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Hero Fincorp Limited
Consolidated loan book
break-up (Rs. mn) | FY19 | % contribution |
Retail
(including 2-Wheelers) | 77,040 | 39.0% |
- 2-Wheeler loans | 59,710 | 30.3% |
SME
(Including LAP) | 59,320 | 30.1% |
Emerging
Corporate loans | 60,560 | 30.7% |
Others | 440 | 0.2% |
Total | 197,360 | 100.0% |
Particulars | FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | 3 yr CAGR | 5 yr CAGR |
Consolidated Loan Book (Rs.
mn) | 8,782 | 30,140 | 63,146 | 96,506 | 131,581 | 197,712 | 46.3% | 86.4% |
- Two-wheeler loans (30% of loan book) – HFCL is the captive financier of the two wheelers sold by its parent HMCL. It started this business in FY14 and as of March 2019, had presence in 946 dealerships through 3,100+ touch points. It provides loan with a ticket size of Rs.10,000 to Rs.1,00,000 having a tenor of up to 48 months. LTV in this segment is high at 95%. It financed about ~16% of HMCL’s two wheelers in FY19.
- Corporate loans (61% of loan book) – This segment includes SME & commercial loans, LAP, Unsecured business loans, inventory funding, structured finance, etc.
- SME & Commercial Loans – Within this segment, HFCL provides bill discounting, purchase invoice financing, working capital term loans, secured term loans, project finance, loans for machinery, etc. with tenors ranging from 12 to 84 months and LTV in the range of 75-90%.
- Loan Against Property (LAP) – LAP is given against both commercial and residential properties to self-employed professionals, manufacturers, traders, etc. with ticket size of Rs.50 lakhs to Rs.15 crores having a tenor of up to 15 years.
- Unsecured business loans – Loans are provided for tenure of up to 3 years with ticket size ranging from Rs.5 lakhs to Rs.25 lakhs.
- Housing loans (3% of loan book) – HFCL commenced housing finance business in FY19 by setting up a wholly owned subsidiary – Hero Housing Finance Ltd. and offers home loans and LAP. It has an AUM of Rs.5.56bn as of March 2019.
- Other loans – HFCL is increasingly providing loans to customers other than those coming from its parent’s ecosystem, which include loans to doctors, medical equipment financing, etc.
Category | % shareholding |
Hero Moto Corp | 41.2% |
Munjal
Family | 38.7% |
Credit Suisse | 2.4% |
Otter Ltd. | 10.6% |
Others | 7.2% |
Total | 100.0% |
Management Team | Designation | With HFCL since | Brief Profile and Prior Experience | Qualification |
Mr. Abhimanyu
Munjal | Joint MD and CEO | 2013 | - Mr. Abhimanyu has over 15 years of experience in
strategic leadership and people management and has held various executive
positions in Hero Group companies. He has been instrumental in expanding
HFCL’s AUM. - He has also set up a VC Fund called AdvantEdge
Partners and made investments in 18 startups. | N.A. |
Mrs. Renu Munjal | Managing Director | Inception | -
Mrs. Renu Munjal is the Managing Director of Hero FinCorp. She also serves as a director on the Board
of Easy Bill. She is the former Executive Director of Hero MotoCorp. | N.A. |
Mr. Pawan Munjal | Chairman and Director | Inception | - Mr. Pawan Munjal is the Chairman, Managing
Director and CEO of Hero Motocorp Ltd. - Under his leadership, Hero Moto has become the
world’s largest two-wheeler company in the world. - He has been a prominent member of several industry
bodies and has regularly contributed to policymaking in India. | N.A. |
Mr. Jayesh Jain | Chief Financial Officer | 2018 | - Mr. Jayesh has over 17 years of experience across
strategic planning, budgeting, accounting, auditing, etc. - He has previously worked with PNB Housing and Gruh
Finance as their CFO. | - Chartered Accountant - CFA |
Mr. Ajay Sahasrabuddhe | CEO – Retail Finance | 2013 | - Mr. Ajay has more than 25 years of experience in
retail financing. - He has previously worked as Chief
Business Officer with Family Credit and as National Sales Manager at Tata Capital. | - Diploma in business
management from Amravati University |
Mr. Mahesh
Sanghavi | Chief Business Officer | 2015 | - Mr. Mahesh has more than 20 years of experience in
credit risk management with expertise in underwriting, portfolio and stressed
asset management. - Prior to joining HFCL, he was the head of credit
risk at ING Vysya Bank and has also worked with HSBC, ICICI Bank, IndusInd Bank. | - CWA - MBA from INSEAD - CFA |
Mr. Samir Mehta | Chief Business Officer | 2014 | - Mr. Samir has over 18 years of experience in
setting up and managing SME and MME asset businesses. - He joined Hero Fincorp as Business Head – Corporate
Finance in 2014. | - B Tech. from
NIT, Kurukshetra - MBA from IIM Lucknow |
- Synergistic benefits from parent – Hero Moto Corp (HMCL) along with Munjal family holds ~80% stake in the company. HFCL derives operational, financial and managerial support from its parent. Notably, HFCL provides complementary services to the parent. It provides bill discounting and corporate loans to the vendors and suppliers of HMCL. Further, in FY14, it commenced captive financing of HMCL’s two wheelers, and financed about 16% of its vehicles in FY19. About 45% of its business is sourced from its parent’s ecosystem (source: Crisil rating report April ’19). The parent and the Munjal family have regularly made capital infusion in the company to sustain growth momentum. It also has 2 directors of HMCL on the company’s board of directors.
Particulars | FY15 | FY16 | FY17 | FY18 | FY19 |
HMCL
two-wheeler sales (no.) | 6,431,686 | 6,421,913 | 6,483,655 | 7,382,718 | 7,612,775 |
HFCL
financing volumes (no.) | 226,000 | 468,000 | 670,000 | 860,000 | 1,200,000 |
%
contribution | 4% | 7% | 10% | 12% | 16% |
- Diversifying loan book to reduce concentration risk – HFCL started with providing leasing and bill discounting services to the vendors of HMCL. Over the years, it has diversified its loan book to provide two-wheeler financing, used vehicle loans, SME & Commercial loans, medical equipment financing, loans to doctors, etc. It also commenced housing finance business in FY19. Loan book mix is moving towards retail loans as tabulated below:
Loan book mix % | FY15 | FY16 | FY17 | FY18 | FY19 |
Retail
(including 2 wheelers) | 26.5% | 28.4% | 30.9% | 32.4% | 39.0% |
SME
(including LAP) | 29.0% | 32.4% | 36.4% | 36.1% | 30.1% |
Emerging
Corporate | 42.5% | 38.1% | 32.0% | 31.0% | 30.7% |
Others | 1.9% | 1.1% | 0.7% | 0.5% | 0.2% |
Total | 100% | 100% | 100% | 100% | 100% |
- Consistently grown across all parameters – HFCL’s gross loan book has grown at a CAGR of 46% and 86% in the last 3 and 5 years, respectively. Despite change in product mix, yields have been maintained in the last 3 years at~11%. Productivity improvement is also seen as CI ratio has come down from 71% in FY15 to 62% in FY19. Further, credit cost has been maintained at sub 1% levels. Overall, therefore, PAT has grown at a CAGR of 44% and 75% in the past 3 and 5 years, respectively.
- Adequately capitalized – Company is adequately capitalized with Capital Adequacy Ratio (CAR) of 19.3% as against the regulatory requirement of 15% and tier 1 at 16.3%. The parent and promoters have consistently infused capital in the company. Company also made a rights issue in FY19 to the tune of Rs.11.81bn. Thus, with the support of its parent, company has been easily able to raise funds, which has helped in maintaining leverage at 5-6-xs levels.
- Strong credit rating – Given the strong support it derives from its parent and consistent growth across parameters, company has received credit rating of AA+ from both Crisil and ICRA for its long-term debt instruments. This has helped in raising funds at competitive rates.
- Asset quality – HFCL has recently diversified its loan book towards retail products and hence the book is not yet seasoned. It has entered in the housing finance segment only in FY19. GNPA has increased from 4.1% in FY18 to 4.5% in FY19. Slippages have been consistently increasing in the last 5 years.
Asset quality | FY15 | FY16 | FY17 | FY18 | FY19 |
GNPA % | 0.30% | 1.60% | 3.40% | 4.10% | 4.50% |
NNPA % | 0.14% | 0.55% | 1.72% | 2.72% | 2.97% |
Credit
cost % | 0.3% | 0.6% | 0.9% | 1.0% | 0.7% |
Slippages
(Rs. mn) | 44 | 553 | 2,428 | 3,883 | 4,407 |
- Dependence on parent – HFCL lends mainly to vendors and suppliers of HMCL. It has heavy dependence on its parent’s ecosystem to source clients. It does captive financing of HMCL’s two wheelers which constitutes 30% of its loan book and about 45% of its book is contributed from HMCL’s ecosystem.
- Performance in new businesses remains monitorable – HFCL has recently diversified its loan book and offered products to customers outside of its parent’s ecosystem. Thus, growth, profitability and asset quality of these segments going forward remain key monitorable.
Key parameters (Rs. mn) | FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | FY16-19 CAGR | FY14-19 CAGR |
Balance Sheet: | | | | | | | | |
Loan Book | 8,782 | 30,140 | 63,146 | 96,506 | 131,581 | 197,712 | 46.3% | 86.4% |
YoY growth % | 40% | 243% | 110% | 53% | 36% | 50% | | |
Net worth | 2,175 | 5,514 | 10,302 | 19,187 | 22,485 | 36,419 | 52.3% | 75.7% |
YoY growth % | 4% | 154% | 87% | 86% | 17% | 62% | | |
Profit & Loss: | | | | | | | | |
Net Interest
Income | 601 | 1,344 | 3,375 | 5,831 | 8,502 | 11,212 | 49.2% | 79.5% |
YoY growth % | 59% | 124% | 151% | 73% | 46% | 32% | | |
NIMs on loans % | 6.8% | 4.5% | 5.3% | 6.0% | 6.5% | 5.7% | 6.1% | 5.6% |
Total
income | 801 | 2,000 | 4,790 | 7,975 | 10,109 | 13,938 | 42.8% | 77.1% |
YoY growth % | 71% | 150% | 139% | 66% | 27% | 38% | | |
Cost
to Income Ratio % | 71.1% | 71.0% | 66.5% | 63.9% | 65.5% | 62.0% | Avg. 63.8% | Avg. 65.8% |
PPOP | 231 | 581 | 1,603 | 2,875 | 3,485 | 5,292 | 48.9% | 87.0% |
YoY growth % | -18% | 151% | 176% | 79% | 21% | 52% | | |
Provisions | 3 | 79 | 355 | 884 | 1,362 | 1,381 | 57.3% | 240.9% |
Credit Cost % | 0.03% | 0.26% | 0.56% | 0.92% | 1.03% | 0.70% | Avg. 0.9% | Avg. 0.7% |
ETR
% | 34.4% | 34.0% | 34.7% | 35.1% | 32.7% | 37.2% | Avg. 35.0% | Avg. 34.7% |
PAT | 150 | 332 | 815 | 1,292 | 1,429 | 2,458 | 44.5% | 75.0% |
YoY growth % | -21% | 121% | 146% | 59% | 11% | 72% | | |
Ratios: | | | | | | | | |
EPS (Rs.) | 1.3 | 2.9 | 7.1 | 11.3 | 12.5 | 21.5 | 44.5% | 75.0% |
BV
(Rs.) | 19 | 48 | 90 | 168 | 197 | 319 | 52.3% | 75.7% |
RoA (%) | 1.3% | 1.1% | 1.2% | 1.3% | 1.1% | 1.2% | Avg. 1.2% | Avg. 1.2% |
RoE
(%) | 6.9% | 6.0% | 7.9% | 6.7% | 6.4% | 6.7% | Avg. 6.6% | Avg. 6.8% |
Leverage (xs) | 5.4 | 5.7 | 6.3 | 5.2 | 6.0 | 5.8 | Avg. 5.7 | Avg. 5.8 |
Parameter | Commentary on historical performance |
Loan Book – CAGR | § Company has presence in in both retail and
corporate segments. It is increasingly diversifying its loan book by entering
two-wheeler financing, LAP, SME loans, housing finance. Loan book has grown
at a strong rate of 46% in the past 3 years (86% in 5 yrs). |
NII– CAGR NIMs | § NII growth has largely been in line with loan book
growth at 49% and 79% in the last 3 and 5 years, respectively. NIMs have
declined from 6.8% in FY14 to 5.7% in FY19 as cost of funds has risen even as
yields have been maintained. |
Cost to Income
(C/I) ratio | § CI ratio has been consistently declining from 71% in FY14 to 62% in FY19, reflecting productivity improvement. |
Credit Cost -
Avg/ Provisions | § Since HFCL has recently
diversified its loan book and the book is yet to season, credit cost is lower
with an average 0.9% in the past 3 years and 0.7% in past 5 years. GNPA has,
however, been rising from 0.3% in FY15 to 4.5% in FY19. |
PAT
- CAGR | § PAT has grown at a CAGR of 45% in
the last 3 years (75% in 5 yrs) driven by strong loan book growth, stable
NIMs and operating efficiency. |
Return
Metrics | § Strong growth in profits has resulted in RoA of
1.2% (3 yr average). RoE at 6.6% has been lower due to equity infusion done
to maintain leverage in the range of 5-6-xs. |
- Loan book composition and size – Loan book composition determines yields and size of the book helps in determining position in the industry.
- NIM – Ability to pass on interest rates, presence in high yielding segments and control on cost of funds determines NIM trajectory.
- Asset quality – Robustness of risk management policies and strong underwriting skills and exposure towards high risk segments determine asset quality.
- Return parameters – Companies with presence in high yield segments, having control on asset quality and operational efficiency have better return ratios.
Company Name(Rs. mn) | Net interest income | Loan book | PAT | ||||||
FY18 | FY19 | YoY Growth | FY18 | FY19 | YoY Growth | FY18 | FY19 | YoY Growth | |
Hero Fincorp | 8,502 | 11,212 | 32% | 131,581 | 197,712 | 50% | 1,429 | 2,458 | 72% |
Bajaj Finance | 69,716 | 97,252 | 39% | 791,030 | 1,125,130 | 42% | 24,964 | 39,950 | 60% |
L&T Finance | 44,292 | 51,052 | 15% | 853,540 | 991,210 | 16% | 12,784 | 22,320 | 75% |
Chola | 28,174 | 33,973 | 21% | 422,530 | 526,220 | 25% | 9,183 | 11,862 | 29% |
MMFS | 35,287 | 47,004 | 33% | 485,470 | 612,496 | 26% | 10,761 | 15,571 | 45% |
Shriram
transport | 68,350 | 78,976 | 16% | 961,984 | 1,023,075 | 6% | 24,603 | 25,587 | 4% |
Company Name(Rs. mn) | CI Ratio | NIM | Credit Cost | ROA | ROE | |||||
FY18 | FY19 | FY18 | FY19 | FY18 | FY19 | FY18 | FY19 | FY18 | FY19 | |
Hero
Fincorp | 66% | 62% | 6.5% | 5.7% | 1.0% | 0.7% | 1.1% | 1.2% | 6.4% | 6.7% |
Bajaj
Finance | 40% | 35% | 8.8% | 8.6% | 1.3% | 1.3% | 2.9% | 3.2% | 15.8% | 20.3% |
L&T Finance | 29% | 30% | 5.8% | 6.5% | 2.4% | 1.5% | 1.5% | 2.1% | 11.2% | 16.6% |
Chola | 39% | 37% | 6.7% | 6.5% | 0.8% | 0.6% | 2.1% | 2.1% | 18.0% | 19.2% |
MMFS | 40% | 38% | 7.3% | 7.7% | 1.2% | 1.0% | 2.0% | 2.3% | 11.2% | 14.3% |
Shriram
transport | 23% | 23% | 7.1% | 7.7% | 1.8% | 2.3% | 2.5% | 2.4% | 20.3% | 16.2% |
- Loan book composition and size – Hero Fincorp has been building up a well-diversified loan book with presence across LAP, two-wheeler finance, SME loans and is also entering the housing finance segment. This helps in de- risking the portfolio by avoiding portfolio concentration. Loan book size is lower than peers, but it has been growing at a faster pace as it is expanding its product portfolio to add newer products.
- NIM – NIM is lower when compared to peers due to change in product mix and increase in cost of funds, despite maintaining yields.
- Asset quality – Asset quality has been witnessing deterioration leading to increase in slippage across products. Given that its loan book is not yet seasoned, this remains a key monitorable going forward.
- Return parameters – RoE has remained lower than peers due to continuous equity infusion in the business resulting in a leverage of sub 6-xs. However, due to strong profit growth of 75% in the last 5 years, RoA has been maintained at 1.2%.
1 | Bajaj Finance Ltd. | 52 week High (Rs.) | 52 week Low (Rs.) | March ending
price (Rs.) | EPS
(Rs.) | BV
(Rs.) | P/E (xs) | P/BV
(xs) | ||||
| | | | | | | High | Low | Close | High | Low | Close |
| FY15 | 448 | 167 | 410 | 15.5 | 83 | 28.9 | 10.8 | 26.5 | 5.4 | 2.0 | 4.9 |
| FY16 | 698 | 394 | 693 | 22.0 | 128 | 31.7 | 17.9 | 31.4 | 5.5 | 3.1 | 5.4 |
| FY17 | 1,205 | 677 | 1,174 | 31.7 | 155 | 38.0 | 21.4 | 37.1 | 7.8 | 4.4 | 7.6 |
| FY18 | 1,989 | 1,153 | 1,770 | 43.0 | 273 | 46.2 | 26.8 | 41.1 | 7.3 | 4.2 | 6.5 |
| FY19 | 3,035 | 1,770 | 3,025 | 68.9 | 340 | 44.1 | 25.7 | 43.9 | 8.9 | 5.2 | 8.9 |
| 5 yrAvg | | | | | | 37.8 | 20.5 | 36.0 | 7.0 | 3.8 | 6.7 |
2 | Chola | 52
week High (Rs.) | 52
week Low (Rs.) | March
ending price (Rs.) | EPS (Rs.) | BV (Rs.) | P/E (xs) | P/BV (xs) | ||||
| | | | | | | High | Low | Close | High | Low | Close |
| FY15 | 123 | 56 | 118 | 5.6 | 41 | 22.2 | 10.0 | 21.1 | 3.0 | 1.4 | 2.9 |
| FY16 | 151 | 108 | 143 | 7.3 | 47 | 20.8 | 14.9 | 19.6 | 3.2 | 2.3 | 3.1 |
| FY17 | 249 | 139 | 193 | 9.2 | 55 | 27.1 | 15.2 | 21.0 | 4.5 | 2.5 | 3.5 |
| FY18 | 302 | 193 | 290 | 11.7 | 65 | 25.7 | 16.4 | 24.7 | 4.6 | 3.0 | 4.4 |
| FY19 | 352 | 208 | 290 | 15.2 | 79 | 23.2 | 13.7 | 19.1 | 4.5 | 2.6 | 3.7 |
| 5 yrAvg | | | | | | 23.8 | 14.0 | 21.1 | 4.0 | 2.4 | 3.5 |
3 | L&T Finance | 52 week High (Rs.) | 52 week Low (Rs.) | March ending price (Rs.) | EPS (Rs.) | BV (Rs.) | P/E (xs) | P/BV (xs) | ||||
| | | | | | | High | Low | Close | High | Low | Close |
| FY15 | 83 | 60 | 63 | 4.1 | 31 | 20.3 | 14.6 | 15.4 | 2.7 | 2.0 | 2.1 |
| FY16 | 75 | 48 | 64 | 4.1 | 33 | 18.2 | 11.8 | 15.5 | 2.3 | 1.5 | 1.9 |
| FY17 | 124 | 64 | 123 | 5.0 | 33 | 24.9 | 12.7 | 24.8 | 3.7 | 1.9 | 3.7 |
| FY18 | 214 | 119 | 157 | 6.1 | 55 | 34.9 | 19.5 | 25.7 | 3.9 | 2.2 | 2.9 |
| FY19 | 190 | 111 | 152 | 10.7 | 64 | 17.7 | 10.4 | 14.3 | 2.9 | 1.7 | 2.4 |
| 5 yrAvg | | | | | | 23.2 | 13.8 | 19.1 | 3.1 | 1.8 | 2.6 |
4 | Mahindra Finance | 52 week High (Rs.) | 52 week Low (Rs.) | March
ending price (Rs.) | EPS (Rs.) | BV (Rs.) | P/E (xs) | P/BV (xs) | ||||
| | | | | | | High | Low | Close | High | Low | Close |
| FY15 | 345 | 230 | 254 | 13.5 | 92 | 25.6 | 17.0 | 18.8 | 3.8 | 2.5 | 2.8 |
| FY16 | 294 | 173 | 243 | 10.9 | 99 | 27.0 | 15.9 | 22.3 | 3.0 | 1.8 | 2.5 |
| FY17 | 405 | 232 | 315 | 6.5 | 105 | 23.3 | 35.8 | 48.6 | 3.9 | 2.2 | 3.0 |
| FY18 | 524 | 290 | 462 | 17.4 | 156 | 30.1 | 16.7 | 26.5 | 3.4 | 1.9 | 3.0 |
| FY19 | 538 | 351 | 421 | 25.2 | 177 | 21.3 | 13.9 | 16.7 | 3.0 | 2.0 | 2.4 |
| 5 yr Avg | | | | | | 25.5 | 19.9 | 26.6 | 3.4 | 2.1 | 2.7 |
5 | Shriram Transport | 52 week High (Rs.) | 52 week Low (Rs.) | March ending price (Rs.) | EPS
(Rs.) | BV
(Rs.) | P/E (xs) | P/BV
(xs) | ||||
| | | | | | | High | Low | Close | High | Low | Close |
| FY15 | 1,286 | 697 | 1,114 | 54.6 | 407 | 23.6 | 12.8 | 20.4 | 3.2 | 1.7 | 2.7 |
| FY16 | 1,206 | 737 | 954 | 51.9 | 448 | 23.2 | 14.2 | 18.4 | 2.7 | 1.6 | 2.1 |
| FY17 | 1,325 | 778 | 1,078 | 55.4 | 425 | 23.9 | 14.0 | 19.4 | 3.1 | 1.8 | 2.5 |
| FY18 | 1,543 | 898 | 1,441 | 108.4 | 440 | 14.2 | 8.3 | 13.3 | 3.5 | 2.0 | 3.3 |
| FY19 | 1,671 | 904 | 1,273 | 112.8 | 607 | 14.8 | 8.0 | 11.3 | 2.8 | 1.5 | 2.1 |
| 5 yr Avg | | | | | | 20.0 | 11.5 | 16.6 | 3.0 | 1.7 | 2.6 |
- Strong growth trajectory witnessed in loan book
- Linkage and synergy benefits from parent
- Parent’s focus to grow financial services business and consistent equity infusion in the business
- Consistent productivity improvement and PAT growth
HDB Financial Services Limited
Revenue break up | FY19 (Rs. mn) | % contribution |
Lending business | 67,121 | 77% |
BPO services | 16,481 | 19% |
Other income
(inc. distribution income from insurance, treasury and fee income) | 3,646 | 4% |
Total | 87,248 | 100% |
Loan Book break up | FY19 (Rs. mn) | % contribution |
Loan Against
Property (LAP) | 191,483 | 35% |
Vehicle
Finance | 224,309 | 41% |
Unsecured
Business Loans | 114,890 | 21% |
Other retail
loans | 16,413 | 3% |
Total | 547,094 | 100% |
- Lending business: As part of its lending business, it offers Loan against property (LAP), Vehicle Finance, Unsecured Business Loans and other retail loans.Size of Operation of lending business:
Particulars
FY14
FY15
FY16
FY17
FY18
FY19
3 yr CAGR
5 yr CAGR
Loan Book (Rs. mn)
133,875
189,891
244,096
340,709
442,683
547,094
31%
32%
- Vehicle finance loans (41% of loan book) – Under this category, it provides commercial vehicle loans (new, used, refinancing of existing vehicles), construction equipment loans (new, used, refinancing of existing equipment) and financing for new and used tractor loans.
- Loan against property (35% of loan book) – It provides loan against property to SMEs. Share of this segment has come down from 60% in FY16 to 35% in FY19 as it diversifies its book.
- Unsecured business loans (21% of loan book) – HDB provides loans to SMEs for working capital, setting up of machinery, etc. under this segment.
- Other retail loans – HDB has recently expanded its product portfolio and provides a wide array of products like consumer durable loans (washing machine, refrigerators, televisions, household appliances, etc.), digital products loans (mobiles, laptops, etc.), gold loan, auto loan, personal loans and loan against mutual fund units.
- Vehicle finance loans (41% of loan book) – Under this category, it provides commercial vehicle loans (new, used, refinancing of existing vehicles), construction equipment loans (new, used, refinancing of existing equipment) and financing for new and used tractor loans.
- Sale of insurance products: Company is a registered corporate insurance agent and has license from IRDAI, which is valid for next three years. It sells life and general insurance products of HDFC Standard Life Insurance Company Ltd. and HDFC Ergo General Insurance Company Ltd.
- BPO services: The company provides sales support services, back office, operations and processing support to its parent HDFC Bank. It has set up 15 call centers with a capacity of over 5,000 seats. These centers provide collection services for all the retail products of HDFC Bank in 750 cities through its calling and field support teams. In FY17, company amalgamated with HBL Global Pvt. Ltd. (HBL) and Atlas Documentary Facilitators Company Pvt. Ltd. (ADFL), which offered marketing and collection services to HDFC Bank. Post the merger, revenue from this segment has grown at a CAGR of 11% in the last 2 years.
Management Team | Designation | With HDB since | Brief Profile and Prior Experience | Qualification |
Mr. Aditya Puri | Chairman and Non- Executive Director | Inception | - Mr. Puri is the MD and CEO of
HDFC Bank since its inception. He has more than 4 decades of experience in
the banking industry. - Prior to setting up HDFC Bank, he was the CEO of
Citi Bank. | - Chartered Accountant |
Mr. Ramesh G | Managing Director & CEO | Inception | - Mr. Ramesh has more than 2 decades of experience in the industry. He was working as a VP with HDFC Bank Ltd. - He has previously worked as COO with Intelenet
Global Services. | - BE from Annamalai University PGDM from IIM Lucknow |
Mr.
Bhavesh Zaveri | Non-Executive Director | N.A. | - Mr. Bhavesh is the Head of
Operations & Technology at HDFC Bank Ltd. and has more than 2 decades of experience in the
banking industry. - He is also on the board of The Clearing Corp. of
India Ltd., HDB Financial Services Ltd. and National Payments Corp. of India
Ltd. and Associate for Indian Institute of Banking & Finance. He
has also worked as Principal at Barclays Bank. | - M Com. from University of Mumbai - Certified Associate of the Indian Institute of Bankers. |
Mr. Jimmy Tata | Non-Executive Director | N.A. | - Mr. Jimmy has more than 3 decades of experience in the banking industry and
works as Chief Risk Officer in HDFC Bank. - He also serves on the board of International Asset
Reconstruction Co. Pvt Ltd. | - MBA from JBIMS - CFA from ICFAI |
- Support from parent – HDFC Bank Ltd holds 95.53% stake in HDB. Besides providing funding support, HDFC Bank also provides operational and managerial oversight. This gives comfort on the overall risk management and credit policies followed by HDB. Presence of top managerial personnel of HDFC Bank on HDB board also ensures close monitoring of company’s performance on day to day basis. Further, HDB provides integral support to its parent in its collection and marketing activities, making HDB strategically important to HDFC Bank.
- Increasingly diversifying loan book with retail focus – HDB has a diversified loan book with Vehicle Finance, LAP and Unsecured Business Loans constituting 97% of the book. Company is diversifying its loan book by venturing into several other retail segments like gold loan, auto loan, digital products loans, loan against securities, personal loans, loan against lease rental, auto refinance, etc. Contribution from LAP has come down significantly from 60% in FY16 to ~35% in FY19. Loan book has grown at a CAGR of 31% and 33% in the last 3 and 5 years, respectively. Break up of loan book is as follows:
Particulars (Rs. mn) | FY13 | FY16 | FY19 | 3 yr CAGR |
LAP | 46,351 | 146,458 | 191,483 | 9.3% |
% contribution to loan | 57% | 60% | 35% | |
Vehicle Finance | 24,447 | 51,260 | 224,309 | 63.6% |
% contribution to loan | 30% | 21% | 41% | |
Unsecured
Business Loans | 8,860 | 36,614 | 114,890 | 46.4% |
% contribution to loan | 11% | 15% | 21% | |
Other retail
loans | 2,379 | 9,764 | 16,413 | 18.9% |
% contribution to loan | 3% | 4% | 3% | |
Total | 82,037 | 244,096 | 547,094 | |
- Strong growth with improvement in return parameters – Company has grown its loan book at a CAGR of 31% in the past 3 years and has also consistently expanded its NIM due to change in product mix and portfolio diversification. Strong growth in total income along with productivity improvement has led to improvement in return parameters. RoA and RoE have improved from 1.9% and 13.1% in FY17 to 2.0% and 16.1% in FY19, respectively.
- Adequately capitalized – Company is adequately capitalized with CAR of 17.9% as against the regulatory requirement of 15% and tier 1 at 12.8%. Company even made a rights issue in FY17 to the tune of Rs.10.9bn taking its CAR to 20.79% in FY17. Thus, given its strong parentage, company has been easily able to raise funds to support growth.
- Strong credit rating – Given the linkage with its parent and strong earnings momentum, company has received highest credit rating of AAA from both Crisil and CARE for its debt instruments.
- Asset quality – HDB’s asset quality has witnessed some deterioration in the last 3 years, specifically in the vehicle finance segment, which has seen higher delinquencies. Absolute GNPA has increased by 36% YoY in FY19 to 10.0bn and as a % to loans stood at 1.83% from 1.67% in FY18.
- Change in product mix – HDB’s loan book had higher proportion of LAP at 60% in FY16, which has come down to ~35% in FY19 and is also expanding its portfolio in consumer durable space. Going forward, loan book growth can vary depending on mix change.
- NIM pressure – Change in product mix can also lead to quarterly fluctuations in yields, which can impact NIM trajectory.
Key parameters (Rs. mn) | FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | FY16-19 CAGR | FY14-19 CAGR |
Balance Sheet: | | | | | | | | |
Loan Book | 133,875 | 189,891 | 244,096 | 340,709 | 442,683 | 547,094 | 30.9% | 32.5% |
YoY growth % | 63% | 42% | 29% | 40% | 30% | 24% | | |
Net worth | 16,285 | 31,251 | 35,618 | 52,089 | 60,404 | 71,785 | 26.3% | 34.5% |
YoY growth % | 86% | 92% | 14% | 46% | 16% | 19% | | |
Profit & Loss: | | | | | | | | |
NII | 5,907 | 9,288 | 14,445 | 20,372 | 28,822 | 33,788 | 32.7% | 41.7% |
YoY growth % | 89% | 57% | 56% | 41% | 41% | 17% | | |
NIMs on loans % | 4.4% | 4.9% | 5.9% | 6.0% | 6.5% | 6.2% | Avg.
6.2% | Avg. 5.9% |
Other income | 2,067 | 2,511 | 2,860 | 16,243 | 16,958 | 20,127 | 91.6% | 57.6% |
- Income from BPO services | 664 | 743 | 799 | 13,291 | 15,290 | 16,481 | 174.3% | 90.1% |
-Other income
(inc. insurance distribution, treasury and fee income) | 1,404 | 1,768 | 2,062 | 2,952 | 1,668 | 3,646 | 20.9% | 21.0% |
Total income | 7,975 | 11,800 | 17,305 | 36,614 | 45,781 | 53,915 | 46.1% | 46.6% |
YoY growth % | 77% | 48% | 47% | 112% | 25% | 18% | | |
Cost to Income
Ratio % | 44.3% | 40.5% | 41.5% | 61.9% | 57.2% | 56.2% | Avg.
58.4% | Avg. 51.5% |
PPOP | 4,439 | 7,019 | 10,121 | 13,950 | 19,609 | 23,610 | 32.6% | 39.7% |
YoY growth % | 109% | 58% | 44% | 38% | 41% | 20% | | |
Provisions | 1,259 | 1,717 | 1,942 | 3,396 | 5,248 | 6,369 | 48.6% | 38.3% |
Credit Cost % | 0.94% | 0.90% | 0.80% | 1.00% | 1.19% | 1.16% | Avg.
1.1% | Avg. 1.0% |
ETR % | 34.2% | 34.1% | 34.7% | 35.5% | 35.0% | 33.1% | Avg.
34.5% | Avg. 34.5% |
PAT | 2,092 | 3,495 | 5,344 | 6,810 | 9,330 | 11,532 | 29.2% | 40.7% |
YoY growth % | 104% | 67% | 53% | 27% | 37% | 24% | | |
Ratios: | | | | | | | | |
EPS (Rs.) | 2.7 | 4.4 | 6.8 | 8.7 | 11.9 | 14.7 | 29.2% | 40.7% |
BV (Rs.) | 21 | 40 | 45 | 66 | 77 | 91 | 26.3% | 34.5% |
GNPA % | 0.81% | 0.84% | 1.23% | 1.89% | 1.67% | 1.83% | | |
NNPA % | 0.42% | 0.48% | 0.73% | 0.84% | 1.12% | 1.24% | | |
RoA (%) | 1.5% | 1.8% | 2.1% | 1.9% | 2.1% | 2.0% | Avg.
2.0% | Avg. 2.0% |
RoE (%) | 12.8% | 11.2% | 15.0% | 13.1% | 15.4% | 16.1% | Avg.
14.9% | Avg. 14.2% |
Leverage (xs) | 8.4 | 6.3 | 7.1 | 6.8 | 7.5 | 7.9 | Avg.
7.4 | Avg. 7.1 |
Parameter | Commentary on historical performance |
Loan Book – CAGR | § Company has
presence in 4 key segments, where vehicle financing and LAP constitute
majority of the book (approx. 75%). Loan book has grown at a strong rate of
31% in the past 3 years (33% in 5 yrs). Company is also venturing into other
retail loans like gold loan, digital products loan, loans for appliances,
personal loans, etc. |
NII– CAGR NIMs | § NII growth has been higher than loan book growth at 33% and 42% in the last 3 and 5 years, respectively as NIMs have expanded from 4.4% in FY14 to
6.2% in FY19. NIM expansion is mainly because of change in product mix
towards vehicle financing and unsecured business loans. Share of LAP has come down from 60% in FY16 to 35%
in FY19, while share of vehicle finance and unsecured BL has increased to 62%
from 36% in FY16. |
BPO income | § Income from this
business contributed 19% to the revenue in FY19 from 2% in FY16. Growth was
higher post FY17 due to merger with HBL and ADFC. |
Parameter | Commentary on historical performance |
Cost to Income
(C/I) ratio | § CI ratio was in
line with industry peers till FY17. However, due to merger with ADFC and
HBL’s BPO business, employee count increased significantly leading to higher operating expenses. However, it has been declining since FY17,
reflecting productivity improvement. |
Credit Cost -
Avg/ Provisions | § Asset quality
has witnessed some deterioration in the recent past due to stress in the
vehicle finance business. Provisions have grown at 49% in the past 3 years
(38% in 5 yrs). However, overall GNPA remains much better than peers. |
PAT - CAGR | § PAT has grown at
a CAGR of 29% in the last 3 years (41% in 5 yrs) driven by strong loan book
growth, NIM expansion and operating efficiency. |
Return Metrics | § Return metrics have consistently shown improvement over the years with average RoA of 2.0% and RoE of 14.2% in the last 5 years. |
- Loan book composition and size – Loan book composition determines yields and size of the book helps in determining position in the industry.
- NIM – Ability to pass on interest rates, presence in high yielding segments and control on cost of funds determines NIM trajectory.
- Asset quality – Robustness of risk management policies and strong underwriting skills and exposure towards high risk segments determine asset quality.
- Return parameters – Companies with presence in high yield segments, having control on asset quality and operational efficiency have better return ratios.
Company Name (Rs. mn) | Net interest income | Loan book | PAT | ||||||
FY18 | FY19 | YoY Growth | FY18 | FY19 | YoY Growth | FY18 | FY19 | YoY Growth | |
HDB
Financial | 28,822 | 33,788 | 17% | 442,683 | 547,094 | 24% | 9,330 | 11,532 | 24% |
Bajaj
Finance | 69,716 | 97,252 | 39% | 791,030 | 1,125,130 | 42% | 24,964 | 39,950 | 60% |
L&T Finance | 44,292 | 51,052 | 15% | 853,540 | 991,210 | 16% | 12,784 | 22,320 | 75% |
Chola | 28,174 | 33,973 | 21% | 422,530 | 526,220 | 25% | 9,183 | 11,862 | 29% |
MMFS | 35,287 | 47,004 | 33% | 485,470 | 612,496 | 26% | 10,761 | 15,571 | 45% |
Shriram
transport | 68,350 | 78,976 | 16% | 961,984 | 1,023,075 | 6% | 24,603 | 25,587 | 4% |
Company Name (Rs. mn) | CI Ratio | NIM | Credit Cost | GNPA | ROA | ROE | ||||||
FY18 | FY19 | FY18 | FY19 | FY18 | FY19 | FY18 | FY19 | FY18 | FY19 | FY18 | FY19 | |
HDB
Financial | 57% | 56% | 6.5% | 6.2% | 1.2% | 1.2% | 1.7% | 1.8% | 2.1% | 2.0% | 15.4% | 16.1% |
Bajaj Finance | 40% | 35% | 8.8% | 8.6% | 1.3% | 1.3% | 1.4% | 1.5% | 2.9% | 3.2% | 15.8% | 20.3% |
L&T
Finance | 29% | 30% | 5.8% | 6.5% | 2.4% | 1.5% | 8.3% | 5.6% | 1.5% | 2.1% | 11.2% | 16.6% |
Chola | 39% | 37% | 6.7% | 6.5% | 0.8% | 0.6% | 3.1% | 2.4% | 2.1% | 2.1% | 18.0% | 19.2% |
MMFS | 40% | 38% | 7.3% | 7.7% | 1.2% | 1.0% | 10.4% | 6.6% | 2.0% | 2.3% | 11.2% | 14.3% |
Shriram
transport | 23% | 23% | 7.1% | 7.7% | 1.8% | 2.3% | 7.7% | 6.9% | 2.5% | 2.4% | 20.3% | 16.2% |
- Loan book composition and size – HDB has a well-diversified loan book with presence across LAP, vehicle finance, business loans and is now diversifying in the consumer durable space. This helps in de-risking the portfolio by avoiding portfolio concentration. In terms of loan book size, it is comparable with peers, while maintaining growth of 33% in the last 5 years.
- NIM – NIM, although appearing on the lower end when compared to peers, has shown improvement over the years due to increasing presence in high yielding retail segment.
- Asset quality – Due to linkage with its parent HDFC Bank, company has similar risk assessment capabilities and hence, asset quality is better than peers with GNPA at 1.8% in FY19.
- Return parameters – Considering its loan book growth, better asset quality and control on costs, company has been able to maintain its RoA and remains in line with peers (Bajaj Finance has higher RoA due to large retail presence).
1 | Bajaj
Finance Ltd. | 52 week High (Rs.) | 52 week Low (Rs.) | March
ending price (Rs.) | EPS (Rs.) | BV (Rs.) | P/E (xs) | P/BV (xs) | ||||
| | | | | | | High | Low | Close | High | Low | Close |
| FY15 | 448 | 167 | 410 | 15.5 | 83 | 28.9 | 10.8 | 26.5 | 5.4 | 2.0 | 4.9 |
| FY16 | 698 | 394 | 693 | 22.0 | 128 | 31.7 | 17.9 | 31.4 | 5.5 | 3.1 | 5.4 |
| FY17 | 1,205 | 677 | 1,174 | 31.7 | 155 | 38.0 | 21.4 | 37.1 | 7.8 | 4.4 | 7.6 |
| FY18 | 1,989 | 1,153 | 1,770 | 43.0 | 273 | 46.2 | 26.8 | 41.1 | 7.3 | 4.2 | 6.5 |
| FY19 | 3,035 | 1,770 | 3,025 | 68.9 | 340 | 44.1 | 25.7 | 43.9 | 8.9 | 5.2 | 8.9 |
| 5 yr Avg | | | | | | 37.8 | 20.5 | 36.0 | 7.0 | 3.8 | 6.7 |
2 | Chola | 52 week High (Rs.) | 52 week Low (Rs.) | March ending
price (Rs.) | EPS (Rs.) | BV (Rs.) | P/E (xs) | P/BV (xs) | ||||
| | | | | | | High | Low | Close | High | Low | Close |
| FY15 | 123 | 56 | 118 | 5.6 | 41 | 22.2 | 10.0 | 21.1 | 3.0 | 1.4 | 2.9 |
| FY16 | 151 | 108 | 143 | 7.3 | 47 | 20.8 | 14.9 | 19.6 | 3.2 | 2.3 | 3.1 |
| FY17 | 249 | 139 | 193 | 9.2 | 55 | 27.1 | 15.2 | 21.0 | 4.5 | 2.5 | 3.5 |
| FY18 | 302 | 193 | 290 | 11.7 | 65 | 25.7 | 16.4 | 24.7 | 4.6 | 3.0 | 4.4 |
| FY19 | 352 | 208 | 290 | 15.2 | 79 | 23.2 | 13.7 | 19.1 | 4.5 | 2.6 | 3.7 |
| 5 yr Avg | | | | | | 23.8 | 14.0 | 21.1 | 4.0 | 2.4 | 3.5 |
3 | L&T Finance | 52 week High
(Rs.) | 52 week Low
(Rs.) | March ending
price (Rs.) | EPS (Rs.) | BV (Rs.) | P/E (xs) | P/BV (xs) | ||||
| | | | | | | High | Low | Close | High | Low | Close |
| FY15 | 83 | 60 | 63 | 4.1 | 31 | 20.3 | 14.6 | 15.4 | 2.7 | 2.0 | 2.1 |
| FY16 | 75 | 48 | 64 | 4.1 | 33 | 18.2 | 11.8 | 15.5 | 2.3 | 1.5 | 1.9 |
| FY17 | 124 | 64 | 123 | 5.0 | 33 | 24.9 | 12.7 | 24.8 | 3.7 | 1.9 | 3.7 |
| FY18 | 214 | 119 | 157 | 6.1 | 55 | 34.9 | 19.5 | 25.7 | 3.9 | 2.2 | 2.9 |
| FY19 | 190 | 111 | 152 | 10.7 | 64 | 17.7 | 10.4 | 14.3 | 2.9 | 1.7 | 2.4 |
| 5 yr Avg | | | | | | 23.2 | 13.8 | 19.1 | 3.1 | 1.8 | 2.6 |
4 | Mahindra Finance | 52 week High (Rs.) | 52 week Low (Rs.) | March ending price (Rs.) | EPS
(Rs.) | BV
(Rs.) | P/E (xs) | P/BV
(xs) | ||||
| | | | | | | High | Low | Close | High | Low | Close |
| FY15 | 345 | 230 | 254 | 13.5 | 92 | 25.6 | 17.0 | 18.8 | 3.8 | 2.5 | 2.8 |
| FY16 | 294 | 173 | 243 | 10.9 | 99 | 27.0 | 15.9 | 22.3 | 3.0 | 1.8 | 2.5 |
| FY17 | 405 | 232 | 315 | 6.5 | 105 | 23.3 | 35.8 | 48.6 | 3.9 | 2.2 | 3.0 |
| FY18 | 524 | 290 | 462 | 17.4 | 156 | 30.1 | 16.7 | 26.5 | 3.4 | 1.9 | 3.0 |
| FY19 | 538 | 351 | 421 | 25.2 | 177 | 21.3 | 13.9 | 16.7 | 3.0 | 2.0 | 2.4 |
| 5 yr Avg | | | | | | 25.5 | 19.9 | 26.6 | 3.4 | 2.1 | 2.7 |
5 | Shriram Transport | 52 week High (Rs.) | 52 week Low (Rs.) | March ending
price (Rs.) | EPS
(Rs.) | BV
(Rs.) | P/E
(xs) | P/BV
(xs) | ||||
| | | | | | | High | Low | Close | High | Low | Close |
| FY15 | 1,286 | 697 | 1,114 | 54.6 | 407 | 23.6 | 12.8 | 20.4 | 3.2 | 1.7 | 2.7 |
| FY16 | 1,206 | 737 | 954 | 51.9 | 448 | 23.2 | 14.2 | 18.4 | 2.7 | 1.6 | 2.1 |
| FY17 | 1,325 | 778 | 1,078 | 55.4 | 425 | 23.9 | 14.0 | 19.4 | 3.1 | 1.8 | 2.5 |
| FY18 | 1,543 | 898 | 1,441 | 108.4 | 440 | 14.2 | 8.3 | 13.3 | 3.5 | 2.0 | 3.3 |
| FY19 | 1,671 | 904 | 1,273 | 112.8 | 607 | 14.8 | 8.0 | 11.3 | 2.8 | 1.5 | 2.1 |
| 5 yr Avg | | | | | | 20.0 | 11.5 | 16.6 | 3.0 | 1.7 | 2.6 |
HDFC Securities LIMITED
Particulars | FY19 (Rs. Mn) | % contribution |
Brokerage Income | 5,260 | 67.3% |
Fee Income | 1,262 | 16.1% |
Interest Income | 698 | 8.9% |
Net gain on fair
value changes | 497 | 6.4% |
Others | 103 | 1.3% |
Total | 7,820 | 100.0% |
- Broking Income: HDFCSEC offers broking services, both in cash equity and derivatives market segments, including the currency derivatives division.
- HDFCSEC is India’s 3rd largest broking company based on active clients (~6.5 lakh active clients as per NSE list). It is 2nd largest company based on total no of operation clients (~2.4 mn clients as per ICRA credit note) as on 31st March 2019 behind ICICI Sec, which has 4.2 mn operational clients. It earned a total of Rs. 5.2 bn from the broking business, of which 95% was from retail segment.
- HDFC Bank provides 3-in-1 facility, which links the customer’s savings account, demat account and trading account, facilitating ease of transaction. This has enabled the company to tap into the bank’s vast pool of customers and grow its client base.
- Broking business is the main contributor to the revenue with a contribution of 67% and has grown at a CAGR of 20.9% over the past 5 years. Over the last 5 years, the share of broking income to the revenue has reduced from 77.5% in FY14 to current 67.3% mainly due to higher focus on increasing distribution of 3rd party products.
- As per ICRA’s credit rating report, brokerage from retail cash segment forms 20-25% of the volumes, translating to higher yields compared to competitors.
- Fee Income from the sale of 3rd Party Products: HDFCSEC distributes 3rd party products like mutual funds, life, health and general insurance, Fixed Deposits, etc. Of the total fee income of Rs. 1.2bn generated in FY19, ~80% was from the sale of mutual funds. Company has focused on increasing income from the sale of these products, which aids in reducing the cyclicity of its revenues. Total contribution of fee income in total revenue has increased from 10.7% in FY14 to 16.1% in FY19.
- Interest Income: From FY19, company has started margin trading and has a total book size of Rs. 2.2 bn, on which it earned a total interest income of Rs. 282 mn, yielding ~12.2%. The balance amount comes from interest income on bank deposits.
- Fair Value changes on Investments: As on 31st March, 2019, the company has an investment book of Rs. 4.2 bn largely in mutual funds, towards which it earns interest and dividends. Since FY18, as per Ind-AS regulations, the company has been recording both realized gains/loss as well as fair value changes of the investment book. This segment is expected to remain lumpy as it is linked to the capital markets.
Management Team | Designation | With HDFC Securities since | Brief Profile and Prior Experience | Qualification |
Mr. Bharat Shah | Chairman | 2014 | - Mr. Bharat Shah is one of the founding members of HDFC
Bank and has been with the group since Inception handling multiple roles. - Having retired as an executive director and an
advisor to HDFC Bank. He also serves on multiple boards like 3M India, Exide
Industries, Hexaware Technology Ltd. | - B. Sc from Mumbai University - Higher National Diploma in Applied Chemistry
from London University. |
Mr.Dhiraj Relli | Managing Director & CEO | 2015 | - Mr. Dhiraj Relli is the MD of HDFCSEC since 2015. Prior to the current assignment, he was with HDFC bank for more than 5 years as its
Branch banking head. - He has a total experience over nearly 2 decades
and has been with HDFC group for over a decade. He is a Charted Accountant
from ICAI | - Chartered Accountant - ACA, Advanced Mgmt. Prog. (IIM Bengaluru) |
Mr.Siddharth
Shah | Head -Branch Dealing | 2010 | - Mr. Siddharth Shah has a total experience of over
2 decades in the financial industry space. - He heads branch dealing in HDFCSEC. Prior to the current assignment he was employed
with HDFC Bank, where he started his career. | - B Com. from University of Mumbai |
Mr. C. V. Ganesh | Chief Operating Officer | 2008 | - Mr. C V Ganesh is the COO and has been employed
with the company for over a decade. - Prior to the current assignment
he was employed with Citi Technology Services Ltd. | - Chartered Accountant - Cost and Works Accountant |
- Strong parentage and Brand Equity– HDFC Bank holds 97.3% stake in HDFCSEC and is an important subsidiary of the bank as it complements the bank’s offering for services related to capital markets for its customers. HDFCSEC thus benefits from being the bank’s subsidiary in the following ways:
- Strong Brand Equity of the HDFC group and benefitting from the credibility associated with the brand.
- Access to well-spread retail franchise and nationwide branch infrastructure of the parent.
- Benefit from strong operational and managerial integration with HDFC Bank.
- Excellent Track record with strong growth– Over the past 5 years, the company has grown at a healthy pace. Revenues and EBITDA have grown at a CAGR of 24.3% and 32.1%, respectively. EBITDA margins have expanded from 48.5% in FY14 to 65.7% in FY19, mainly due to the benefits of operating leverage, low cost operating structure and retail focus on the company. In the same period, company has grown its PAT by 33.3%. This demonstrates the company’s ability to grow at a healthy pace despite consistent investments in technology and personnel indicating strong business model.
- Healthy Balance Sheet and Debt Free status–: Current Net worth of the company stands at Rs. 11.9 bn and has grown by 22% CAGR over the past 5 years. Total balance sheet size stands at Rs. 20.3 bn, of which ~50% is comprised of cash & current investments. Company has maintained its debt-free status over the years, which reduces the financial risk of the company.
- Significant sector opportunities- As per the data from AMFI, penetration of equity investment in India stands at ~2.5% vs 30%+ in the developed market. As the disposable income in the hands of Indian population increases, so will the need for investment avenues. Thus, there exists strong growth opportunity for the players in Indian capital market.
- Asset light business model with healthy return ratios– Due to the asset light nature of business model, company has been delivering healthy return ratios. Return ratios have improved due to operating leverage over the past 5 years. ROE has increased from 17.7% in FY14 to 27.6% in FY19 while ROA improved from 8.1% to 16.2% in the same period. This is despite ~50% cash and investment on the balance sheet.
- High Capital Market link exposes the company to cyclicity: 67% of the revenue in FY19 came from broking activities, while 16% came from distribution income. Both these sources of income are heavily reliant on the performance of the capital market. Cyclicity also has a margin impact as during the weak capital markets, transaction volume in the market tends to shift from high yielding cash segment to low yielding F&O segment.
- Loss of Market share due to rise of discount brokers: Over the past 3-4 years, discount brokers like Zerodha, Samco securities, 5paisa, etc. have shown strong client additions. Thus, market share is shifting from private bank owned brokers to discount brokers. This presents companies like HDFC Sec, ICICI Sec, etc. with added challenge of capturing incremental market growth. However, due to association with parent company and access to retail client base, we expect both the companies to do well.
- Increased competitive intensity putting pressure on revenue yields: Emergence of discount broker has put pricing pressure on the market. Pricing based on ‘per transaction’ vs the traditional pricing based on ‘quantity traded’ has lowered the total revenue yield of full-service brokers.
Consolidated (Rs. mn) | FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | 3yr CAGR
(FY16-19) | 5yr CAGR
(FY14-19) |
Net Revenues | 2,631 | 4,170 | 4,016 | 5,532 | 8,000 | 7,820 | 24.9% | 24.3% |
YoY | | 58.5% | -3.7% | 37.7% | 44.6% | -2.3% | | |
EBITDA | 1,276 | 2,584 | 2,066 | 3,303 | 5,397 | 5,136 | 35.5% | 32.1% |
YoY | | 102.5% | -20.0% | 59.9% | 63.4% | -4.8% | | |
EBITDA margins | 48.5% | 62.0% | 51.4% | 59.7% | 67.5% | 65.7% | Avg-64.3% | Avg-61.3% |
Reported PAT | 784 | 1,650 | 1,333 | 2,159 | 3,447 | 3,298 | 35.2% | 33.3% |
YoY | | 110.3% | -19.2% | 61.9% | 59.7% | -4.3% | | |
PAT margins | 29.8% | 39.6% | 33.2% | 39.0% | 43.1% | 42.2% | Avg-41.4% | Avg-39.4% |
BALANCE SHEET | FY14 | FY15 | FY16 | FY17 | FY18 | FY19 | 3yr CAGR
(FY16-19) | 5yr CAGR
(FY14-19) |
Net worth | 4,422 | 5,700 | 6,660 | 8,074 | 10,369 | 11,938 | 21.5% | 22.0% |
Debt
Funds | - | - | - | - | - | - | | |
Cash and Bank
balances | 3,487 | 3,163 | 3,794 | 5,860 | 3,564 | 5,853 | 15.6% | 10.9% |
Total | 9,726 | 11,916 | 14,230 | 18,609 | 16,834 | 20,372 | 12.7% | 15.9% |
RATIOS: | | | | | | | | |
Debt: Equity | - | - | - | - | - | - | - | - |
ROE (%) | 17.7% | 28.9% | 20.0% | 26.7% | 33.2% | 27.6% | Avg-29.2% | Avg-27.3% |
ROA (%) | 8.1% | 13.8% | 9.4% | 11.6% | 20.5% | 16.2% | 16.1% | 14.3% |
P/E (-xs) | N.A | N.A | N.A | N.A | N.A | 32.0 | | |
EPS (Rs.) | 50.2 | 105.7 | 85.4 | 138.3 | 220.8 | 211.2 | 35.2% | 33.3% |
BVPS (Rs.) | 283.2 | 365.0 | 426.6 | 517.1 | 664.1 | 764.6 | 21.5% | 22.0% |
P/BV (-xs) | N.A | N.A | N.A | N.A | N.A | 8.8 | N.A | N.A |
Dividend payout
- as % of PAT | 22% | 33% | 28% | 35% | 35% | 36% | Avg-35.2% | Avg-33.3% |
Parameter | Commentary on historical performance |
Revenue | § HDFCSEC has shown strong revenue growth of ~25% CAGR, over the past 3 and 5 years, respectively. Over the past 5 years, income from brokerage increased by 20.9%, while fee income from distribution grew by 34.9%, albeit on a lower based. This has
resulted in the change in the revenue mix between brokerage and fee income
from 78:10 to 67:16. Impressive revenue growth was aided by favorable capital
markets in FY17 and FY18, where the revenue growth was in excess of 35%. |
EBITDA Margins | § Company has been
consistently improving its margins over the past 5 years, from 48.5% in FY14
to 65.7% in FY19. This is mainly due to the benefits of operating leverage.
As majority of the company’s customers are also bank customers, the cost of customer acquisition for the company is very low compared to non-bank peers, which is reflected in the higher margins. |
PAT | § Healthy revenue growth and consistently improving margins have translated to strong PAT growth. PAT has grown by 33.3% CAGR to Rs. 3.3 bn in
FY19. PAT margins have also shown an improvement from 29.8% in FY14 to 42.2%, currently. |
Leverage | § Company is debt
free and has remained so over the past 5 years. The company is cash rich with
cash and investments forming ~50% of the balance sheet. Hence, the company has enough liquid assets to fund its business investments,
without relying on external leverage. |
Return Metrics | § Despite high
cash and investments on the balance sheet, the return ratios have remained
healthy over the past 5 years. ROE has averaged 27% over the past 5 years,
while ROA has averaged 14.3% in the same period. |
Particulars (Rs. Mn) | HDFCSEC | ICICI SEC | Emkay |
Revenue | 7,820 | 17,057 | 1,479 |
3-year CAGR | 24.9% | 15.5% | 12.8% |
5-year CAGR | 24.3% | 16.0% | 12.6% |
EBITDA | 5,136 | 8,145 | 270 |
EBITDA Margins | 65.7% | 47.8% | 18.2% |
3-year CAGR | 35.5% | 25.1% | 4.3% |
5-year CAGR | 32.1% | 35.2% | 31.3% |
PAT | 3,298 | 4,907 | 179 |
3-year CAGR | 35.2% | 27.2% | 2.5% |
Particulars (Rs. Mn) | HDFCSEC | ICICI SEC | Emkay |
5-year CAGR | 33.3% | 40.1% | -244.8% |
% income from
Brokerage | 67.3% | 54.8% | 75.9% |
Ratios FY19 | | | |
EPS (Rs. ) | 211.2 | 15.2 | 5.9 |
BV (Rs. ) | 765 | 32 | 69 |
ROE (%) | 27.6% | 48.1% | 10.5% |
ROA (%) | 16.2% | 10.5% | 10.5% |
D/E | - | 0.4 | 0.1 |
- Broking income: All the 3 companies have ‘income from broking’ as their major revenue source. Among the peers, ICICISEC has lowest proportion of income from broking as it includes investment banking division in the company contributing significantly to the company’s fee income. Emkay has highest broking contribution at ~76%, while HDFCSEC has ~67% contribution.
- Revenue and market position: Among the 3 companies, HDFCSEC has posted highest revenue growth over the past 3 and 5 years at ~25%, followed by ICICISEC and Emkay. ICICISEC is the largest player in the broking business (8.5% market share) based on total operational clients, while HDFCSEC stands at 2nd position.
- Margins: HDFCSEC has the best margins among the three with +60% EBITDA Margins. ICICISEC also has high margins at ~45% levels, while Emkay has sub 20% margins.
- Leveraging: HDFCSEC is debt free, while ICICISEC has debt of ~Rs. 4,000 mn on its balance sheet. Its D:E thus stands at 0.4. Emkay has very low debt on its books with D:E of 0.1.
- Return Ratios: Both HDFCSEC and ICICI Sec have high ROA of 16.2% and 10.5%, respectively in FY19 despite high cash and investments on their book. Emkay has lower return ratios due to subdued profitability in FY19.
Year | 52 Week High (Rs.) | 52 Week Low (Rs.) | Closing Price (Rs.) | EPS (Rs.) | P/E High | P/E Low | P/E Close | BV (Rs.) | P/B High | P/B Low | P/B Close |
Valuations
at CMP | 333 | 188 | 232 | 15.2 | 21.9 | 12.3 | 15.2 | 44.8 | 7.4 | 4.2 | 5.2 |
FY19 | 462 | 188 | 242 | 15.2 | 30.3 | 12.3 | 15.9 | 31.7 | 14.6 | 5.9 | 7.6 |
Year | 52 Week High (Rs.) | 52 Week Low (Rs.) | Close Market Price (Rs.) | EPS (Rs.) | P/E High | P/E Low | P/E | BV (Rs.) | P/B High | P/B Low | P/B Close |
Valuations
at CMP | 855 | 480 | 596 | 20.1 | 42.5 | 23.8 | 29.6 | 227.9 | 3.8 | 2.1 | 2.6 |
FY19 | 1,066 | 549 | 602 | 20.1 | 52.9 | 27.3 | 29.9 | 208.9 | 5.1 | 2.6 | 2.9 |
FY18 | 1,585 | 734 | 1,005 | 40.1 | 39.5 | 18.3 | 25.0 | 197.9 | 8.0 | 3.7 | 5.1 |
FY17 | 749 | 274 | 728 | 26.0 | 28.8 | 10.5 | 28.0 | 122.3 | 6.1 | 2.2 | 6.0 |
FY16 | 364 | 238 | 272 | 11.6 | 31.4 | 20.6 | 23.5 | 98.4 | 3.7 | 2.4 | 2.8 |
FY15 | 341 | 91 | 285 | 9.8 | 34.7 | 9.2 | 29.0 | 88.7 | 3.8 | 1.0 | 3.2 |
FY14 | 100 | 68 | 92 | 2.7 | 36.9 | 25.1 | 33.9 | 80.2 | 1.2 | 0.8 | 1.1 |
- Access to HDFC Bank’s customer.
- Strategic importance to parent operations.
- debt free balance sheet with high cash and investments
- Sustained high PAT growth supported by high revenue growth and consistent improvement in margins. Focus on increasing fee income to lower the business cyclicity.
- Parental support in case of any funding requirement.
Reliance Retail
- Integrating Value Chain – Connecting Suppliers, small and large, to B2B and B2C customers through pan-India ecosystem.
- Digitisation – Connecting Physical and digital spaces, with endless kiosks and multiple payment modes with real-time analytical support.
- Bridging Urban-Rural divide – Bringing quality products at affordable prices to smaller tier cities, meeting demand gap and offering employment.
Parameters | Performance
as on Performance as on | Performance
of Q2 ending 30th Sept, 2019 | Performance
of Q3 ending 31th December, 2019 |
Retail
Store Network | 10,415 | 10,901 | 11,316 |
Retail
Space Coverage | 22
million sqft | 24.5
million sqft | 26
million sqft |
Addition
of new Stores | 2,829 | 337 | 456 |
Customers
served | 1
Lakh per hour | - | - |
Television
Set Sold | 1
in every 24 seconds | - | - |
Phones
sold | 1
in every 2 seconds | - | - |
Groceries
sold | 6.4
lakh tonnes | - | - |
Garments
sold | 4
lakh per day | - | - |
- Reliance Fresh
- Reliance Smart
- Reliance Jewels
- Reliance Footprint
- AJIO
- Reliance Market
- Reliance Digital
- Reliance ResQ
- Reliance Trends
- Project Eye
- Georgio Armani
- Marks & Spencer
- Mothercare
- Paul Smith
- Hamleys
- Satya Paul
- Michael Kors
- Steve Madden etc
Company
Name | No.
Of Subscribers |
Reliance
Jio Infocomm | 38.8
Crores |
Facebook | 32.8
Crores |
WhatsApp | 40
Crores |
Instagram | 6.9
Crores |
- Reliance Retail Ventures Limited has a shareholding of 99.5% in Reliance Retail limited.
- India’s largest and fastest growing retailer with 11,316 retail stores across the across the country as on Q3 ending 31st Dec’19.
- CRISIL as on June, 2019 has rated its long term instruments of ₹ 250 crore Proposed Fund-Based Bank limits and ₹ 2,750 crore Fund Based Facilities to CRISIL AAA and has a stable outlook on its instruments.
- CRISIL has also reaffirmed its rating of CRISIL A1+ to its ₹ 20,000 crore worth of commercial paper.
- It is virtually a debt free company with zero long term borrowings as of FY2018.
- The retail stores have witnessed over 176 million footfalls for Q3 ending 31st Dec’19 which has increased by 26.60% year on year.
- The Revenue has seen a 7 fold increase and the Profit has witnessed a 14 fold increase in the past 6 years.
- The Total Revenue of Q3 of FY2019-20 is at ₹ 45,327 crore which has grown at 27.40% year on year.
- The Net Profit (PAT) of Q3 of FY2019-20 stood at ₹ 1,757 crore which has increased by 102.40% year on year.
- The PBDIT for Q3 of FY2019-20 has grown at 62.30% year on year to ₹ 2,727 crore from ₹ 1,680 crore.
Metrics | 2016-17 | 2017-18 | 2018-19 | Q2
ending 30th Sept'19 | Q3
ending 31st Dec'19 | 2019-20
Extrapolated | 3
Year CAGR |
Net
Worth | 6,819.57 | 9,066.46 | 12,587.41 | 12587.41** | 12,587.41** | 16,363.63 | 35.86% |
Total
Assets | 11,672.42 | 24,084.41 | 34,377.55 | 39,250.00 | 39,250.00** | 48,128.57 | 71.62% |
Total
Revenue | 26,473.13 | 51,501.73 | 1,01,946.52 | 41,202.00 | 45,327.00 | 1,52,919.78 | 96.24% |
PAT | 442.6 | 1,243.14 | 3,138.26 | 1,148.00 | 1,757.00 | 4,079.74 | 166.28% |
Basic
EPS (in ₹ per share) | 0.83 | 2.34 | 6.29 | 2.3 | 3.52 | 8.18 | 175.28% |
Diluted
EPS (in ₹ per share) | 0.83 | 2.29 | 6.29 | 2.3 | 3.52 | 8.18 | 175.28% |
Metrics | 2017-18 | 2018-19 | 2019-20
Extrapolated |
Market
Capitalization | - | 3,24,320.10 | - |
Promoter
Shareholding (%) | 99.95% | 99.95% | 99.95% |
Net
Worth | 9,066.46 | 12,587.41 | 16,363.63 |
Total
Revenue | 51,501.73 | 1,01,946.52 | 1,52,919.78 |
Earnings
per share (in ₹ per share) | 2.29 | 6.29 | 8.18 |
Return
On Equity (ROE) (in %) | 13.71% | 24.93% | - |
EBIT
Margin (in %) | 3.00% | 4.20% | - |
PBT
Margin (in %) | 3.64% | 4.73% | - |
PAT
Margin (in %) | 2.41% | 3.08% | - |
Market
Cap./Sales ratio | - | 3.18 | - |
Forward
Market Cap./Sales ratio | - | - | 2.12 |
Face
Value per share (in ₹ per share) | 10/- | 10/- | 10/- |
Religare Health
Religare Health Insurance Company Limited (RHICL), the health insurance arm of Religare Enterprises Limited (REL), commenced business in July 2012. It has made significant progress within a short span of time, and is already operating out of 122 offices with employee strength of 5000+. It currently has three major shareholders – Religare Enterprises Limited (REL), Union Bank of India and Corporation Bank, with REL having 82.90% share in it.
Name | Shareholding (in %) |
Religare Enterprises Ltd. | 82.90% |
Kedaara Capital Fund II LLP | 6.76% |
Union Bankof India | 3.91% |
Corporation Bank | 3.55% |
- Indian health insurance market is a growing market and has a registered a market size of ₹50,891 Crores in FY 18-19, up by 18.3% from last year.
- Out of all health insurance service providers in India, that is Public Sector Institutions, Private Institutions and Stand-alone insurers, Public Sector institutions have the lion’s share having 53% of the market share and Private and Stand-alone insurers stand at par with each other with respect to market share. In terms of retail policies, Stand Alone Health Insurance Companies (SAHI) have the biggest share of 44%, RHICL is a SAHI and ranks number 6 overall and number 3 in Gross Direct Premium.
- The health insurance industry is at an embryonic stage, with roughly 25% of the population under its coverage. There exists a huge potential for growth and penetration of health insurance to a larger population. The overall Insurance industry in India is expected to reach $ 280 billion by 2020, driven by increasing awareness, innovative products and more distribution channels.
- Insurance reach is still low in India. Overall insurance penetration (premiums as a % of GDP) in India was 3.69% in 2017, providing a huge underserved market. In September 2018, National Health Protection Scheme was launched under Ayushman Bharat to provide coverage of up to ₹500,000 (US$ 7,723) to more than 100 million vulnerable families. The scheme is expected to increase penetration of health insurance in India from 34 per cent to 50 per cent.
- The company is highly customer centric with a low grievance rate of two complaints per 10,000 policies and has a claim settlement ratio of 93%. The Combined Ratio* of the company stands at 97%, establishes the fact that RHICL is profitable.
- It is servicing over 700 locations across country with a network of 110 plus branches and 9,450 plus hospitals. It has a product bouquet of 18 products encompassing group, travel, fixed benefit and indemnity categories to serve varied customer needs.
- RHICL has won various awards like – ‘Best Claims Service Provider of the Year’, ‘Bancassurance Leader of the Year 2018’ by Insurance India Summit & Awards 2018, ‘India’s Most Preferred Travel Insurance’ by IMP Travel Brand Awards 2018, etc.
- The Premium from Direct Business Written grew at 5 year CAGR of 60.40%, from ₹ 275.80 crores in FY 2014-15 to ₹ 1,825.57 crores in FY 2018-19.
- The Premium from Direct Business Written grew at 47.76%, from ₹ 769.07 crores as on 30th September, 2019 to ₹ 1,136.41 crores as on 30th September, 2020.
- RHICL turned around from a Loss of ₹ 16.25 crores in FY 2017-18 to a PAT of ₹ 56.92 crores in FY 2018-19.
- RHICL, for the first time has a PAT of ₹ 30.03 crores as on 30th September, 2020.
Metrics | 2014-15 | 2015-16 | 2016-17 | 2017-18 | 2018-19 | HY 1 2020 | 2019-2020* |
Net Worth | 350 | 475.07 | 524.75 | 594.18 | 700.88 | 742.47 | 981.23 |
Total Asset | 350 | 475.07 | 524.75 | 594.18 | 700.88 | 742.47 | 981.23 |
Premium from direct business written | 275.8 | 503.32 | 726.07 | 1,091.61 | 1,825.57 | 1,136.41 | 2,555.80 |
PAT | -99.26 | -78.84 | 2.15 | -16.25 | 56.92 | 30.03 | 79.69 |
Basic EPS (in ₹ per share) | -2.84 | -1.66 | 0.04 | -0.27 | 0.83 | 0.43 | 1.16 |
Premium per share | 7.88 | 10.59 | 13.84 | 18.35 | 26.51 | 16.31 | - |
Metrics | 2014-15 | 2015-16 | 2016-17 | 2017-18 | 2018-19 | 5 Year CAGR |
Investments | 304.96 | 453.29 | 606.81 | 927.92 | 1301.66 | 43.74% |
Fixed-Assets | 32.86 | 38.74 | 45.68 | 45.91 | 56.41 | 14.46% |
Metrics | FY 2019 | HY1 2020 |
Market Capitalization | - | 4,041.64 |
Net worth | 700.88 | 981.23 |
Book Value Per Share (in ₹) | 10.18 | 14.08 |
P/B | - | 4.12 |
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