This is the 11th post in our quarterly result update series for Q1FY21.
In this post, we’re sharing the latest updates of the stocks from our watchlist. Please don’t treat this as a buy recommendation. We find these businesses interesting and we may build position (or buy more of those that are already in our portfolio) in them in the future. The purpose of this post is to bring clarity to our understanding of the businesses we are tracking. We make our notes on the quarterly results and conference calls. Putting it up here makes it easier for us to refer them at a future date.
You can see the earlier updates here.
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Please click on the read more button for more details on each stock.
Bandhan Bank
Bandhan Bank has aggressively grown its business over the last few years. The company had a decent quarter with god YoY growth in deposits and loans. Management is confident that the business would come back to normalcy by September. The company is seeing good traction in mortgage and NBFC businesses. It is also confident of leveraging its existing customer set effectively to maintain its growth rate and mitigate the fall in new customer acquisition from COVID-19. There are still a lot of uncertainties due to external events and the internal structure of the business is putting pressure on the stock price. It remains to be seen how the story plays out in the medium term and whether things will come back to normalcy as reported by the management when the moratorium period ends. Nonetheless, given its consistent growth momentum in recent years and its rapidly expanding customer set, Bandhan Bank remains an interesting company to keep track of the microfinance and small finance banking industry in India.
Equitas Holdings
Equitas Holdings has been one of the important players in the MFI industry in India. The company has successfully formed its own SFB which is expected to get listed in the near future and they have already released the DRHP for it. The company has done well to maintain its deposit and loan book growth despite challenges arising from COVID-19 and not expanding its branch network in the current period. The company is doing well to maintain a high customer acquisition rate through the digital medium and to have successfully implemented video KYC. Dependence on Tamil Nadu remains a big risk for the company as any adverse event in the region may drastically affect the company’s performance. It remains to be seen how the company will be affected when the moratorium closes and what kind of collections it can achieve. Nonetheless, given the company’s history of consistent performance and the highly anticipated IPO of its SFB, Equitas Holdings remains a good stock to watch out for in the Microfinance and Small Finance Banking market.
KNR Constructions
KNR has been one of the top performers in the construction industry. Despite the industry headwinds and the general plight of the companies in this sector due to delay in payments from NHAI, KNR has been able to continue to improve its margins substantially. The company has been able to weather the severe issues regarding land acquisition and labour crisis which it met earlier this year. The management expects labour to start coming back after monsoons but it remains to be seen whether the company to get back to normal operating levels at its prescribed time. The company has done well to win crucial irrigation projects in Q1 and reduce dependence on highway projects. It remains to be seen how the industry will fare going forward and how long will it take for the Govt’s push in infrastructure to gain proper momentum. Nonetheless, given its strong balance sheet, good operational history, and resilient order book, KNR Constructions remains a pivotal construction sector stock to watch out for.
Ujjivan SFB
Ujjivan Small Finance Bank has been one of the top players in the SFB industry. It is the biggest and most diversified company in this sector in terms of geographical reach. The company has done well to maintain deposit growth in Q1. It has also seen encouraging results in its digital acquisition efforts. The company has indeed seen low collection efficiency as compared to its peers due to the high proportion of the book in the moratorium. The bank is doing well in keeping track of its customer base and keeping in touch with them and collecting relevant survey data to identify which segments of its customer set have been affected the most from COVID-19. It is encouraging that the bank is now looking to focus on transforming its operations to a more contactless mechanism using digital techniques and concentrating on repeat business from customers with a good operational and repayment history all the while deploying its excess workforce into new product segments. It remains to be seen what is the exact extent that the MFI sector has been damaged by COVID-19 and how the industry will fare once the moratorium ends in September. Nonetheless, given the bank’s industry position, its wide geographical reach, and its rising digital transactions, Ujjivan Small Finance Bank is a pivotal Small Finance Bank stock to watch for, particularly given its current valuation of just above 2 times book value.
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