07 October 2014

Lakshmi Vilas Bank - Beginning of a New Inning :: Edelweiss, PDF link

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We met Mr. Rakesh Sharma, MD and CEO, Lakshmi Vilas Banka Limited (LVB) to understand the strategy of new management to steer bank towards strong profitable growth. Please find below the key takeaways from our discussion.
New management team in place
Mr. Rakesh Sharma has joined the company in March 2014. Prior to joining LVB, Mr. Sharma has worked for 33 years at State Bank of India. His last assignment at State Bank of India was of Chief General Manager for Patna circle, comprising two states of Bihar and Jharkhand. Post joining LVB, Mr. Sharma has started building team by hiring people from leading private sector banks. In addition, the corporate office has been shifted from Karur to Chennai. This will help attracting talent. The bank currently has 30% employees on contract basis. This ratio is expected to increase going forward. The management team is also focusing on building professional culture at the bank. We think that these are steps in right direction but will take time. In addition, E&Y has been hired as consultant for transformation of bank.
Shift in focus towards retail and SME segment
Currently, retail and SME segment constitute 72% of total advances and balance 28% is large corporate advances. Going forward, the focus will be to grow retail and SME book. Over the next 5 years, the bank targets to change the mix of retail and SME segment from 72% currently to 80% of total advances. The bank has minimal presence in the auto financing segment. For the same, bank is tying up with lading vehicle manufacturers.
Focus in increasing CASA ratio
The bank currently has CASA ratio of 15.45% which is low compared to peers. Currently 80% of deposits are retail term deposits. This has led to higher cost of deposit. Currently 85% of deposits are in 1 year bucket. The bank is incentivizing depositors for longer duration deposits by offering higher rate for longer term. The bank has launched schemes like 1% higher interest rate on deposits above INR 1 lakh. It is expected that the higher accretion of deposit will compensate for increase in interest rate offered. The bank targets to increase CASA ratio by 2% every year.
Focus on asset quality
As on Q1FY15, the bank has gross NPA of 3.96% and net NPA of 3.19%. In addition, the restructured assets as % gross assets are 7.62%. Wholesale segment contributes significantly to gross NPA. Currently, around 50% of non fund based SME advances is towards wood and wood product industry. The bank is making changes in the credit appraisal process to improve the asset quality. As a policy, only collateralized loan against immovable property will be given to SME segment. Advances will be given only to rated accounts. In addition, there will be cap of around INR 50-60 crores at single borrower level. During FY14, the NPA of provision of INR 87 crore pertains to previous year. The bank targets to bring gross NPA ratio sub 3% in couple of years.
Improved capital adequacy ratio
The bank recently concluded rights issue of INR 410 crores. This led to improvement in the capital adequacy ratio. The bank currently has capital adequacy ratio of 14.6% with Tier I and Tier II capital of 11.8% and 2.8% respectively.
Expansion plans on track
During FY14, the bank opened 72 branches (mainly during Q4FY14). It is expected to open similar no. of branches in the current year. Most of the new branches will towards increasing penetration in the states where the bank already has presence. The bank currently has 8 regional offices and is expected to increase the same to 12. The bank has appointed Chief Business officer to focus on HNI segment. The bank targets to grow the advances book at 20% per annum.

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Cholamandalam Investment - Tailwinds Ahead :: Edelweiss, PDF link

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We met Mr. Vellayan Subbiah, MD, Cholamandalam Investment and Finance Ltd. (CFL). Please find below the key takeaways from our discussion.
Recovery sometime away
Post the change in the government at the centre, there has been change in the sentiment but the actual recover at sometime away. Without commenting on the exact timeline of recovery, the company do not see pick-up in demand in short term. Utilization will depend on production side of economy not the consumption side. For the demand to pick up, the manufacturing sector has to pick up.
Asset quality to stabilize in coming quarters
The volume of repossessed vehicle has peaked out in Q4FY14. Pricing levels in case of repossessed vehicles not picked up yet. The pace of asset quality deterioration is slowing down. The accretion to higher level NPA buckets is coming down. In addition, as a strategy the company is not focusing on gaining market share. The focus is on quality of growth.
NIM’ expected to improve
The rise in NPA is recent quarters led to interest income reversal. This led to pressure in NIM’s. The improvement is asset quality will have positive impact on NIM’s. Currently bulk of customers is buying in second hand vehicle market due to pricing pressure in repossessed market. Repossessed vehicles yield is higher than new vehicles. In addition, the securitization will help in maintaining the margins. 
Home equity business doing well
Currently home equity segment constitutes 25.7% of the loan book. In this segment around 85% of the loans are given to self employed individuals against self occupied residential property. The company provides loan to value of 50-52% and that too on distress sale valuation. The company is not seeing any asset quality pressure in this segment. Currently these loans are disbursed through around 67 branches (total 540 branches). In addition, MSME and home loan are disbursed through ~20 branches only.



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Investor Categorywise Turnover - 07 Oct 14

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FII / FPI trading activity on BSE, NSE & MCX-SX in Capital Market Segment Cr. )
CategoryDateBuy ValueSale ValueNet Value
FII/FPI07/10/20145,056.615,389.45-332.84


DII trading activity on BSE, NSE & MCX-SX in Capital Market Segment Cr. )
CategoryDateBuy ValueSale ValueNet Value
DII07/10/20141,814.901,487.25327.65


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BSE, Bulk deals, 01/10/2014

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Deal DateScrip CodeScrip NameClient NameDeal Type *QuantityPrice **
01/10/20145324047TECDIPAK KANAYALAL SHAHB75,00015.28
01/10/2014532919ACIASIARUKMANI SALES PRIVATE LIMITEDB7,121,984.26
01/10/2014532919ACIASIARAPID CREDIT & HOLDINGS PRIVATE LIMITEDS10,000,000.27
01/10/2014532919ACIASIAPRADIP KUMAR SHAHB6,010,769.27
01/10/2014532056ADIEXREAVANI DHAREN SAVLAB39,30015.75
01/10/2014532056ADIEXREMEGHNABEN KUMARBHAI MEHTAS39,29015.75
01/10/2014511144ASYAINFOSTOCKWATCH SECURITIES PVT LTDS45,00020.13
01/10/2014511144ASYAINFOJIGNESH HASMUKHLAL SHAHB35,48220.1
01/10/2014523850AXTELNISHA SABHARWALS56,28213.75
01/10/2014523850AXTELHARDEEPSINGH BUBBERB61,00213.65
01/10/2014534731BITLTOUCHWIN COMMERCIAL PRIVATE LIMITEDS104,00022.67
01/10/2014530881CENPORTSANICHETTY MUNI VENKATESHB51,70128.33
01/10/2014530881CENPORTSRINIVAS RAO PABBATHIS41,00028.05
01/10/2014538684ENCASHGUINESS SECURITIES LIMITEDS39,00048.83
01/10/2014538684ENCASHSATYAM SECURITIES AND FINANCE PRIVATE LIMITEDB27,00047.84
01/10/2014511682IFLPROMOTVISHAL BALASO KASHIDB302,0004.9
01/10/2014512253MEUSEKARAYUVRAJ JIVANAND OLES45,2129.5
01/10/2014511766MUTHTFNMANOJ VARGHESES85,000245.25
01/10/2014538668NAYSAAALACRITY SECURITIES LIMITEDS24,00016.37
01/10/2014512217PRISMMEDIRAJESH SHANKAR AYAREB10,10020.49
01/10/2014507652RATNAMAGRORUSHABH SURFIN CHEMICALS PRIVATE LIMITEDS89,0505.98
01/10/2014507652RATNAMAGRODARSHAN JAMNADAS PATELB58,5005.98
01/10/2014520073RAUNAQAUANGEET SURIB105,41316.35
01/10/2014520073RAUNAQAUANIL SURIS106,00016.32
01/10/2014531898SANGUISURENDRA KUMAR B AGARWAL HUFS900,000.61
01/10/2014512529SEQUENTGOLDMAN SACHS INDIA FUND LTDB288,626481.05
01/10/2014512529SEQUENTMERRILL LYNCH CAPITAL MARKETS ESPANA SA SVS362,642484.18
01/10/2014538685SHEMAROOHDFC MUTUAL FUNDB250,000174.6
01/10/2014526075VINRKLBSHIPRA FABRICS PVT LTDB48,90017
01/10/2014526075VINRKLBKANCHAN BAI JAINS40,00017

* B - Buy, S - Sell 
** = Weighted Average Trade Price / Trade Price 


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NSE, Bulk deals, 07-10-2014

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Data for 07-10-2014

SymbolSecurity NameClient NameBuy /
Sell
Quantity
Traded
Trade
Price


BGLOBALBharatiya Global Info LtdGROWTH CAPITALSELL1,45,8883.35-

BGLOBALBharatiya Global Info LtdSHAH HASMUKH GORDHANDASBUY1,15,3933.35-


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IT - Growth Momentum to Continue; Q2FY15 Result Preview: Edelweiss PDF link

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We expect Q2FY15 to extend the growth momentum seen in Q1FY15, riding improving visibility in the US markets and higher off-shoring from Europe. This, coupled with a seasonally strong quarter, induces us to forecast sequential growth of 3.0-7.2% for the top-4 IT players - Tata Consultancy Services (TCS), Infosys, Wipro and HCL Technologies (HCLT) - in Q2FY15. TCS is expected to lead the pack with ~7.2% QoQ growth (4.5% organic plus 2.7% from consolidation of IT Frontier Corporation). HCLT is likely to post 3.6% growth, while Infosys and Wipro are likely to clock 3.0% growth each. We expect Infosys to maintain its annual revenue guidance of 7-9%. Investors will keenly track Infosys’s commentary regarding changes in its strategy going ahead under the new CEO, Dr. Vishal Sikka. As for sector commentaries on demand outlook for the year, deal pipeline, discretionary spend particularly on consulting side remain key monitorables.
Q2FY15: Growth momentum to sustain
While Q1FY15 set the tone for a better FY15 than FY14, Q2FY15 (a seasonally strong quarter) is likely to witness the growth momentum to continue backed by improving visibility in the US and higher off-shoring from Europe. For the top-4 IT players, we have built in 3.0-7.2% growth. TCS is likely to grow 7.2% QoQ (4.5% organic plus 2.7% from consolidation of IT Frontier Corporation), driven by broad-based growth across verticals (unlike Q1FY15 where growth was driven by smaller verticals). HCLT is likely to maintain its growth momentum and grow 3.6% QoQ with IMS and BPO being the growth drivers. Infosys and Wipro are likely to post 3.0% growth each owing to seasonally strong quarter and ramp up of the deals won earlier. Tech Mahindra (TECHM) is expected to grow 3.6% QoQ.
Wage hikes to singe margins
EBITDA margins of the top-4 IT companies (except Infosys) are likely to decline by 30-80bps impacted by wage hikes (HCLT and Wipro), while consolidation of IT Frontier Corporation will impact TCS’ margin (60bps). Wage hikes are likely to mar Wipro’s and HCLT’s EBITDA margin by 80bps and 30bps, respectively. Infosys’s margins are likely to improve by 150bps as it ramps up deals won earlier thereby improving operational metrics.  Commentary by players on margin trajectory and levers available, particularly in wake of the stable currency scenario, will be keenly monitored by investors.


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