@Prasanth_Kothuri
Its not just book value regards cub. Think of it this way… Imo they are as “safe” as a blue chip bank regards frauds as any of the large banks in the world based on their long standing history. Im not sure about banks abroad but book value is a safe parameter to judge banks/financial institutes in india.
Usually they fall into buckets(note that im just typing short overly simplified notes and not in detail since the post is going to be long as it is)
Banks like hdfc with 10 to 15 percent growth and long infinite runways and perceived trust get a 2.5 to 3.5 multiple
HFCs like gruh finance(which was almost a monopoly back then) got the high 8 to 10 multiples. Even a year ago hfcs were trading at 7+ multiples but have cooled down now to 3.5 to 4.5(aavas/aptus which ive invested in for my wifes pf during this downturn). They can grow at staggering rates of 30 plus for years in a country like india with crazy yields/nims unseen anywhere else in the world with low npas
Well run Nbfcs with high yields like bajaj finance etc still get a huge book value multiple.
Public sector banks get low multiples because noone trusts the book and any day there may be huge write offs bringing the stated book value down
Fast growth/stable banks like idfc/axis etc with a 2.5 to 3 multiple.
No growth struggling banks like dcb with a low multiple
And then you have small to medium sized banks like CUB which have perceived trust(100 years) and are conservative with their growth(conservative is good when lending). These are in that grey zone… the market doesnt know what to price its multiple at in the short term due to temporary issues and they are worried about book degrading. Imo this is where money can be made for a simple reason… once the temporary issues get resolved and the bank can afford to get slightly agressive(currently they have basically slowed their loans and leverage is near lows) i can see market perception changing. Imagine its FY26… Covid issues are cleared and npas inch down to pre covid. Bank is already working on better digitization and npa recognition so all the noise goes away. Leverage goes up and hence bank grows at higher than even their usual 15 percent a year to make up for a flat couple of years. Then you have optionalities like new geographies and products to track(businesses are ever evolving) and perceived market trust due to being profitable for decades(and no immediate danger of going bust due to their innate conservatism). I would pay a multiple of atleast 2.5 for a bank like that. And while i understand that there are high growth banks/institutes in the buckets above that can be chased i prefer low risk with high upside bets instead. If the banks/institutes above hit a pothole and growth slows to under 20 percent theres a chance for a derating. Im placing my bet knowing that the derating is already here(maybe another 10 percent down) and all of the optionalities above could lead to a re rating and growth over the next 5 years.
Note that i could be wrong and this may not be a home run like laurus etc… but as things stand its a low risk, pain in the short term, high upside over the medium term ie 5 year bet for me. Also, i love tracking lending institutes and so its in my circle of competence. This could go wrong in many ways ie npas could inch higher/geographical risk/competition has a leg up last few years/treasury gains will be lower hitting quarterly profits etc… but at current prices the pain wouldnt be too much
Note that i dont track banks abroad but im assuming low yields/nims/low growth in a developed almost fully banked country vs india where its the exact opposite would lead to low price multiples basis book
Disc: Also heavily invested in idfc + idfc first and ugro capital. Also invested in aptus+aavas(70:30) via my wifes portfolio. Not a sebi advisor. I understand there is an element of hope investing above… but there is a method to the madness too and its not just what goes down must come up
LTV offered by CUB ON gold loan is only 69 %. I wondered why such low LTV when it can go upto 90% as per RBI. they can easily go upto 90 % and can increase gold AUM easily. I do not understand what kind of conservatism is this?
Gold prices at all time high. Was at around 40k around covid time so thats a 50 percent rise over 3 years which isnt normal. They are still struggling with the fallout from covid. If they increase the LTV and gold prices crash it would lead to disaster with the state of their npas right now. They have been ultra conservative past 3 years though… a year from now as their books get cleaned up and prices of gold stabilize id assume theyd increase the ltv on gold loans also. Currently they are under geared leverage wise too so they are conservative in their entire approach and not just ltv on gold loan. Personally im in favor of this ultra conservative approach
Just one question, when the gold loan becomes NPA and the lender auctions off the gold. does they return back any residual money after adjusting for loan+interest+any other charges ?
Hi @Malkd - The NPAs for CUB have inched as reported in Q1’24 results. The Q1’24, to my understanding, is lackluster. Will be helpful to know your thoughts about increase in NPAs and results in genenal.
I was going to put a PF update anyway so will reply to your query along with it
Sold my entire stake in Everest kanto at a tidy 65 percent profit. Had entered around 70 ie near bottom and got out immediately after the horrid result. It was never a long term play and isnt a company anyone would want to own for years at a time and im happy it this cigar butt style of investing worked. Rest everything stays the same
Expect CUB results to be bad for a year. The low selling price is there for a reason. We have this mis representation that because we buy something cheap things have to improve immediately. CUB has ongoing problems and i expect the next few quarters to be a washout. Things will improve couple of quarters down the line but the market may react positively earlier too. So for now im just holding and expecting the worst/nothing for a few quarters and not expecting any capital loss here which was my main criteria with this position
Increase in GNPA is due to change in accounting process as discussed in length by management in concall.Spicejet repayment will reflect in next quarter in form of decreasing npa.
After listening concall , it appears that management is taking loan book growth seriously and were very eager to enter in new segment of colending, lending to nbfc outside tamil nadu, vehicle and home loan division.
It appears that management is accepting what it means to be over conservative in lending sme segment when it is underperforming. They are also explaining how there peers are able to maintain loan book growth by venturing in other segment.
Same show is expected to continue in next quarter with improvement in npa.
Disclosure: Banking is not my core competency and my views may be totally wrong. Taken tracking position.
Wanted to check …are you still holding City union.
The story was playing out nicely from 120 to 160. But last two days price action suggests something bad (which hasn’t come out yet). Especially today in a strong pull back rally city was down 5%
Yup. Still own every company and not added anything… just holding. So not felt the need to post here. Not too worried about CUB. The benefit of buying at 120 is i can sit back and suffer the drawbacks. Its gone up a bit drastically of late with no real good news so not surprised by the drawback tbh
CUB will likely see some impact from the South Tamil Nadu floods. Probably why it’s corrected now. That said, I agree with you - as of now, not too worried about it either.
Was very hooked to your writing style and miss your views on current hype in equities.
How are you deputing your additional money these days and hope your business is also performing as per your expectations.
Seasoned investors have worth experiences and many a times help in building view for others.
It’s been a while since i posted. Mainly since ive not really changed anything since this post. Market at all time high means i didnt really have to do anything this past year(apart from selling everest at 2x… which in hindsight i was very lucky). Hbl has grown into my largest contributor even surpassing laurus labs due to its crazy 6x run.
Its time to be a bit wary now though… invested in HDFC bank a few days ago at approx 1390 with all of my savings from the past 6 months ie probably the safest bet for my money at present. Also considering selling my small contributors ie Valiant, orbit, dlink, krsnaa and putting that money into hdfc bank too(currently 5 percent of my PF… want to make it 10). Cant see myself losing money in hdfc and it would be a long term forever hold at current 2.x time book value. Would mean less companies to track too especially since individually they contribute so little. Will let everything else run for the foreseeable
Along with the safety of hdfc im also building a position in a very risky company that ive been tracking since forever ie Lux industries. Fell to 1180 today which is where i built a position equal to 2.5 percent of my portfolio. Will be freeing up funds on april 1st ie may be selling Dlink and orbit(so i can take advantage of 1 lakh tax benefits for next FY) and will use that cash to build the position further to a max of 5 percent. Reasoning being… Its currently available at around 1.5x sales. It has no debt… and the current eps is just 34 or so which is what they were hitting in 1 quarter just 2 years ago ie when cotton prices were reasonable. Can see a lot of potential here ie a lot of factors which could change overnight ie a drop in cotton prices leading to higher opm, the fight between owners resolving(or not resolving… as long as it comes to an end at some point), foray into premiumisation etc. Am i confident… not really… hence why i doubt il build a position of more than 5 percent. I want to own a debt free 2500 sales company whose brands are known by the whole of india with 15 to 20 percent OPM and hence around 100 EPS 2 years from now… its just that im buying it when everything is at its worst at present. The stock price may fall further but i cant see the business performing much worse and can see opm and hence earnings increasing slowly but surely over the next few years. In an overvalued market that is currently looking very stretched i honestly find a bit of comfort in an undervalued risky bet like lux.
Disc: Not a sebi advisor. Only accounts for 2.5 percent of my pf at present and i may never invest the second tranche. Please dont follow me into this madness without your own study. Cheers
Hi Malkd…why hdfc bank and not kotak bank? Is it lower P/B ratio of hdfc bank in comparison to kotak bank or anything else. I think kotak is also undervalued just like hdfc bank. Imo kotak will be demerged in future leading to value unlocking.
Disclaimer: holding both but weightage of kotak is more and hence biased. Will love to hear your views and fond of your writing style.
I would agree with this view that, Kotak Bank can list some of its subsidiaries in future and probability of value unlocking seems more compared to HDFC Bank. Having said this, HDFC Bank is also a good candidate at this valuations.
Agreed that Kotak is as good or even a better option than hdfc at cmp. Personally im not a kotak customer and i want as much of a stress free investment here as possible wherein i dont bother tracking at all and somehow hdfc gives me that reassurance. That being said i was planning on adding hdfc to my wifes PF too… will take a pause on that and figure out if kotak could be a better way and would also help me move things away from just one basket
Like most on here its been a good run so ive nothing to post really. Ive held strong through the drawbacks and rises… Only major change is im no longer putting money into small or mid caps but targetting the large safe laggards… as mentioned above ive built a big position in hdfc bank. Since then ive been building positions in Kotak, Sbi cards and HUL near 52 week lows for both me and my wifes PFs. With HUL especially Im hoping i get atleast a year to build a huge amount at these valuations with a nice dividend of around 2 percent as a bonus. Can see some really good safe , low downside moderate low teens cagr long term here. Some good compounders available for cheap at present but i dont track infosys
Since you’ve mentioned HUL, could you share the major reason for choosing HUL.
I had 2 questions on HUL.
I looked up the best sellers in sunscreen on amaon.in and found most brands to be Honsa Consumer related. I find it surprising that Lakme features on no 22 (Amazon.in Bestsellers: The most popular items in Sunscreen) (may change slightly based on time). How is it that the size and might of Lakme (HUL) has been left behind by very recent entrants.
I’ve seen a few premium products like St.Iveys at a relative’s house but the label says Unilever. Does HUL gain anything from sale of such premium products on which the label says Unilever. If not, what is the arrangement bewteen Unilever and HUL on this matter.
I realize that my questions are focused on a single segment, and therefore request you to give a short overview of why you like HUL overall.
Thanks for your time. Feels good to have you active on the forum and I look forward to reading your posts!
