholamandalam 8.8 - - - - 10.0 - - 18.8 ECL Finance - - - - - - - - - Fedbank Financial Services - 0.5 - - - - - - 0.5 GIC Housing Finance - 2.0 2.0 1.5 - - - - 5.5 Hdb Financial Services 1.3 - - 5.5 - - - - 6.8 Hdfc Credila Financial Services - - 0.3 - - - - - 0.3 Hero Fincorp 3.0 2.0 2.1 3.5 - 2.5 - - 13.1 HDFC 20.0 - 17.0 - 38.5 7.5 30.0 - 113.0 Kotak Mahindra Investments 2.5 2.2 0.5 0.5 - - - - 5.7 Kotak Mahindra Prime 3.1 2.5 1.3 3.0 4.5 1.0 2.0 1.5 18.9 L&T Housing Finance - - - 3.0 - - - - 3.0 LIC Housing Finance 7.0 - - 2.0 7.0 11.0 10.3 - 37.3 M&M Financial Services - - - - - 5.0 - - 5.0 Mahindra Rural Housing Finance - - - 2.0 - - - - 2.0 Manappuram Finance 8.5 - - 6.0 5.0 2.5 - 0.3 22.3 Manappuram Home Finance - - - - - - - - - Motilal Oswal Financial Services 2.5 1.5 - - - 4.0 - - 8.0 Muthoot Finance 11.0 2.5 - 18.5 1.0 6.0 - - 39.0 Pnb Housing Finance 2.0 1.0 0.2 - - - - - 3.2 Shriram Transport Finance Company - - - 2.0 - - - - 2.0 SREi Equipment Finance - - 3.0 - - - - - 3.0 Sundaram Finance 3.0 3.5 7.5 - 5.0 - - 5.5 24.5 Sundaram Home Finance - - 0.5 - - - - - 0.5 Tata Capital Financial Services 4.9 2.3 1.0 7.8 5.0 9.0 - - 30.0 Tata Capital Housing Finance - - - 5.5 7.8 1.0 - - 14.3 Tata Capital - 1.0 - 2.0 - - - - 3.0 Tata Motors Finance 9.5 3.0 - 14.0 - 25.0 - - 51.5 Total NBFCs/HFCs 119.5 80.7 54.5 93.3 87.3 140.8 47.3 14.6 637.7
Source: Industry databases, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
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Table 7: Bonds/Debentures maturity schedule for select NBFC/HFC
(Rs bn) 1-15th
June 15-30th
June 1-15th
July 15-31st
July 1-15th
Aug 15-31st
Aug 1-15th
Sept 15-30th
Sept Jun-Sep
20
Aadhar Housing Finance 0.2 1.5 0.5 - - - - - 2.2 Aditya Birla Finance 5.2 2.5 - 0.9 1.0 0.5 - 1.5 11.6 Aditya Birla Housing Finance 0.3 - - - 0.5 - - - 0.8 Asirvad Micro Finance - 0.5 - - - 0.5 - - 1.0 Aspire Home Finance Corporation 0.5 - - 1.0 - - - - 1.5 Bajaj Finance 17.0 9.7 3.0 8.3 12.6 0.2 0.6 0.8 52.1 Belstar Investment And Finance 0.5 - - 0.5 - - - - 1.0 Canfin Homes - - - - - - 1.0 - 1.0 Capital First 0.3 - - - 1.4 - - - 1.7 Cholamandalam 1.5 0.7 - - - - - - 2.2 Dewan Housing Finance Corporation - 1.5 1.5 3.4 0.5 2.2 0.1 5.0 14.1 Ecl Finance 0.3 0.3 0.3 0.2 0.6 - - 1.0 2.6 Edelweiss Finance And Investments - - - - - - 0.2 - 0.2 Edelweiss Housing Finance 0.2 - - - - - - - 0.2 Equitas Finance - - - 0.8 0.8 - - - 1.5 ESAF Microfinance And Investments - - - - - - - - - Ess Kay Fincorp - - - - - 0.4 - 1.5 1.9 Essel Finance Business Loans - 0.3 - - - - - - 0.3 Fivestar Business Finance 0.0 - - - 0.0 - 0.0 - 0.1 Fullerton India Credit Company - - - - 1.6 0.5 - - 2.1 Fullerton India Home Finance Company - - - - - 1.0 - - 1.0 Fusion Microfinance - - 0.3 - 0.4 0.2 - - 0.9 Geetanjali Trading And Investments - 2.5 - - - - - - 2.5 Geo Vpl Finance - - - - - - - 0.0 0.0 Grameen Financial Services - - - - - - - - - Gruh Finance - - - - - - - 3.4 3.4 HDB Financial Services 6.9 7.8 1.3 3.0 6.1 5.0 4.0 4.0 37.9 HDFC Credila Financial Services - - - - - - - 3.0 3.0 Hero Fincorp 4.8 - 2.1 - 0.8 - - 1.5 9.1 Hinduja Finance - 0.5 1.0 - - 0.5 - - 2.0 Hinduja Leyland Finance 0.3 10.3 0.4 - - - - - 11.0 Housing Development Finance Corporation - 78.0 42.2 - - 20.0 20.0 31.0 191.2 India Infoline Finance 0.1 - 0.1 - - - 2.0 1.0 3.2 India Infoline Housing Finance - - - - - 1.2 - - 1.2 Indiabulls Consumer Finance - - - - - - - - - Indiabulls Housing Finance 9.6 0.4 1.2 3.7 0.3 - 10.0 19.3 44.4 Infrastructure Leasing And Financial Services 0.5 - - 3.0 0.5 0.5 0.4 4.5 9.4 Janalakshmi Financial Services - - 0.5 - - - - - 0.5 Kotak Mahindra Investments - 0.3 - 1.8 0.4 - - - 2.4 Kotak Mahindra Prime 5.8 0.2 0.7 3.0 1.5 0.9 2.1 0.1 14.3 L&T Housing Finance 3.6 1.5 - 3.5 - - 1.3 - 9.8 LIC Housing Finance 10.0 27.0 14.9 13.6 2.5 12.5 2.0 15.0 97.4 Magma Housing Finance - - - - - - - - - Mahindra And Mahindra Financial Services 5.5 5.7 5.1 3.9 1.5 0.3 3.8 - 25.7 Mahindra Rural Housing Finance - 0.1 - - - - - - 0.1 Muthoot Finance - 17.8 0.2 - - - - - 18.0 Muthoottu Mini Financiers - - - - 0.2 0.3 - - 0.5 Piramal Finance 4.4 - 1.0 - 1.3 - - 6.3 12.9 PNB Housing Finance - - - - - - - 5.0 5.0 PNY Sabha Finance - - - - - - - - - Reliance Capital 0.2 0.3 - - 0.2 - 0.0 0.1 0.7 Reliance Financial 0.0 - 0.0 0.4 - - - - 0.4 Reliance Home Finance - - - - 0.0 - 0.2 - 0.2 Religare Finvest - - - - - - - - - Repco Home Finance 2.0 - - - 1.8 - - - 3.8 Satin Creditcare Network 0.5 - - - - - - 0.2 0.7 Shriram City Union Finance Company - 1.1 - - - - - - 1.1 Shriram Transport Finance Company 7.2 1.0 1.3 2.3 - 1.3 - - 12.9 Sonata Finance - 0.3 - - - - - - 0.3 Spandana Sphoorty Financial - - - - - - - 12.2 12.2 Srei Equipment Finance - 0.4 - - - - - - 0.4 Sundaram Bnp Paribas Home Finance - 0.3 0.6 - - 0.4 1.5 - 2.8 Sundaram Finance 2.5 - - 1.0 - 6.0 7.5 - 17.0 Tata Capital Financial Services 10.2 6.6 4.2 - 1.9 0.5 - - 23.3 Tata Capital Housing Finance 0.6 0.8 1.4 - 0.3 4.6 - - 7.6 Grand Total 104.5 194.9 89.2 57.1 54.8 83.4 62.0 130.9 776.7
Source: Industry databases, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
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Table 8: MF holding in CP of HFCs
(Rs bn) Oct-19 Jan-20 Apr-20
HDFC 195.6 130.9 134.3 LIC Housing Finance 57.2 48.2 54.5 Tata Capital Housing Finance 29.1 20.2 28.5 Canfin Homes 21.4 14.0 10.6 Bajaj Housing Finance 39.1 43.8 10.6 L&T Housing Finance 13.9 2.9 6.0 Sundaram Bnp Paribas Home Finance 5.9 6.6 3.7 Aditya Birla Housing Finance 6.9 3.5 3.0 GIC Housing Finance 12.5 12.4 2.0 Mahindra Rural Housing Finance 2.0 1.0 2.0 PNB Housing Finance 20.9 10.4 - Indiabulls Housing Finance 2.1 - - Tata Value Homes 1.0 1.0 - Hero Housing Finance 1.0 0.5 - Piramal Capital And Housing Finance 0.2 0.2 -
Source: Industry databases, I-Sec Research
Table 9: MF holding in CP of NBFCs
(Rs bn) Oct-19 Jan-20 Apr-20
Tata Motors Finance 36 45 40 Muthoot Finance 48 48 37 Tata Capital Financial Services 37 32 31 Manappuram Finance 38 32 25 Hero Fincorp 32 26 20 Kotak Mahindra Prime 40 31 19 L&T Finance 30 29 18 L&T Infrastructure Fin 27 13 14 Axis Finance 6 12 13 L&T Finance Holdings 17 12 12 Aditya Birla Finance 24 21 10 Cholamandalam 60 34 10 Bajaj Finance 85 10 10 Barclays Investments 7 9 10 Birla Group Holdings 20 24 10 Standard Chartered Investments 13 15 10 Sundaram Finance 19 14 9 Fullerton India Credit 20 14 9 Julius Baer Capital (India) 7 10 8 HDB Financial Services 16 12 8 Deutsche Investments India 10 10 7 Kotak Mahindra Investments 13 16 7 Motilal Oswal Financial Services 8 10 6
(Rs bn) Oct-19 Jan-20 Apr-20
Tata Capital 7 2 5 TMF Holdings - 3 5 Piramal Enterprises 6 5 4 Tata Motors Finance Solutions 6 9 2 HDFC Credila Financial 5 6 2 Bahadur Chand Investments 8 20 2 HSBC Investdirect Financial 3 2 1 SBI Global Factors 6 5 1 Aditya Birla Money 1 4 1 Sharekhan Bnp Paribas Fin 1 1 1 M&M Financial Services 31 17 - Hinduja Leyland Finance 14 6 - Daimler Financial India 3 - - John Deere Financial India 3 3 - Indostar Capital Finance 2 - - Shriram City Union Finance 1 0 - Toyota Financial Services India 1 - - Volkswagen Finance Private 1 - - Phoenix Arc Private 1 1 - Clix Capital Services Private 1 1 - Shriram Transport Finance 0 16 -
Source: Industry databases, I-Sec Research
Table 10: MF holding in CP of Corps
(Rs bn) Oct-19 Jan-20 Apr-20
Reliance Industries 87 114 315 Reliance Jio Infocomm 266 302 277 Indian Oil Corporation 131 107 223 Bharat Petroleum Corporation 10 - 87 NTPC 126 93 82 Vedanta 118 117 56 Hindustan Petroleum Corporation 17 36 56 The Tata Power Company 57 51 53 Tata Teleservices (Maharashtra) 36 36 37 JSW Steel 49 46 35 Chennai Petroleum Corporation 41 27 32 Nabha Power 25 12 29 Tata Motors 33 20 29 Steel Authority Of India 58 57 28 Larsen And Toubro 57 49 26 Tata Teleservices 7 9 26 Tata Steel 20 47 24
(Rs bn) Oct-19 Jan-20 Apr-20
Bharti Airtel - - 20 Oil And Natural Gas Corporation - - 20 Bharti Hexacom 5 17 15 Bharat Heavy Electricals 34 29 12 National Fertilizers 39 51 11 Aditya Birla Fashion And Retail 11 10 10 Kotak Securities 18 19 10 Sun Pharmaceutical Industries - 5 10 Tata Housing Development Co 8 8 9 Godrej Industries 5 6 8 Godrej Properties 8 11 8 Tata Realty And Infrastructure 18 14 8 Tv18 Broadcast 6 7 7 Sbi Cards And Payment Services 36 30 2 Bharti Telecom 9 10 2 Tata Sons 55 34 - Adani Ports And Sez 64 66 -
Source: Industry databases, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
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Table 11: MF holding in NCD of NBFCs
(Rs bn) Oct-19 Jan-20 Apr-20
Bajaj Finance 78 89 86 HDB Financial Services 82 86 69 Shriram Transport Finance 58 57 52 Muthoot Finance 50 49 45 L&T Infrastructure Finance 4 16 44 Kotak Mahindra Prime 53 50 44 M&M Financial Services 54 49 41 Sundaram Finance 35 36 37 Aditya Birla Finance 24 24 25 Edelweiss Commodities Services 27 25 23 Tata Capital Financial Services 22 22 22 L&T Finance 20 19 19 Manappuram Finance 4 11 19 Axis Finance 17 17 19 Fullerton India Credit 16 16 19 Indostar Capital Finance 19 18 18 Piramal Enterprises 16 19 17 Cholamandalam 21 17 16 TMF Holdings 10 16 16 Shriram City Union Finance 18 18 15 Hinduja Leyland Finance 19 17 14
(Rs bn) Oct-19 Jan-20 Apr-20
Clix Capital Services 12 12 12 Tata Capital 4 8 11 Bahadur Chand Investments 12 4 11 KKR India Financial Services 19 17 9 John Deere Financial India 8 8 8 Shriram City Union Finance 4 2 7 Fivestar Business Finance 7 7 7 Avanse Financial Services 2 5 5 Shriram City Union Finance - - 5 Hero Fincorp 7 5 5 Volkswagen Finance 5 5 5 ECL Finance 7 5 4 Kotak Mahindra Investments 8 8 4 Tata Motors Finance 20 11 4 Daimler Financial Services India 4 4 4 Edelweiss Agri Value Chain 4 4 4 Piramal Finance 3 3 3 Small Business Fincredit India 4 4 3 Visu Leasing And Finance 3 3 3 Credila Financial Services 5 5 2
Source: Industry databases, I-Sec Research
Table 12: MF holding in NCD of HFCs
(Rs bn) Oct-19 Jan-20 Apr-20
LIC Housing Finance 332 380 312 HDFC 311 400 299 Bajaj Housing Finance 38 39 41 Tata Capital Housing Finance 12 27 26 PNB Housing Finance 18 20 16 Indiabulls Housing Finance 31 16 12 L&T Housing Finance 7 16 11 Reliance Home Finance 5 3 9 Aspire Home Finance Corp. 10 10 8 Mahindra Rural Housing Finance 8 9 7 Piramal Capital And Housing Fin. 10 7 7 Aadhar Housing Finance 1 5 6 Iifl Home Finance 7 6 5 Fullerton India Home Finance 5 5 5
(Rs bn) Oct-19 Jan-20 Apr-20
Sundaram BNP Paribas Home Fin 4 7 5 Aditya Birla Housing Finance 5 5 5 Tata Value Homes 4 4 4 Aptus Value Housing Finance India 5 5 4 India Infoline Housing Finance 8 7 4 Canfin Homes 2 2 3 Edelweiss Housing Finance 2 2 2 Vastu Housing Finance Corporation 4 4 2 Dewan Housing Finance Corp 5 3 2 India Shelter Finance Corporation 2 2 2 Gruh Finance 1 1 1 Ashiana Housing 1 1 1 Aavas Financiers 1 1 0 Shriram Housing Finance 0 0 0 Hero Housing Finance 0 0 0
Source: Industry databases, I-Sec Research
Table 13: MF holding in NCD of Corps
(Rs bn) Oct-19 Jan-20 Apr-20
Reliance Industries 143 154 167 Power Grid Corporation Of India 74 79 83 Vedanta 66 89 80 Larsen And Toubro 34 44 72 NTPC 51 45 63 Reliance Jio Infocomm 57 54 54 HPCL 37 41 51 Tata Sons 89 78 47 Bharti Telecom 31 37 44 Indian Oil Corporation 0 21 40 Nabha Power 36 49 38 Reliance Utilities And Power 34 34 30
(Rs bn) Oct-19 Jan-20 Apr-20
Coastal Gujarat Power 34 35 30 Tata Motors 22 29 25 India Grid Trust 24 24 24 Pipeline Infrastructure 28 29 24 Embassy Office Parks 17 25 23 Talwandi Sabo Power 29 26 23 Mangalore Refinery - 17 20 Ongc Petro Additions 29 30 20 Indinfravit Trust - - 15 Idea Cellular 20 5 2 Adani Transmission 10 6 1 Vodafone Mobile Services 14 1 1
Source: Industry databases, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
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Table 14: Despite comfortable Tier-1 capital, de-leveraging to continue; alluring valuations may make some of them potential acquisition targets
Company Leverage
(x) Tier-1
(%) 3-yr AUM
CAGR (%) M-Cap/AUM
(x)
RoA (%) RoE (%)
FY19 FY20[e] FY19 FY20[e]
HDFC 6.1 16.6 15 0.59 2.2 3.7 13.5 22.0 LIC Housing 11.9 12.5 14 0.06 1.3 1.1 15.9 13.5 PNB Housing 10.2 14.1 31 0.04 1.6 1.4 16.9 13.8 Repco Home 7.1 25.4 10 0.05 2.3 2.0 16.5 14.8 Aavas Financiers 3.7 53.9 43 1.14 3.6 3.7 11.6 12.7 Bajaj Finance 5.1 21.3 35 0.94 4.1 4.1 22.5 20.2 Mahindra Finance 6.5 15.4 15 0.14 2.6 1.3 15.2 8.1 Shriram Transport 6.2 16.8 13 0.13 2.0 2.0 17.5 16.2 Cholamandalam 7.8 15.3 21 0.19 2.3 2.2 21.0 18.2 Shriram City Union 4.3 25.3 9 0.14 3.5 3.5 16.6 15.9 Magma 5.9 23.8 0 0.02 1.9 0.3 12.9 1.7 Piramal Enterprises 3.7 28.5 27 0.47 3.1 0.4 15.0 1.9 Muthoot Finance 4.2 26.2 18 0.84 2.2 2.0 14.1 10.0 Manappuram 5.0 23.4 23 0.45 4.9 5.9 19.2 22.9 LTFH 7.3 17.7 14 0.12 2.5 1.7 17.9 12.3 PFC 7.5 14.4 12 0.06 2.2 - 17.3 - REC 8.5 15.4 17 0.06 2.1 - 17.3 - AB Capital 5.2 19.7 17 0.21 1.9 2.0 13.7 13.5 Sundaram Finance 6.0 17.6 13 0.44 2.1 2.3 13.2 13.7 IndiaBulls Housing 6.1 29.0 4 0.05 3.0 2.4 24.0 14.7 CanFin Homes 10.2 20.4 16 0.20 1.8 2.0 18.2 19.7 GIC Housing 10.7 16.55 14 0.03 1.3 0.7 15.2 8.8 India InfoLine Finance 7.2 13.6 19 0.07 2.2 2.2 17.5 16.9
Source: Company data, I-Sec Research
NBFCs June 5, 2020 ICICI Securities
23
Price charts
HDFC LIC Housing PNB Housing Repco Home
1000
1400
1800
2200
2600
Jun
-17
Dec-1
7
Jun
-18
Dec-1
8
Jun
-19
Dec-1
9
Jun
-20
(Rs.)
150
250
350
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750
850
Jun
-17
Dec-1
7
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-18
Dec-1
8
Jun
-19
Dec-1
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-20
(Rs)
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500
1,000
1,500
2,000
Jun
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Dec-1
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May-1
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y-1
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y-2
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(Rs)
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Dec-1
7
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(Rs)
Aavas Financiers Shriram Transport Cholamandalam Shriram City Union
400
800
1,200
1,600
2,000
2,400
Oct-
18
Mar-
19
Au
g-1
9
Dec-1
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Ma
y-2
0
(Rs)
200
400
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c-1
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Magma Piramal Enterprises L&T Finance Holding
0
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-17
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-19
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(Rs)
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240Jun
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-20
(Rs)
NBFCs June 5, 2020 ICICI Securities
24
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BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return
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