PLilladher downgrade IDFC, HDFC from Buy to Accumulate
Prabhudas Lilladher has come out with its report on financial sector. According to the research firm most NBFCs/HFCs have shown strong stock performance and valuations on some names are getting demanding now. The research firm has downgraded IDFC and HDFC to â€˜Accumulate‘ from â€˜BUY‘.
Prabhudas Lilladher has come out with its report on financial sector. According to the research firm most NBFCs/HFCs have shown strong stock performance and valuations on some names are getting demanding now. The research firm has downgraded IDFC and HDFC to ‘Accumulate’ from ‘BUY’.
We analyse securitised pool performance (CRISIL rated Nov-12 issue) of various NBFCs as monthly collection trends provide early asset quality signals for various asset categories like CV, Cars and MFIs. Car pool performance continues to improve on expected lines, whereas collection rates for MFI pools securitised have been running at 99.9%. Overall collection in CVs has been holding relatively firm with just a marginal moderation in CV collections. However, CRISIL continues to sound cautious on the CV cycle given macro weakness and the latest freight rate/availability data is also not very inspiring.
Why securitised pool performance can provide early signals? CRISIL rates/updates collections trends in all securitised pools rated by them on a quarterly basis and with NPA recognition in most NBFCs still at 180 days, monthly collection trends provide early signals into stress in any securitised asset class.
CV collections holding up; Freight rates a mixed bag: Collection rates have moderated very marginally in CVs. However, overall performance remains robust relative to CRISIL’s cautious view. Though asset quality is holding up still, latest freight rate data/feedback indicates that rates have corrected by 4-5% post the festive season and freight availability has also come off. The structured finance team at CRISIL also shares our cautious view “as it has seen some early delinquencies in portfolios of some NBFCs and believes that pool collections will be impacted if the macro does not improve”
Individual NBFC performance (page 4): (1) Mahindra Finance - Only two pools rated by CRISIL being tractors: Collections continue to improve with CCR (cumulative collections) up over last 2-3 quarters. (2) Shriram Transport: Large sample set as CRISIL rates ~24 pools aggregating to ~Rs70bn: Collection rates have held up relatively well v/s expectations, with dip in collections in some pools and improvement in others. Overall, CRISIL has not seen any material deterioration but as mentioned above they remain cautious on the CV cycle.
Other Highlights: (1) Car pool collections continues to remain above historic trend lines for older polls (2) MFIs now contribute ~25% of CRISIL rates securitised pools and collections in MFI rated pools is ~99.9% (3) CRISIL has seen a pickup in securitisation through PTC route and rate implications for originators have not changed materially v/s direct assignment transactions.
Frontline NBFC/HFCs not cheap anymore; Time to get selective: Most NBFCs/HFCs have shown strong stock performance and valuations on some names are getting demanding now. We have downgraded IDFC/HDFC to ‘Accumulate’ from ‘BUY’ after Q2FY13 as valuations at 1.7x/4.0x FY14 do not leave room for upside. Shriram’s valuation is reasonable at ~1.8x FY14 book but we remain cautious on the CV cycle at the margin. Mahindra Finance has outperformed significantly and that will restrict near‐term stock performance but MMFS remains our preferred structural NBFC play with a possible surprise on margins (easing rates) and higher growth (pre-election year) in FY14.
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To read the full report click on the attachment