This is the 12th post in our quarterly result update series for Q2FY21.
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.
AU Small Finance Bank
AU Small Finance Bank has been a fast-rising player in the banking and microfinance sector in the country. The company has differentiated itself from other microfinance players by structuring itself early as a commercial bank accepting savings and term deposits. The company made good progress in the quarter in almost all operational metrics and has seen good growth in the deposit franchise in Q2. The bank has also seen collections improving steadily and reach near pre-covid levels. The bank remains committed to its goal to build a granular customer led by digital and this is reflected in its efforts in providing different digital products and offers to its existing customers. It remains to be seen how the whole COVID-19 situation pans out and whether there are any surprises in store for the banking industry in the near future. Nonetheless, given the company’s good performance record, its robust customer engagement, and its prudent management of its AUM, AU Small Finance Bank remains a good small finance stock to watch out for.
Kotak Mahindra Bank
Kotak Mahindra Bank is the second-biggest private bank in the country by market capitalization. It has deservedly earned its stellar reputation over the years. The bank has performed resiliently in Q2FY21 with more than 32% growth in savings deposits and has gotten 17% YoY growth in NII despite slightly lower advances. The company has done well to keep its books resilient and focus on the development of the liability side during the pandemic. It has also seen a very good rise in the digital channels with more than 73% YoY rise in digital transactions and plans to use this consumer shift to better compete with peers who have a much larger physical presence. It remains to be seen how the COVID-19 situation will unravel and what final impact will the end of the moratorium unravel for the company. Nonetheless, given the bank’s track record and the capability and vision of the management over the years, Kotak Mahindra Bank remains a pivotal banking stock for every Indian investor.
Manappuram Finance has long been one of the most consistent players in the NBFC sector in India. The company has cemented its position as one of India’s gold loan providers in India by growing its core business consistently. The company’s current quarter performance has been decent with >20% YoY overall AUM growth despite QoQ decline in Asirvad AUM. The company has also seen good traction in the online gold loan which growing even faster in current times of COVID-19 disruption and is now accounting for 63% of all loans. This brings a significant opportunity for the company to improve its operating model and reduce manpower and physical costs. The company has stayed cautious with Asirvad and has not disbursed any amount in Q1. It remains to be seen how the company’s collections will be affected once the moratorium ends and collection for disbursals in FY21 starts and how will things pan out for Asirvad and the MFI industry. Nonetheless, given the company’s resilient customer base and gold loan AUM along with the rising star among MFIs in India’s Asirvad Microfinance, Manappuram Finance seems like a pivotal finance stock to watch out for.
Ujjivan Small Finance Bank
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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