INSTITUTIONAL RESEARCH

HDFC sec Investor Forum

MID SIZE FINANCIALS

23/24 AUG 2016

Aspire Home Finance - Anil Sachidanand

Participating Companies
Arman Financial Services

Capital First - V. Vaidyanathan

Aspire Home Finance

HDFC Bank - Paresh Sukthankar

Capital First

65.12

Shriram City Union Finance - Subhasri Sriram

Capital Trust

7.84

Suryoday Microfin - R. Baskar Babu

Equitas Holdings

L&T Finance - Dinanath Dubhashi

Janalakshmi Financial Services

Ujjivan Financial Services - Samit Ghosh

M&M Financial Services

LeaderSPEAK

Repco Home Finance

60.21
Unlisted

204.61
53.43
139.45

Shriram Transport Finance

277.14

Ujjivan Financial Services

Parul Gulati
parul.gulati@hdfcsec.com
+91-22-6171-7322

Unlisted

Shriram City Union Finance

Tourism Finance corporation
Darpin Shah
darpin.shah@hdfcsec.com
+91-22-6171-7328

MCap (Rs bn)

1.52

3.57
50.37

Mid-size Financials Investor Forum : LeaderSPEAK

LeaderSPEAK : Who said what

We had the privilege to host marquee names across the retail lending spectrum. The insights enriched the horizons on both the
changing landscape & opportunities in the industry as well as within the companies.

Affordable housing, a huge

market opportunity.
Interestingly, cross selling and
fees are core to the companys
revenue model
Anil Sachidanand
Aspire Home Finance

Banks are also pushing digital

innovation. With a comprehensive
suite of services, they are better
placed on revenue models. IFRS to
be introduced in 2018, can be a
material accounting event
Paresh Sukthankar
HDFC Bank

LTFH is now beyond the

disappointment of not getting a
banking license. Structural and
organizational transformation
underway to realign the business
mix with current opportunities
Dinanath Dubhashi
L&T Finance

Cautious on micro finance, but

does not see a bubble.
Regulatory risks remain.
R Baskar Babu
Suryoday Microfin

Page | 2

Mid-size Financials Investor Forum : LeaderSPEAK

LeaderSPEAK : Who said what

Calibrated approach to building

liability franchise, with focus on the
underserved. SFB regulatory
environment is still evolving
Samit Ghosh
Ujjivan Financial Services

Brands are an important proposition in

a borrowing-averse nation.
Accelerating the growth pedal, driven
by strong infrastructure and brand
name. Actual losses to remain low,
despite optically high NPLs
Subhasri Sriram
Shriram City Union Finance

Retail stood resilient through the

boom & bust cycles spanning more
than two decades. Buoyancy in
retail lending will continue, driven
by penetrating and upscaling.
V. Vaidyanathan
Capital First

Page | 3

Mid-size Financials Investor Forum : LeaderSPEAK

Anil Sachidanand

V. Vaidyanathan

Aspire Home Finance

Capital First

Affordable housing, a huge underpenetrated market:

Indentified affordable housing segment as a huge growth
opportunity given the low mortgage penetration levels in
India. Aspire operates in the 5-25 lakhs ticket size housing
segment.

Birds eye view of retail lending in India over two decades:

In-house origination key to its DNA: As a policy, Aspire

believes in in-house sourcing and does not source loans
through DSAs.
Fees/cross selling : Processing fees and other cross selling
(TPDs) fees are core to its revenue model. This stands in
contrast with some other housing finance companies who
waive off fees in their effort to compete.
Wide participation of employees in stock options: ESOPs
have been offered to most employees. The attrition rate has
been almost nil, albeit these are still early days (incorporated
in 2014).
Diversified liability profile: The company has focused on
keeping the liability profile diversified (30-35% NCD, 30-35%
Banks, 5% CPs).

Retail lending started in the 1990s, led by MNCs

(Citibank). Except for some presence by HDFCB, no other
Indian lender had presence in the segment
While MNCs vacated the space given the pressure on
asset quality, domestic Banks (like ICICIBC) entered the
space, largely sourcing through DSAs.
In-house capabilities have evolved in Indian banks over
the years.
Niche players stand a chance amidst banking players: Sees
significant opportunity and market for niche and focused
players in retail, even among customer segments penetrated
by banks. Interestingly, underscored the fact that focused
entities do not confuse the customers with too many
offerings.
Retail stood the boom and bust of over two decades: Noted
that retail portfolios (except for some slices in consumer
finance) have shown resilience through the economic cycles
over the past two decades.
Retail not a bubble: Underscored that the current retail
landscape in India is not a bubble.
Fintech models have to pass the test of a full economic
cycle: Underscored the touch and feel factor in lending
business. New fintech models are popular, but are evolving
quickly. A blended approach may work best.
Page | 4

Mid-size Financials Investor Forum : LeaderSPEAK

Paresh Sukthankar

Subhasri Sriram

HDFC Bank

Shriram City Union Finance

Low inflation a bigger culprit in growth than GDP: Low

deposit and loan growth in the banking system is more
due to low inflation than slower GDP growth

Brand important in a borrowing averse nation: India is still a

borrowing averse nation and having a trusted brand in the
MSME space is an added advantage.

Banks too leading the digital innovation: Digital innovations

in the BFSI are not only led by niche players but also by the
banks. The success of each bank in the changing digital
landscape would depend on how they position themselves.
Banks with a broad bucket of product offerings are well
placed and offer a more sustainable revenue model.

Pushing the growth pedal: Looking for strong growth

trajectory over the next couple of years with improving
leverage from the existing infrastructure.

IFRS (to be implemented in FY18) requires material

accounting changes: IFRS to be implemented by FY18 is a
notable development. It will require changes in the
accounting on many key aspects: (1) NPA recognition and
provisioning will shift from rule based formula to an
estimate and pre-emptive basis, and (2) Revenue recognition
and ALM classifications of assets would depend on
historically seen behavioral pattern as against contractual
maturity currently!
Banks exposure to the MFI sector has evolved over time:
Initially Banks started with exposure to MFIs and then
graduated to the BC model. However banks are now
sensing the inherent lack of connect with the customers in
the BC model and are thus shifting to direct Microfinance
lending.

Property collateral seldom revoked, more to ensure

discipline: Though MSME lending in the company is
collateral based (property) it is seldom revoked, and it is
more to ensure discipline and prevent aggressive leverage
among the borrowers.
No working capital products by NBFCs, a structural
disadvantage: The fact that its difficult for NBFCs to offer a
working capital product is a structural negative for NBFCs in
the MSME space.
MSMEs perception of Income Tax department tracking
banking transactions is an advantage for NBFCs: NBFCs
would retain some advantage over Banks, as transactions
with banks are perceived to be monitored by the tax
department.

Page | 5

Mid-size Financials Investor Forum : LeaderSPEAK

R Baskar Babu

Dinanath Dubhashi

Suryoday Microfin

L&T Finance Holdings

Growth in MFI not a bubble, but cautious on increasing

ticket size: In a stance different from all others at the HDFC
Securities Investor Forum, Mr Baskar Babu sounded a bit
cautious as against the general sense of optimism. He
expressed discomfort at rising ticket sizes, as the same leads
to increased leverage in a household and may not necessarily
reflect increased servicing and productive capability.

LTFH 2.0 Co has reconciled to the disappointment of

missing out on a banking license; a major restructuring is
underway to play to the current strengths and
opportunities : Mr Dubhashi noted that the genesis of LTFHs
erstwhile complex organizational structure lay in its eight
years of preparation (ending 2013) for conversion into a
bank. With the overhang of the banking license failure
behind, the management has initiated structural and
organizational changes to align the business mix with
available opportunities and strengths.
Entry of Bain Capital is transformational: Acquisition of
stake (10%) by Bain Capital (at Rs 70/-) in the year 2015 has
helped set the ball rolling for change in product and
organisational structure and choosing the right mix.
Organizational transformation: The strategy is to focus on
products where the firm holds distinctive advantage. On the
wholesale side, given the L&T parentage, the infra lending
(renewable energy, operating infra assets) is identified as one
of the focus segments. On the retail matrix, the focus on
tractors, MFI and housing will continue.
Simplify, shed weight: The strategy is to bring the lending
business under a single subsidiary. The firm plans to sell or
part divest its non-core non-lending businesses (10% of B/S)
over the next couple of quarters.
Management pay aligned with shareholder value: Variable
pay of the top management is now strongly linked to
shareholder value creation. The ESOPS are offered at the
current market price.

Regulatory risk on reduction in margin cap, a possibility:

With improving return ratios in the sector, he hinted at the
possibility of regulatory intervention lowering the current
10% spread cap in MFI lending.
Amidst low ticket sizes, interest rates not a key
differentiator: Given the very low ticket sizes in the segment,
4-5% differential in the pricing is not a key deciding factor for
customers who look for availability and turnaround.
Retention rate suggests fears of ever greening exaggerated:
A thumbrule was shared : ~60% retention rate in the second
cycle of funding in the company should negate the
perceptions on ever-greening.

Page | 6

Mid-size Financials Investor Forum : LeaderSPEAK

Samit Ghosh
Ujjivan Financial Services
Aggressive branch expansion entails risks: Aggressive
branch expansion strategy to tap the mass and affluent
segments entail risks. Bandhan Banks fairly aggressive
branch expansion in the first year of its operations was
relatively easier, given the underpenetrated market in East
India
Liability focus, too, to remain on the underserved: Ujjivan
remains focused on serving the under banked even on the
liability side. We find this intriguing!
Convenience, not pricing, matters most for the target
customer segment: Mr Ghosh believes in convenience and
not pricing as a key success factor in tapping the liabilities
from the currently underserved segments. He spoke about
a multichannel approach (branch, ATM, BC, Phone banking)
to serve the SA customers.

Healthy growth opportunities in the MFI segment; newer

products to support sustainable growth: Confident on the
MFI segment continuing to offer healthy growth
opportunities. Further, SFBs are adding segments and
products, increasing confidence on sustainable growth.
All SFBs not a homogeneous group differentiation on
strategy and focus: It would be wrong to club all the SFBs as
a single homogenous group; rather, each entity has its own
DNA driven by geography, philosophy, region and strategy.
Regulatory landscape still evolving for SFBs: There is still
some clarity needed on how the MFIs getting converted
into SFB can classify their existing branches. Do they have
the flexibility to treat the existing branches as just
service centers and expand on separate liability branches?
The rules on this tricky issue are expected to be released
by RBI in September, 2016.
Weak PSBs, an opportunity: PSBs losing market share is an
opportunity not only for pvt banks but for SFBs, too.

Page | 7

Mid-size Financials Investor Forum : Key Takes

Participating Companies
Arman Financial Services
Aspire Home Finance

MCap (Rs bn)

1.52
Unlisted

Capital First

65.12

Capital Trust

7.84

Equitas Holdings
Janalakshmi Financial Services
M&M Financial Services
Repco Home Finance

60.21
Unlisted

204.61
53.43

Shriram City Union Finance

139.45

Shriram Transport Finance

277.14

Tourism Finance corporation

Ujjivan Financial Services

3.57
50.37

Page | 8

Mid-size Financials Investor Forum : Key Takes

Arman Financial Services

(CMP Rs 265, MCap Rs 1.52bn, Unrated)
Arman Financial Services (Arman), based in Ahmedabad, is
primarily into micro-finance and 2W finance. Operations are
spread across Gujarat (70%, excl. Saurashtra) and MP (30%).
Gradual and focused growth in MFI, expansion in newer
geographies and conservative lending (reflected in stable
asset quality) will drive AUM and profitability growing
forward. Return ratios are healthy with ROA/ROE at
4.8/18.9% (FY16).
Arman operates through its two subsidiaries: (1) Arman
Financial Services (2W finance) and (2) Namra Finance
(Micro Finance). As at Mar-16, total AUM stood at Rs
1.72bn (34% CAGR FY13-FY16).
Namra (Rs 1.17bn, 68% of AUM) follows the Joint Lending
model (JLG) with a 16-member group size and focuses
largely on rural lending (82% of the loan portfolio). Unlike
some other MFI lenders, no top-up loans are given and
sanctions are centralised. G/NNPAs are negligible in this
segment and management expects this trend to continue.
2W loans (Rs 0.6bn, 32% of AUM), though sluggish for now,
are expected to improve through launch of tailor-made
products suited for specific rural needs. Asset quality has
been under pressure with NNPAs of 2.8% (1QFY17) but
these are now probably at a peak.

Recently, the company has started SME lending (in Gujarat)

with ticket sizes of Rs 50-100k and tenure of ~2yrs. The
company is gradually diversifying into newer geographies
(Maharashtra, UP) and products (SME lending) which is
expected to drive AUM growth. The MFI growth will be
driven by 50% customer additions and 30% increase in
ticket size.
Arman plans to raise tier I (Rs 500mn) over the next year.
KEY FINANCIALS
Rs mn
Net Interest Income
PPOP
PAT
AUM (Rs bn)
EPS (Rs)
ROAE (%)
ROAA (%)
Adj. BVPS (Rs)
P/ABV (x)
P/E (x)
GNPA(%)
NNPA(%)

FY13
107
46
28
0.72
5.9
15.8
4.5
39.6
6.7
45.1
0.6
0.5

FY14
145
64
36
0.91
6.5
16.0
4.7
47.8
5.6
40.9
0.7
0.6

FY15
177
103
62
1.15
8.9
16.9
5.0
55.6
4.8
30.0
0.7
0.7

FY16
234
135
80
1.72
11.5
18.9
4.8
63.0
4.3
23.4
1.2
1.1

Source: Company, HDFC sec Inst Research

Page | 9

Mid-size Financials Investor Forum : Key Takes

Aspire Home Finance

(UNLISTED)
Aspire Home Finance, focused on affordable housing (ticket
size upto Rs 2.5 mn), commenced operations as recently as
2014. It is a subsidiary of Motilal Oswal Securities.
In its two years of operations, the business scale-up has been
credible (FY16 AUM Rs 21.0 bn) with stable operating
parameters. Sustained demand coupled with policy push in
the sector and promoter pedigree will drive growth.
Anil Sachidanand, MD & CEO of Aspire has 25 years work ex
in housing finance business including DHFL, IDBI Bank,
HDFC Bank and Profolio Home Finance Company (PHFC).
Aspire, with AUM (Rs 22bn) has a ~28,000 customer base
equally spread across the salaried and self employed
(58:42). The avg. ticket size stands at Rs 1mn with LTVs of
~64% and tenure of ~19years.
The key difference vs. other housing finance companies is
its focus on in-house sourcing of loans (vs. DSAs). Further
processing / other cross selling (TPD) fees are key to its
revenue model vs. exemption given by others .
Loan portfolio is spread across 62 Tier II and Tier III
locations in the states of Maharashtra (70% w/w Mumbai,
Pune are 29% each), Gujarat (16%), MP (10%) and
Hyderabad. Newer geographies to be entered include TN,
Karnataka and Chattisgarh. It plans to expand the presence
to 110 locations from the current 62 in the next 1-2 years.

Out of ~700 employees, 18% are from DHFL. ESOP options

have been granted to most employees.

Rating profile of the company has been strong at Crisil A+,

ICRA AA Although it is still early days, return ratios are healthy with
RoA of ~3% and RoE of ~16%.

KEY FINANCIALS
Rs mn
Net Interest Income
PPOP
PAT
Loan Book (Rs bn)
EPS (Rs)
ROAE (%)
ROAA (%)
Adj. BVPS (Rs)
P/ABV (x)
P/E (x)
GNPA (%)
NNPA (%)

FY13
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA

FY14
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA

FY15
60
53
22
3.6
0.1
2.86
1.09
10.13
NA
NA
NA
NA

FY16
247
688
400
21.0
1.3
15.97
2.95
11.30
NA
NA
0.2
0.2

Source: Company, HDFC sec Inst Research

Page | 10

Mid-size Financials Investor Forum : Key Takes

Capital First
(CMP Rs 706, MCap Rs 65.1bn, BUY)
Capital first is focused on lending to underpenetrated
segments vis consumer durables, 2Ws, MSME business loans
and MSME LAP . The company is led by ex-ICICI banker V
Vaidyanathan and is backed by Warburg Pincus (owns 65%),
Capital First is one of the fastest growing NBFC in India (38%
loan CAGR over FY13-FY16).

The business is still relatively small (AUM Rs 172bn vs. Bajaj

Finances Rs 479bn) but has strong growth visibility. By
FY19E, ~50% of CAFLs lending mix will comprise high yield
2W, CD and MSME Business Loans vs the more stable (low
yield) MSME LAP (43%). Over FY17-19E, CAFLs RoAA will
improve driven by continued growth momentum and NIM
improvement given the change in mix. Maintain BUY with
TP of Rs 749(3.3x June-18E ABV of Rs 227).
CAFLs AUM spans underpenetrated credit categories like
consumer durables, 2Ws and MSME business loans (which
provide growth, yields and granularity) as well as anchor
segments like MSME LAP (including HL) that impart scale.
Its Wholesale book (~11%) has been steadily declining.
Management has guided for 20-25% AUM growth and this
coupled with change in AUM mix would drive higher
profitability. While the traction in MSME LAP will be steady,
affordable housing book is to be built up to Rs 10bn by
FY18 from Rs 4bn. Loans disbursed are mostly to self
employed customers in Tier II cities.

Increased cross-selling in CD & 2W segments will improve

efficiencies and result in better C-I over FY17-19E. Company
has followed below radar advertising so far and doesnt feel
the need for aggressive advertising so no escalation on
costs expected. CAFL is already at 90DPD stress
provisioning. Asset quality has been stable with GNPAs 1.2%
(at 120DPD). Shift to 90DPD over two years will optically
elevate reported GNPAs without having any impact on
earnings.
KEY FINANCIALS
Rs mn
Net Interest Income
PPOP
PAT
AUM (Rs bn)
EPS (Rs)
ROAE (%)
ROAA (%)
Adj. BVPS (Rs)
P/ABV (x)
P/E (x)
GNPA (%)
NNPA (%)

FY16
8,123
4,888
1,662
160.4
18.2
10.1
1.32
177.0
3.9
38.8
1.1
0.6

FY17E
12,716
7,368
2,417
196.1
26.5
13.4
1.50
194.4
3.6
26.6
1.4
0.7

FY18E
16,051
9,568
3,197
240.3
35.0
15.6
1.65
216.8
3.2
20.1
1.8
0.8

FY19E
20,843
12,947
4,317
293.6
47.3
18.3
1.86
256.8
2.7
14.9
2.0
0.7

Source: Company, HDFC sec Inst Research

Page | 11

Mid-size Financials Investor Forum : Key Takes

Capital Trust
(CMP Rs 535, MCap Rs 7.8bn, UNRATED)
Capital Trust enjoys strengths in the high yield segments: (1)
microfinance and (2) secured/unsecured micro enterprise
loans, albeit has a modest AUM (Rs 3.5bn). It is also a
business correspondent for Yes Bank for its micro finance
portfolio, but intends to focus on growing its own book.
Interestingly, the company has tried to replicate the group
lending model to a higher ticket and higher yielding (~30%)
MSE loans. The concept needs validation on a relatively
bigger AUM.
While the company was incorporated in 1985, it remained
focused on financial consultancy before focusing on lending
business in FY08.
AUM (Rs 3.5bn) includes Microfinance (46%), Secured
Enterprise Loan (31%), and Unsecured Enterprise Loan
(22%) with yields ranging between 26-32%. Dairy and
Livestock (occupation-wise) constitute 41.6% of the AUM.

It is promoted by prominent ex bankers including Mr. K.R.

Puri (former RBI Governor), Justice H.S Beg (former Chief
Justice of India), Mr. VK Khosla (former DGM IOB). Mr.
Yogen Khosla, MD holds 43.26% stake in the company. It
has total promoter ownership is 62.7%.

Light house took a 24.41% stake in the company in 2016.

It has 109 branches spread across 25 districts in 6 states

(UP, Uttarakhand, Delhi, Rajasthan , M.P and Punjab).
ROAs were optically high at 8.38 (FY16) supported by high
capital adequacy of ~75% (raised Rs 0.6bn in March-16).
KEY FINANCIALS
Rs mn
Net Interest
Income*
NIM (%)*
PPOP
PAT
AUM (Rs bn)
EPS (Rs)
ROAE (%)
ROAA (%)
BVPS (Rs)
P/BV (x)
P/E (x)
GNPA (%)
NNPA (%)

FY12

FY13

FY14

FY15

FY16

28

51

110

220

NA

16.5
2
2
0.3
0.2
2.1
1.0
10.5
51.4
2698.7
1.0
1.0

23.2
17
15
0.4
2.1
17.9
6.8
12.5
43.2
257.0
0.6
0.6

22.3
33
18
0.9
2.4
15.7
3.7
18.5
29.1
224.9
0.3
0.3

23.0
153
96
1.9
12.9
53.8
10.0
29.3
18.4
41.8
0.6
0.5

NA
NA
203
3.0
24.5
12.6
8.4
109.7
4.9
22.1
2.4
2.0

Source: Company, HDFC sec Inst Research, *calculated

Page | 12

Mid-size Financials Investor Forum : Key Takes

Equitas Holdings Ltd

CMP Rs 179, MCap Rs 60.1bn, UNRATED)
Equitas Holdings, incorporated in 2007 and headquartered in
TN, is among the ten successful applicants for an SFB license.
It operates in high yielding segments: micro finance, MSME,
used CV and affordable Housing.
The company has guided for a formidable branch expansion
(412 branches in next 6 months) to tap lower cost and stable
retail funds. Liability products are likely to be priced 50100bps over existing players. Further, expected gains on
wholesale costs of borrowings on SFB conversion (expected
in next few weeks) would be key to providing cushion to
return ratios from regulatory obligations (SLR/CRR/PSL) and
the same remains a key monitorable.
Management guided for sustainable and healthy growth of
20-25% in the MFI segment. There is a huge scope for
operating leverage in the companys Vehicle/MSME book
with cost/AUM currently at ~7% guided to come down to
~4%.
AUM of ~Rs 66bn (Q1FY17) comprises Micro finance
(52.5%), MSE (19.0%), Used Commercial Vehicles (24.6%)
and Micro & Affordable Housing (3.9%). The business is
largely spread across the home state of Tamil Nadu (56% of
FY16 Disbursements)

AUM has grown at ~65% CAGR over FY12-FY16. FY16

ROA/ROE were at 3.0/13.3% amidst i) the overall low

financial leverage (2.9x), ii) high credit cost impacted by the

VF segment due to weakness in the industry & shift to
150DPD recognition . Equiats has further shifted to 120DPD
for its VF and MSME book in Q1FY17.
Mr N. Vasudevan has been the MD of the company since its
inception and holds ~2.5% stake in the company.
KEY FINANCIALS (CONSOLIDATED)
Rs mn
Net Interest Income
NIM (%)
PPOP
PAT
AUM (Rs bn)
EPS (Rs)
ROAE (%)
ROAA (%)
BVPS (Rs)
P/BV (x)
P/E (x)
GNPA (%)
NNPA(%)

FY13
1,565
12.1
487
319
14.8
5.5
8.2
2.27
81.7
2.7
27.2
0.3
0.2

FY14
2,608
12.1
1,322
743
24.9
10.2
12.2
3.23
102.2
2.5
38.6
0.7
0.6

FY15
4,020
11.8
2,140
1,070
40.1
4.0
11.2
2.96
43.5
2.4
37.1
1.1
0.8

FY16
5,893
11.5
3,192
1,671
61.3
6.2
13.3
3.05
49.7
2.1
22.6
1.3
0.9

Source: Company, HDFC sec Inst Research

Page | 13

Mid-size Financials Investor Forum : Key Takes

Janalakshmi Financial Services

(UNLISTED)
Janalakshmi Financial Services (JFS), headquartered in
Karnataka, is among the top five MFIs in India and is also a
successful applicant for an Small Finance Bank (SFB) license.
The company plans to convert to SFB in Q4FY17, and has
chosen the branch expansion strategy to build retail
liabilities. The return ratios have been low due to high costs
ratios which the firm ascribed to investments for future
growth.
While 95% of the portfolio is into Micro finance, the
company has started offering the first of its kind unsecured
MSME product entailing daily collection.
JFS started operations in 2000 with focus on urban regions,
but now is expanding into rural areas as well. Initially, it was
started as an incubator within the MFI called Sanghamitra
Rural Financial Services (SRFS), set up by rural NGOs and
Myrada. The urban microfinance business of SRFS was
transformed into Janalakshmi in 2006.
As at Mar-16, JFS has a B/S size of Rs 114bn with 234
branches spread across 151 cities .
Management: i) R Srinivasan (Executive Vice Chairman): his
experience includes working as Deputy Chief Executive
Officer, India of ANZ Grindlays Bank.ii) V S Radhakrishnan
(MD & CEO) has previously worked with HSBC for over 25
years and ING Vysya Bank for 3 years.

Jana Foundation, a non-profit company, holds the

promoters shares in JFS. The investors include Tata Capital
Growth Fund, TPG, QRG Enterprise Ltd (promoters of
Havells India) and Morgan Stanley Private Equity Asia
Advances have grown at a staggering 122% CAGR over
FY13-FY16. In FY16 ROA/ROEs were at 2/13.9% with Tier I
at 11.2%.

KEY FINANCIALS
Rs mn
Net Interest Income
NIM (%)
PPOP
PAT
AUM (Rs bn)
EPS (Rs)
ROAE (%)
ROAA (%)
BVPS (Rs)
GNPA (%)
NNPA(%)

FY13
856
NA
407
181
8
126.3
NA
NA
NA
0.1
-

FY14
2,067
12.3
909
506
19
200.1
14.4
2.8
2,031.5
0.4
0.2

FY15
3,466
9.7
1,363
754
37
211.9
9.5
2.0
3,015.9
0.7
0.5

FY16
7,937
10.0
3,332
1,603
92
371.4
13.9
2.0
2,846.0
0.2
0.1

Source: Company, HDFC sec Inst Research

Page | 14

Mid-size Financials Investor Forum : Key Takes

Mahindra & Mahindra Financial Svs

(CMP Rs 360, MCap Rs 204.6bn, BUY)
MMFS is one of the leading NBFCs focused on rural and semiurban regions. It has extensive pan India presence with 1,172
branches. MMFS has diversified portfolio (Rs 417bn) across
segments i.e. UV, tractors, PVs, CVs and Cars, and enjoys
market leadership in Indian tractor financing. The improving
macro-picture and strong CRAR augurs well for the growth to
pick up in the company.
With slower macro improvement and focus towards
collections, MMFS AUM growth has been subdued for a
while. However, better monsoon, rising GoI spend in rural
areas, deeper rural presence, tie up with OEM, and
comfortable CRAR will drive 16% AUM CAGR over FY16-18E.

At 120DPD, MMFS stress remains elevated with G/NPA at

10.7/5.4%, which will optically increase given the shift to
90DPD.

KEY FINANCIALS
Rs mn
Net Interest Income
PPOP
PAT
AUM(Rs bn)
EPS (Rs)
ROAE (%)
ROAA (%)
Adj. BVPS (Rs)
P/ABV (x)
P/E (x)
GNPA (%)
NNPA(%)

FY15
25,401
20,811
8,318
368.8
14.7
15.5
2.5
86.0
4.1
23.8
5.9
2.3

FY16
29,139
20,877
6,726
409.3
11.9
11.4
1.8
86.0
4.1
29.4
8.3
3.2

FY17E
33,285
24,437
7,796
468.7
13.8
12.2
1.8
87.6
4.0
25.3
10.0
4.0

FY18E
37,913
27,586
9,734
546.0
17.2
13.8
2.0
110.7
3.2
20.3
9.0
2.3

Source: Company, HDFC sec Inst Research

MMFS with its strong rural presence and adequate CRAR is

best placed to benefit from above average monsoon and
improving macros in the rural. The shift to 90DPD will
optically deteriorate asset quality. Maintain BUY with a TP
of Rs 340.

Page | 15

Mid-size Financials Investor Forum : Key Takes

Repco Home Finance

(CMP Rs 854, MCap Rs 53.4bn, UNRATED)
Repco is one of the fastest growing HFCs with focus on
affordable housing. It operates through 120 branches & 31
satellite centers with predominant presence in the south.
Given the governments vision of housing for all, the
company is well placed to capitalize on the same. Gradual
expansion in newer geographies and deepening presence in
the existing ones along-with healthy CRAR provides visibility
on growth.
Superior NIMs to remain intact: Presence in underserved
markets, higher proportion of high yielding self employed
customers and steady LAP portfolio leads to better pricing
power. Further, with decline in interest rates and increasing
NHB borrowings (currently at ~14%) Repco is expected to
maintain spreads at ~2.9%-3.0%.
Stable asset quality: Repco follows a conservative
approach, with lower LTVs and no DSA model. Thus, despite
28% AUM CAGR(FY16-FY19E), Repcos asset quality remains
manageable, with G/NNPA at ~1.3/0.5%.

The way ahead : Healthy AUM growth and stable spreads

are expected to drive core earnings (27% CAGR FY16FY19E). Further, with controlled opex and stable asset
quality, we expect 28% CAGR in net earnings.
KEY FINANCIALS
Rs mn
Net Interest Income
PPOP
PAT
Loan book (Rs bn)
EPS (Rs)
ROAA (%)
ROAE (%)
Adj. BVPS (Rs)
P/ABV (x)
P/E (x)
GNPA (%)
NNPA(%)

FY16
3,038.6
2,692.8
1,500.8
77.0
24.0
2.17
17.0
146.8
5.8
35.1
1.3
0.5

FY17E
3,833.2
3,368.0
1,907.8
99.1
30.5
2.16
18.3
173.9
4.9
27.6
1.4
0.4

FY18E
4,871.5
4,302.1
2,459.5
127.0
39.3
2.17
19.8
209.0
4.0
21.4
1.5
0.4

FY19E
6,158.4
5,436.7
3,095.4
161.8
49.5
2.13
20.7
253.2
3.3
17.0
1.5
0.3

Source: Company, HDFC sec Inst Research

Page | 16

Mid-size Financials Investor Forum : Key Takes

Shriram City Union Finance

(CMP Rs 2,115, MCap Rs 139.5bn, BUY)
SCUF has a well diversified high yield lending mix: 2Ws, 3Ws,
4Ws, PL, MSME loans and gold loans. Being a part of the
Shriram group, SCUF is well placed and leverages on the
groups ecosystem (incl. Chit fund customers) to reach out to
prospective customers.
The management has guided for the renewed focus on
growth going ahead on the back drop of superior CRAR, huge
under-served markets and improving macros. SCUF is
expected to benefit from decline in interest rates with ~56%
of borrowings floating in nature. However, shift to
120/90DPD will restrict NIM expansion and keep provisions
elevated.
The company has been conservative on gold loan pricing at
~15%, and underscored the pricing at 18/20% by the other
gold loan companies as exorbitant. Maintain BUY with a TP
of Rs 2,280.
Business momentum to improve: Complete exit from CD
business and moderation in gold loan segment, has led to
moderate AUM growth in FY14-16. We believe the
deepening penetration in newer geographies, increasing
cross-sell, growth in long tenure products, improving
macros and healthy CRAR will lead to AUM growth of ~20%
CAGR over FY16-18E

Asset quality to optically look weak: SCUF's GNPA

(150DPD) stood at 5.1% (ex. Gold 5.4%) with elevated stress
across segments. The shift to 120/90DPD, will further lead
to optical deterioration in GNPA to ~7/9%. This will keep LLP
elevated, even as superior PCR of 71%+, provides cushion .

KEY FINANCIALS
Rs mn
Net Interest Income
PPOP
PAT
AUM (Rs bn)
EPS (Rs)
ROAE (%)
ROAA (%)
Adj. BVPS (Rs)
P/ABV (x)
P/E (x)
GNPA (%)
NNPA(%)

FY15
18,616
12,949
5,581
167.2
84.7
15.9
3.24
606.1
3.3
23.6
3.5
0.7

FY16
22,669
14,232
5,298
195.8
80.4
12.2
2.72
651.4
3.1
24.8
5.2
1.6

FY17E
27,294
17,444
6,554
235.5
99.4
13.4
2.88
701.0
2.9
20.1
7.4
2.5

FY18E
32,457
20,806
7,689
281.2
116.6
14.0
2.86
759.9
2.6
17.2
8.9
3.2

Source: Company, HDFC sec Inst Research

Page | 17

Mid-size Financials Investor Forum : Key Takes

Shriram Transport Finance

(CMP Rs 1,221, MCap Rs 277.1bn, BUY)
SHTF is a niche CV financer focused on the high yield used CV
segment. The company enjoys ~25% market share in the
market. SHTF
has a formidable distribution strength
underscored by over 1.35mn customers, large network of
879 branches, and tie up with over 500 private financiers.
With its niche strengths, SHTF is at the cusp of a cyclical
upturn supported by good monsoon, governments focus on
the rural economy, sustained momentum in the CV business
and favorable interest rate regime. Maintain BUY with a TP of
Rs 1,434.
Asset quality to optically look weak: SHTF's GNPA
(150DPD) stood at Rs 41bn i.e. 6.4% (incl. CE business NPA).
With the shift to 120DPD, GNPA will optically increase by 11.5%. However, the improving earning profile of borrowers
and continued recovery momentum in the CE business will
provide some cushion to asset quality (well articulated in
4QFY16 and 1QFY17). LLP is expected to remain elevated,
despite higher PCR of 70.4%.
Margins : With the shift to MCLR, SHTFs bank borrowings
at 30%+ are expected to get re-priced lower. Moreover,
with a fixed rate asset book, the company is well placed for
continued NIM expansion. However, focus on newer
vehicles (vintage 4-6yrs) and interest reversals owing to a
change in NPA recognition will restrict NIM expansion.

CE business: The CE AUM stood at Rs 30bn (FY15), which

has gradually declined to Rs 14-15bn with higher
collections. As on June-16, NPAs stood at Rs 9.5bn and has
adequate provisions of Rs 7bn. Management remains
confident of continued better recoveries and net loss of Rs
3-4bn.

KEY FINANCIALS
Rs mn
Net Interest Income
PPOP
PAT
AUM(Rs bn)
EPS (Rs)
ROAE (%)
ROAA (%)
Adj. BVPS (Rs)
P/ABV (x)
P/E (x)
GNPA (%)
NNPA(%)

FY15
41,129
31,042
12,366
591.1
54.5
14.1
2.28
390.4
3.1
22.7
3.8
0.8

FY16
50,727
38,400
11,782
727.1
51.9
12.2
1.85
397.1
3.1
23.8
6.2
1.9

FY17E
58,355
43,924
14,430
841.7
63.6
13.5
1.99
439.8
2.8
19.4
7.5
1.8

FY18E
66,392
49,975
16,385
977.8
72.2
13.7
1.97
477.9
2.5
17.1
8.5
2.1

Source: Company, HDFC sec Inst Research

Page | 18

Mid-size Financials Investor Forum : Key Takes

Tourism Finance Corporation

(CMP Rs 44, MCap Rs 3.6bn, NOT RATED)
TFCI (promoted by IFCI, nationalised banks and other
financial inst) is aimed at funding the tourism infrastructure
in India. The company came into being pursuant to the
recommendations of National Committee on Tourism setup under the aegis of Planning Commission in 1988.
With adequate capital ratios (CRAR 37.8%), the management
has guided for improved growth performance at ~20%, as
against the relatively muted performance in the past (6%
CAGR over FY12-FY16) .
TFCI lends largely to the tourism sector (~78%) with major
focus towards 3-5 star (70%) category hotels. The portfolio
further comprises infra (~5%) and others including real
estate (~17%). Besides this, TFCI also provides value added
services in the tourism sector. Geographically, lending has
been mainly in Northern & Western India.
Loan growth performance has been muted at 6% CAGR
(over FY12-FY16) with decline in disbursements (-9% CAGR).
The new MD Satpal Kumar Arora (since Mar16) has guided
for 20% growth in B/S to Rs 19bn (from ~Rs 16bn in FY16).

Borrowings are tilted towards bonds (90%). Other key

parameters : ROAA 3.5%, ROAE 10.8%, Dividend yield 5.3%,
and adequate CRAR 37.8%.

Increase in G/NNPAs in the past couple of years has been

largely on account of infra exposure. Management is
confident of recovery in tourism segment .
Efforts on reviving tourism and accelerating midmarket/budget hotel segment synchronises well into TFCIs
growth strategy. The stock trades at 0.74xFY16 ABV.
KEY FINANCIALS
Rs mn
Net Interest Income
PPOP
PAT
Loan Book (Rs bn)
EPS (Rs)
ROAE (%)
ROAA (%)
Adj. BVPS (Rs)
P/ABV (x)
P/E (x)
GNPA (%)
NNPA(%)

FY13
853
750
521
10.4
6.9
13.9
4.29
52.0
0.9
6.1
1.1
-

FY14
940
813
511
11.6
7.2
13.7
4.28
54.1
0.8
6.1
2.0
-

FY15
866
859
602
11.7
7.5
13.15
4.27
57.01
0.8
5.9
3.3
1.5

FY16
850
777
536
12.6
6.6
10.80
3.52
61.28
0.7
6.7
3.3
1.5

Source: Company, HDFC sec Inst Research

Page | 19

Mid-size Financials Investor Forum : Key Takes

Ujjivan Financial Services

(CMP Rs 426, MCap Rs 50.4bn, NEUTRAL, TP 510)
Ujjivan Financial Services is Indias third-largest microfinance
institution (MFI) in terms of disbursements (source MFIN,
Sep-15). It is among the ten successful applicants to attain
SFB license. The company enjoys one of the most
geographically diversified MFI portfolio in the country.
Positively so, the company continues to guide for the
calibrated approach to building retail liabilities, with
expected 150/200 bps gains on wholesale costs of
borrowings providing cushion from regulatory costs
(SLR/CRR). Growth opportunities in MFI remain healthy
and sustainable at ~25%. Newer segments on lower base
would grow much faster. The guidance for growth in FY17E is
reiterated at a strong 35/40%. RBI is expected to come out
with a comprehensive branch policy for SFB by September,
2016.
Ujjivan, incorporated in 2004 and head quartered in
Karnataka, is among the most geographically diversified
MFIs with no single state contributing >16% of the AUM.
AUM of Rs 58.5bn comprises (1) micro finance under the
group lending model (89% of AUM) (2) MSME (11%), (3)
Agri and Animal Husbandry at 3% of AUM, (4) Housing (4%).
Samit Ghosh, founder MD & CEO, has over 30 years of
experience in the banking industry and holds ~0.8% equity
stake in the company.
We believe SFB conversion strengthens the business model

as the strong lending franchisee gets backed by the much

improved and lower costs liability franchisethus, yielding
improved core spreads. Further, the calibrated approach to
branch expansion limits pressure on return ratios.
We have a NEUTRAL rating on the stock with target price of
Rs 510 (3x FY18 P/BV). We will look out for the benefits on
costs of borrowing to get more pronounced and further
scaled up of nongroup lending book, before assigning a
higher multiple to the stock.
KEY FINANCIALS (CONSOLIDATED)
Rs mn
Net Interest Income
NIM (%)
PPOP
PAT
AUM (Rs bn)
EPS (Rs)
ROAE (%)
ROAA (%)
BVPS (Rs)
P/BV (x)
P/E (x)
GNPA (%)
NNPA(%)

FY15
2,875
9.8
1,356
758
33
8.8
13.7
2.5
85.5
4.9
48.4
0.1
0.0

FY16
5,218
11.1
2,973
1,772
54
17.5
18.3
3.7
118.4
3.6
24.4
0.2
0.0

FY17E
7,541
10.6
4,291
2,635
72
22.3
17.5
3.6
152.7
2.9
19.1
0.6
0.2

FY18E
9,205
8.8
4,182
2,344
96
19.8
12.2
2.2
171.9
2.5
21.5
0.7
0.3

Source: Company, HDFC sec Inst Research

Page | 20

Mid-size Financials Investor Forum : Key Takes

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Page | 21

Mid-size Financials Investor Forum : Key Takes

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,
Mumbai - 400 013
Board : +91-22-6171 7330
www.hdfcsec.com

Page | 22