Let us try to analyse the situation with a clear head.
The way i would think about it is
- When in doubt, “INVERT , ALWAYS INVERT”
AND
- BE AWARE OF RECENCY AND COGNIZANCE BIAS
AND
- NEVER LET YOUR BRAIN UNDERESTIMATE THE POWER OF INCENTIVES.
Now let us start on each one by one
Ask yourself a simple set of questions
a. IF and when everything around this coronavirus settles,
will people spend on discretionary spending,
in that case who will be the best lenders that would be left there to lend that and
already have impeccable frameworks to do that in place.
b. Now coming to present situation,
how many of NBFC have 7-8% of their books as hard cash/overnight funds
how many of NBFC have +ve ALM matches from 15 days - 5 yrs buckets
how many of NBFC have a advances book of 1L Cr+ and NNPA of .6%
how many of NBFC have a granular deposit base of 18% of their borrowings
how many of NBFC have the gunpowder ready to lend in future
@ incrementel rupee cost of 7% fully hedged in current scenario
how many of NBFC can generate 75% of incremental loans from current customer base
how many NBFC have the commanding power to reprice their Loans and what is the avg.
loan churn rate for what percentage of book (40% of book avg. churn rate < 6 months)
how many NBFC have a sticky fee income to PBT contribution exceeding 30%
Yes, prefect the storm is there and in future too the storms will come,but then
it is the
- agility
- granular focus
- diversification of asset and liability base
- capital discipline
-
and above aLL HONESTY and INTEGRITY of the driver
that would lead to separation/churning of WINNERS from LOSERS
I am not an expert on the exact percentage, till what time, how much EPS, how much of the book,
how much of the downside, where is the exact bottom etc. etc
BUT YES, for sure once things settle down
in the next 3 years when the peers would be scrambling to consolidate their shackles
BAFL would be in a a commanding position to garner market share very very rapidly and with the money getting printed by foreign regulators
this money will look for assets classes and will blindly start chasing such growth engines both actively and passively
The kind of franchises are not built in years it takes decades of discipline, practice, dedication and
ability to learn/apply from failures that build truly almost non fragile business.
The incentive here is that while many will FALL, only the strongest one would SURVIVE AND FLOURISH.
Curretly with 1.43L Cr book BAF is 1.6% of total India credit. Imagine where it or how many
like it would be able to truly sustain including Corona, elections, EuroZONe crisis etc etc
and what not if INDIA as a country would see next 2 decades.
The whole point of Valuations/P.B/P.E is just optical for franchises like this unless it is actually
very nonsensical.
Even if there is no EPS growth for this one year, & the next 3 years it is again 30%+ with incremental
MS gains for survivors like BFAL, trying to find out bottoms is a foolish exercise.
Disclosure : My views can be heavily biased and i can be totally wrong in my theory.
Regards
Sunny
They have downgraded HDFC Bank also.
for shortening our learning curve through sharing your experiences gained by hardwork which otherwise would have been painful had we experienced things ourselves .
