Another good way to approach the argument of comparison with established institutions like HDFC Bank would probably be to look up HDFC Bank’s annual reports since Mar 1996 available here HDFC Bank Integrated Annual Report 2019 - 2020 (scroll down to Archives) and inspect their return on equity profile and the management commentary about the way they approached growing business / investing in technology, branches etc. back at the time.
The periods (90s / 2000s) are not comparable with current times but the thought process about funding growth is quite instructive. Back then too they had access to capital from international investors and many did invest in the bank. Its a good dive into history of what banking looked like during its formative years for anyone interested.
He has raised too much capital. Am not supportive of this.
Re sale.. i went and checked out his linkedin poat. after paying Rs. 240 cr as tax, 9.2 cr to social causes and invested 100 pc of the remaining 219 cr back in the bank. If he had delayed exercising esop i.e. waited for a lower price to exercise it, then we could have pointed out.
But the key issue is that the bank hardly makes 3% or 4% roe. Thats nothing. All other banks post much more, more like 13 to 16%.
Nice analysis. Other way to speculate is that he is a conservative guy and doesnt want to take chances with availability tomorrow. He knows he makes no money, so raised a lot to compensate.
Remember he said mfi credit cost will increase in q4 25.
This is absurd…
considering dividend when profits are low and not enough to sustain growth. raising capital for the growth and giving dividend at the same time, how does that make sense…
May be to satisfy the long term investors who are holding from Capital First days(If you listen to last year AGM retail speakers, most of them are fans of Mr.VV). He can at least speak on this during upcoming AGM of last FY.
If the bank declares a Re 1 per share dividend, it will certainly not strain the resources and should brighten the mood. Bank will be counted as a dividend paying company which should help its market price. It is time the shareholders also start receiving a return, however modest. Not paying dividend has pluses and paying dividend has its own benefits.
VV once said in the AGM that we are considering dividend and a good dividend and this was before the MFI issue. So i don’t think people are going to get anything by giving .20 rs as dividend. That’s pittance. Maybe 1 Rs at least considering IDFC ltd gave 0.50 rs. Aren’t dividends suppose to come from profits of the current year?? like RPM said, it has its own benefits and minuses and i see lot of benefits. One thing i hope they are not doing is a Nykaa. Really hope not.
The level of dilution is what made me look distantly to the stock, but this recent dividend if at all comes will be final nail in the coffin for me to just not look at the stock all together.
Not sure why we are so pessimistic about the company . Personally , I bought this stock to be a part owner of a bank , which could really fill the gap and need a of great bank who does not squeeze customers like others. Any bank who follows this philosophy will take time to grow and be good in profiting , not to mention any natural disaster like covid will increase the time. I am perfectly fine with the approach and strategy the bank is taking to grow . I just think if my bank is growing or not , profit will come in place eventually .
IDFC first bank got 600cr when they merged. This amount was kept it aside for the future dividends. Bank didn’t want to allocate any shares to IDFC shareholders. Otherwise, the ratio would have been more than 1.55. Just want to make sure everyone is happy, they may giving this as a dividend.
VV has steered bank from wholesale to retail focused book in relatively short span with a good tech stack. Good for management and customers of the bank, but off late his decisions against existing shareholders are baffling
On sponsorship - Assuming intention is to create brand image and catch eyeballs with indian/IPL team sponsorship. After few years of this brand building exercise, similar expense may not be required which will bring down cost. Thus long run even though it can’t be tangibly measured, it might be required to create brand awareness in a crowded market.
However, U can’t declare ur mid term goal is to target ~20% growth for next few years, raise growth capital from non-current shareholders(at a discount and huge quantum than really required) and then declare dividends to pacify a set of us. Whatever be the scenario, if bank is fundamentally strong, access to growth capital in a tranches manner 1-2 years down the line at a better valuation(as MFI loan book given its short term nature would have tapered out as a problem) would have been prudent decision.
Hopefully better sense prevails and dividend is not declared if growth is the focus, otherwise, if viewed through critical lens, it is a big red flag and shows inconsistent and subpar decision making
772+1338+1450= 3560 Cr of provisioning done in last three quarters in name of MFI seems a bit much. During Covid, VV had been allocating copious amounts to Provisioning. He apparently takes every opportunity.
For 9571 Cr of MFI book, of which 66% is covered under CGFMU. Surely, 3560 of provisioning is disproportionately large.
Begs the question, Why?
Probably to save taxes, while providing core stability. He is fearless of retail investors’ reaction.
Current Provision Coverage ratio 72.3%
A Rs. 2,41,926 crore Loan book growing at 20.4%, and an intent to keep provisioning above 70%.
This strategy is probably privy to Warburg. Current book value is 52, and Warburg entered at 60.
This quarter, the operating income has risen by only 11.3% whereas operating expense is up by 12.2%. This is negative operating leverage as opposed to what VV keeps on telling. Wanted to ask this in the concall but didn’t get a chance.
Overall, it’s going to take very long for the bank to start churning good profits unless there’s a significant change in the cost of funds or the opex, assuming no other shock like MFI.
The price can still move up maybe by 15-25% from here in next 2-3 Qs and that should be a good opportunity to exit for the long stuck investors (of course taking into account the situation of that time)
Overall, Q4 results are quite poor at PPOP level (leave aside provisioning which was anyway expected to increase). Only looking a bit better due to trading gain of 194cr
This bank might give very good returns between FY27 to FY30.
Discl. - Invested since long. No buy sell recommendation
