Bharat Financial Inclusion shares surged 8 percent intraday Tuesday on strong improvement in collection efficiency after currency demonetisation.
Non-banking finance company Bharat Financial Inclusion shares surged 8 percent intraday Tuesday on strong improvement in collection efficiency after currency demonetisation.
With maintaining overweight rating on the stock, Morgan Stanley says the collection efficiency statistics provided by Bharat Financial are quite encouraging, given the gravity of the situation and reinforces the strength of the weekly collection-based Joint Liability Group (JLG) model.
Prima facie, the collections are also better than most peers, which reported collection efficiency of 50-70 percent and should likely positively surprise investors, it adds.
It feels valuation looks attractive in the context of high growth and over 25 percent return on equity at 2.5x FY2018 book value (trailing five-year average of 3.0x).
Structurally, in the medium term, Bharat Financial is likely to benefit from demonetisation, Morgan Stanley feels.
In its release on collections post demonetisation, the company says collection efficiency on dues where two weeks have elapsed was around 97 percent. It runs a weekly collection model.
In aggregate, Bharat Financial has collected Rs 617 crore of the Rs 690 crore due over November 11-25 – i.e., around 89 percent of the overall dues. There has been a significant pick up in collections with every passing day.
In the first week, collections ran below actual dues, with the instalment collection gap narrowing progressively. Thereafter, in the second week, collections were significantly higher than dues as borrowers repaid a large part of the previous week's overdues.
The company declared a moratorium in 92 percent of its branches on November 11 (a Friday). As a result, collection efficiency was less than 10 percent on that day.
Following additional collections in the coming weeks (November 18 and 25), around 97 percent of November 11 dues have been collected, around 93 percent of November 18 dues have been collected and around 80 percent of November 25 dues have been collected.
Hence, cumulative collective efficiency for the centres having instalments due on Friday (beginning November 11) improved from less than 10 percent to 84 percent and 89 percent as of November 18 and 25, respectively.
Bharat Financial's past experience has been that collections return to pre-moratorium levels within two to three weeks of the end of a moratorium.
The company disbursed Rs 426 crore during this period (Rs 173 crore during November 14-18 and Rs 253 crore in November 21-25) against collections of Rs 617 crore. It is disbursing only in those centers where collection efficiency is 100 percent.
They are disbursing by recycling cash collections, as there are restrictions on current account withdrawals (up to Rs 50,000/week). Disbursement to customer bank accounts is also limited due to ATM withdrawal limits and limited availability of cash at bank branches.
Bharat Financial mentioned that it intends to complete the full roll-out of Aadhar-enabled EKYC across all branches by June 2017. Further, it has initiated the process of mapping bank accounts of clients (which will enable direct credit to bank accounts) in 616 branches or around 50 percent of the branch network.
According to the RBI, banks have seen gross inflows of demonetised currency up to Rs 8.45 lakh crore (USD 125 billion, around 60 percent of demonetised currency) during November 10-27. Of this, exchange and deposit withdrawals accounted for around Rs 2.5 lakh crore (USD 37 billion). The net deposit inflows were around USD 88 billion, implying around 6 percent of system deposit growth owing to demonetisation. Further RBI has also relaxed some withdrawal limits by allowing those depositing money with banks in legal tender to withdraw the equivalent amount without any restriction.
At 12:57 hours IST, the stock was quoting at Rs 732.55, up Rs 52.05, or 7.65 percent on the BSE.
Posted by Sunil Shankar Matkar