Detailed Analysis of NIIT Tech Q2 FY20 Results

Introduction

In this article, we are going to do NIIT Tech stock analysis. Also, Q2 FY20 results, major changes in shareholding pattern and the current valuation of the company are analysed in detail.

NIIT Tech Stock Analysis

Company Profile

• NIIT Technologies is a leading global IT solutions organization. It delivers services around the world directly and through its network of subsidiaries and overseas branches.
• It has built deep specialization in its focus verticals :
  1. Banking and Financial Services : Includes Asset and Wealth Management, Banking
  2. Insurance : Includes property & casualty, Life, Annuities Retirement & Supplement
  3. Travel & Transportation : Includes Airlines, Airport, Travel Technology, Travel Distribution, Hospitality
• The company is engaged in Application Development and Maintenance (ADM), Data & Analytics, Geographic Information System, Managed Services, Cloud Computing, Digital Services and Business Process Outsourcing to organizations.
• Thus, NIIT Technologies render above services in a number of sectors viz. Financial Services, Insurance, Travel, Transportation and Logistics, Manufacturing and Distribution and Government.

Q2 FY2019-20 Results

• Gross Revenue
  • In Q2 FY20, the Gross Revenue is increased by almost 19% YoY to Rs.1,038.5 Cr from Rs.872.3 Cr in Q2 FY19. While the QoQ rise is 8.2% from Rs.960 Cr in last quarter.
• Gross Margin (%)
  • Gross Margin is improved marginally to 34.6% in Sept-2019 quarter. The Gross margin numbers in Q2 FY19 and Q1 FY20 were 34.4% and 33.9% respectively.
• Operating Profit
  • In spite of 19% growth in the Gross revenue, operating profit has increased by 22.2% YoY. It indicates the improved efficiency resulting into the lower growth in operating expenses.
  • Operating profit was Rs.189.8 Cr in Q2 FY20 from Rs.155.4 Cr last year. While the QoQ performance is also very good giving operating profit growth of almost 15.7%.
  • Operating profit margin is also improved to 18.3% in September 2019 quarter from 17.8% last year and 17.1% last quarter.
• Profit Before Tax (PBT)
  • PBT was increased just by 4.6% YoY from Rs.145.9 Cr to Rs.152.7 Cr in Q2 FY20. However, the sequential growth QoQ was significant 16%.
• Net Profit
  • On account of reduced tax from 24% to 18%, the net profit increase by 17% YoY and 12.2% QoQ. PAT in Q2 FY20 was Rs.119.5 Cr.
  • Significant Improvement in operating profit has helped to increase the net profit YoY as well as QoQ.

Business Verticals, Geography & Revenue Mix

1. Business Verticals Mix

• The revenue mix is shown in above chart. In Q2 FY20, banking and financial services (BFS), Insurance and Travel, Transportation and Hospitality (TTH) were having 17%, 31% and 28% contribution in the Gross Revenue.
• Insurance sector was the highest revenue offering sector amongst the all 3 sectors.
• The above 3 core sectors contributions are growing YoY as well as QoQ as we can see in the given pie chart.

2. Geography Mix

• America is the highest revenue contributing region with a stable % of 49% in Q2 FY19, Q1 FY20 and Q2 FY20.
• After America, EMEA (Europe, the Middle East and Africa) region is contributing 34% for Q2 FY20. The % contribution from EMEA region is decreasing subsequently YoY as well as QoQ.
• ROW (Rest of World) is contributing 17% in Q2 FY20, 16% in Q1 FY20 and 14% Q1 FY20. Thus, a continuous improvement is seen in its % figures.

3. Revenue Mix

• In Q2 FY20 and Q1 FY20, revenue from onsite business was 34% and that from offshore business was 66%.
• However, last year Q2 FY19, the % contribution from onsite and offshore business were 64% and 36% respectively.

Fresh Order Intake

• Order intake or Deal wins during the quarter out-scaled the revenue with order intake of $176 Mn. Strong deal wins is a result of micro focus on select verticals and changes in the sales incentive structure.
• Order intake measures how much value a contract is worth once executed. This value reflects true bookings instead of revenue predictions.
• The geographical breakdown of this $176 Mn is :
• USA = $65 Mn
• EMEA = $41 Mn
• ROW = $70 Mn
• During the quarter Q2 FY20, NIIT Tech won $70 Mn deals from APAC (Asia-Pacific Region). It contributes almost 16% to total revenues.
• Thus, the executable order book for ext 12 months reached at $405 Mn from $395 Mn in last quarter and $363 Mn last year.

Client Data

• The repeat business % is improved marginally to 90% in Q2 FY20 from 89% in last quarter. But it has decreased from 96% last year (Sept-2018).
• The distribution of new clients addition is given in detail in above table. Thus, USA is offering more new clients than EMEA and APAC region.

Revenue Concentration & Client Size

• The revenue concentration from top 5 clients is improved subsequently in Q2 FY20 YoY and QoQ. It is increased to 29% from 27% in Q2 FY19 and 28% Q1 FY20.
• Client size (number of clients) between 1 Mn and 5 Mn is improved to 70 in Q2 FY20 from 66 and 63. Also, The client size above 10 Mn is also increased to 9 from 8 in Q2 FY19 and 7 Q1 FY20.
• While, client size in middle range (5 Mn to 10 Mn) is decreased to 16 in Q2 FY20.

People Resources

• From Q2 FY19, after having net addition of 261, the net addition numbers were declining and last quarter it has reached to 34. But In Q2 FY20, total 533 new resource addition is done.
• Attrition rate (%) is increased YoY but decreased QoQ at 12.3% in Q2 FY20.
• Utilization % is also improving sequentially YoY as well as QoQ. It is 80.7% in Q2 FY20. It indicates the company is in a position to keep its 20% resources on bench. That means company is having a very good order intake in coming quarters.

NIIT Tech – Current Statistics & Valuation

• The company is almost debt-free (very negligible debt). The interest coverage ratio is also very good 44.67. It is a very positive sign for the company.
• There was a significant changes in the shareholding pattern on the company in September 2019 quarter. % changes in stake of key shareholders are :
  1. Promoters have increased stake from 33.91% in June-19 to 70% in Sept-19
  2. FIIs have decreased stake from 35.26% in June-19 to 14.89% in Sept-19
  3. DIIs mainly Mutual Funds have decreased stake from 14.48% in June-19 to 5.79% in Sept-19

Valuation

The current Price to Earnings ratio is much greater than its historical average PE ratios for 3, 5, 10 years as shown in above table. The stock is currently overvalued as compared to its historical valuation.

Detailed Analysis of DCB Bank Q2 FY20 Result and Valuation Update

Introduction

In this article, we are going to discuss the DCB bank stock analysis. We will analyse the DCB bank stock in accordance with its Q2 FY20 result, key financials and valuation update.

DCB Bank Q2 FY20 Result Analysis

The company profile of the bank is already stated in out earlier article of DCB Bank Stock Analysis. Lets discuss the Q2 FY2019-20 result of the bank in detail here.

Q2 FY2019-20 Result Update

1. Net Interest Income is increased by 11% YoY due to 16% loan growth (excluding corporate banking)
2. Non-Interest Income growth is 38% YoY as well as 16.8% QoQ mainly because of :
   • Excellent Profits on  Revaluation / Sale of investments in Q2 FY20 (Growth : 57% QoQ and 7 times YoY)
   • Rise in Fees & Commission Income (6% QoQ)
3. Operating profit is increased by almost 26% YoY on account of :
   • Increase in Balance sheet size by 13.8% YoY and 2% QoQ
   • Improved efficiency of bank (Improved cost to income ratio)
4. Net profit rise of almost 24% YoY to Rs.91.4 Cr from Rs.73.4 Cr and 12.7% QoQ is mainly on account of :
   • Improved operating profit
   • Comparatively lowered provision coverage ratio
5. Net Interest Margin is stable YoY and remained at 3.67% while it is slightly decreased QoQ from 3.83% in last quarter.

Balance sheet Summary & Key Ratios

Balance sheet Size QoQ Trend

• We can see there is a continuous rise in the overall balance sheet size of DCB bank in QoQ from Q1 FY19.
• In Q2 FY20, the balance sheet size of the bank is Rs.37,018 Cr, increased by almost 13.8% YoY and 2% QoQ.

Advances Mix Q2 FY2019-20

• Total advances of the bank has increased 12% YoY to Rs.24,797 Cr in Q2 FY20 from Rs.22,068 Cr in Q2 FY19. The above pie chart shows that DCB bank is having a very good diversification in its loan book.
• The 5 key constituents of advances/ loans in Q2 FY20 are :
  • Mortgage = 41%
  • Agri Business = 20%
  • SME + MSME = 12%
  • Corporate Banking = 12%
  • Construction Finance = 7%
• Thus the bank has diversified the risk very prudently as far as advances mix is concerned.

Deposit Mix Q2 FY2019-20

• The total deposits are increased by 12% to Rs.29,363 Cr from Rs.26,168 Cr last year. The deposit mix in Q2 FY20 is given in the above chart.
  1. Residential Term Deposit = 57%
  2. CASA Deposit = 23%
  3. Interbank Term Deposit = 12%
  4. NRI Term Deposit = 7%
• CASA Ratio reduced to 23.2 from 24.3% last year and 24.5% last quarter. It is because :
  • Though Total deposits have grown by 12% YoY and 2% QoQ, the contribution of CASA deposits in the total deposits was not with the same growth rate.
  • The share of Time deposits is higher 64% as compared to 61% last year and 62% last quarter. It indicates total deposits are increased mainly on account of Time deposits.

Cost to Income Ratio QoQ Trend

• The Cost to Income Ratio for Q2 FY20 is improved to 55.51% from 58.88% in Q2 FY19 and 57.46% in Q1 FY20.
• Cost to income ratio of any bank basically tells how much cost is incurred to generate operating income of Rs.100 for the bank.
• The improved cost to income ratio of HDFC bank in Q2 FY20 indicates :
  • Rise in efficiency
  • Increased profitability as compared to Q2 FY19 & Q1 FY20

Asset Quality Q2 FY2019-20

• In Q2 FY20 Asset quality is deteriorated subsequently YoY as well as QoQ.
• That is – Gross NPA and Net NPA ratios have increased in Q2 FY20 (2.09% & 0.96%) as compared to Q2 FY19 (1.84% & 0.70%) due to exposure to the bad loans post NBFC crisis.
• In spite of rise in NPA numbers, the provision coverage ratio of the bank is decreased to 73.09% in September quarter from 76.82% last year (Sept-18) and 75.59% last quarter (June-19).

Gross NPA Mix

• From the above Pie-chart we can analyse the various sectors and their exposure to the Gross NPA mix. The deterioration in the asset quality is mainly on account of 4 heads :
• Mortgage NPAs % in Gross NPA Mix is increased to 39% in Q2 FY20 from 37% last year same quarter.
• SME + MSME NPAs % in Gross NPA Mix is also rose significantly from 9% in Q2 FY19 to 14% in Q2 FY20.
• Agri business has also impacted adversely with the NPA % rise from 19% to 26% to 20%.
• Due to the slowdown in Automobile sector, the NPAs % from commercial vehicle segment is doubled in one year from 7% in Q2 FY19 to 14% in Q2 FY20.

Valuation Update

• The current market capitalization of the DCB bank is Rs.5,670 Cr, while current share price is Rs.182.
• As far as Price to Earnings ratio (PE ratio) is concerned, the current PE ratio of the bank is 16.07.
• The historical average PE ratios are :
  • 3 years PE = 18.92
  • 5 years PE = 17.03
  • 10 years PE = 19.47
• It shows that the stock is currently trading at a discounted valuation when compared with its historical PE ratios.

Probable Entries & Exits From MSCI India Index November 2019 Review

Introduction

MSCI (Morgan Stanley Capital International) is going to announce today the results of its Semi-annual index review for November 2019. Lets discuss the expected changes in MSCI India Domestic Index, What are the probable entries & exits form the index?

MSCI India Index Review – Expected Changes| Probable Entries & Exits

• One of the most common acronyms that investors encounter as they begin to explore the world of international investing – MSCI Inc. is a leading provider of research-based indexes and analytics.
• MSCI indexes facilitate the construction and monitoring of portfolios in a cohesive and complete manner, avoiding benchmark misfit. They follow a modern index strategy which provides a consistent treatment across the global as well as domestic markets.
• Every quarter MSCI Index announces its index reviews highlighting addition of the potential quality stocks into the index and deletion of the poorly performing or highly debt-burdened stocks from the index.

Here is the probable entries and exits from the MSCI India Index.

Probable Entries / Addition

• In spite of the current economic slowdown and dampened demand as well as consumption, there are some companies which have a great earnings potential and business growth in coming years.
• These stocks have seen a big rally in stock market over the last 1 year. The stock return, TTM profit growth, high return on equity etc. have demonstrated their capability to deliver healthy returns in near future.

1. Muthoot Finance

• It is the largest gold-financing NBFC with an operating history of more than 70 years, operating under the brand name of The Muthoot Group.
• Return on Equity = 22.41
• 1 year stock performance = 56.51%
• Profit Growth TTM CAGR = 5%
• 5 years Profit Growth CAGR = 20.38%
• Muthoot has created a leadership position in lending against gold jewellery with AUM of around Rs.35800 Cr. Sharp rally in gold prices in the previous quarter along with improved gold loan demand outlook will aid AUM growth (10-15%).
• Strong business fundamentals with a steady earnings growth and stable funding cost will offer the high profits and healthy returns over a longer horizon.

2. Godrej Properties

• The company is engaged primarily in the business of real estate construction, development and other related activities.
• Return on Equity = 11.64
• 1 year stock performance = 61%
• 5 years Profit Growth CAGR = 12%
• Godrej properties has a strong brand value being associated with one of the most trustworthy brand name Godrej group.
• Amidst the current slowdown, the company is managing to cope up with the cash flows in flat growth of overall real estate sector by the new launches. Projects in pipeline that may improve the company’s profit growth.

3. ICICI Prudential Life Insurance

• The company carries on business of providing life insurance, pensions and health insurance products to individuals and groups.
• Return on Equity = 16.94
• 1 year stock performance = 45%
• 3 years Sales Growth CAGR = 25%
• In spite of the market volatility, the company has given strong financial results with robust growth in its business. The company is virtually debt-free. It is having a strong institutional holding – FII : 12%, DII :6%

4. Siemens

• The company is engaged in manufacturing of electric motors, generators, transformers and electricity distribution and control apparatus. It is a MNC stock with a strong promoter holding = 75%
• Return on Capital Employed = 17.81
• 1 year stock performance = 79%
• Profit Growth TTM CAGR = 22%
• During the last quarter, company’s new orders stood at Rs.3,023 Cr with 7% QoQ growth. There is a consistent rise in the revenue and operating profit of the company.
• In last November-2018, the stock was among the deletions from the MSCI India Index, but now it may be considered again due to its high returns and future earning potential.

5. Berger Paints India

• After Asian paints, the highest market share is with the Berger paints. Thus, the company is primarily engaged in the Manufacturing and selling of Paints.
• Return on Equity = 21
• 1 year stock performance = 67%
• Profit Growth TTM CAGR = 26%
• Strong Promoter Holding : 75%, Institutional Holding : 13%
• Along with the infrastructure development in coming years, paints industry in India is going to see a high growth with the new consumption patterns built across the target market.
• Due to the promoter pledging issue in Asian Paints, Berger Paints is a favourite stock among the institutional investors.

6. SBI Life Insurance

• As like ICICI Prudential Life Insurance, SBI Life Insurance is also one of the leading private life insurance companies. It offers a comprehensive range of savings and protection products through a strong distribution network.
• Return on Equity = 18.81
• 1 year stock performance = 67%
• 3 years Sales Growth CAGR = 32%
• Strong Institutional Holding – FII : 23.72%, DII : 7%
• The company is virtually debt-free. Maintaining solvency is a key to the robust and consistent sales & profit growth.

7. Info Edge India

• Info Edge India is primarily engaged in providing online & offline services primarily through its online portal Naukri.com, Jeevansathi.com, 99 acres.com, shiksha.com & offline portal Quadrangle.com.
• 1 year stock performance = 82%
• Sales Growth TTM CAGR = 16%
• Strong Institutional Holding – FII : 35%, DII : 14%

8. Apollo Hospitals

• The main business of Apollo Hospitals is to enhance the quality of life of patients by providing comprehensive, high-quality hospital services on a cost-effective basis. It is also engaged in providing / selling high quality pharma and wellness products through a network of pharmacies.
• Return on Equity = 8%
• 1 year stock performance = 25.62%
• Sales Growth TTM CAGR = 24.7%
• Strong Institutional Holding – FII : 48%, DII : 8%

Probable Exits / Deletions

• India’s debt-burdened companies could get kicked out of MSCI Inc.’s benchmark index in its November review. Highly indebted companies including Vodafone Idea Ltd., Indiabulls Housing Finance Ltd. and Glenmark Pharmaceuticals Ltd. are likely to be removed from the MSCI India Index.
• Most of these companies have seen a sharp erosion in their market values in the wake of the yearlong. Lets see 5 probable deletions from the index.

1. Glenmark Pharmaceuticals

• Glenmark Pharmaceuticals is a global pharmaceutical company. The Company is engaged in the development of new chemical entities and new biological entities.
• Debt to Equity Ratio = 0.79
• Interest Coverage ratio = 3.77
• 1 year stock performance = -52%
• Profit Growth TTM CAGR = -1%
• The company has delivered a poor growth over last 5 years. The stock fell almost by 52% in last 1 year.

2. Yes Bank

• Yes Bank is mostly engaged in corporate and institutional banking, financial markets, investment banking, corporate finance, branch banking, business and transaction banking, and wealth management.
• D/E ratio = 12.5
• Interest Coverage Ratio = 0.97
• 1 year stock performance = -68%
• Profit Growth TTM CAGR = -60%
• The corporate governance issues in the bank, promoter stake sale, high NPAs post NBFC crisis, high debt-burdened, low interest coverage ratio are the key negative factors impacting the stock performance.

3. Vodafone Idea

• Vodafone Idea is engaged in amongst the top three telecom service providers in India with pan India operations. It is engaged in the business of Mobility and Long Distance services.
• Return on Equity = -37.22%
• D/E Ratio = 2.11
• Interest Coverage Ratio = -0.90
• 1 year stock performance = -84%
• Profit Growth TTM CAGR = -168%
• Decline in the revenue, overall subscriber base have attributed to the losses incurred in last few quarters. Highly indebted with a incapability of paying even interests indicates the how bad is the liquidity condition of the company.
• The uncertainty around the successful integration and downgrade ratings the stock has given negative returns over last 1 year -84%.

4. Indiabulls Housing Finance

• The company is engaged in business of a Housing Finance Institution without accepting public deposits and its regulated by National Housing Bank.
• D/E Ratio = 6.42
• Interest Coverage Ratio = 1.54
• 1 year stock performance = -73%
• Profit Growth TTM CAGR = -7%
• The key negative elements are highly-leveraged, asset-liability mismatch, lower interest coverage ratio, decrease in promoter holding, degrowth in the profits.

5. Tata Power

• It is engaged in the business of the Company is generation, transmission and distribution of electricity.
• ROE = -1.44%
• D/E Ratio = 2.90
• Interest Coverage Ratio = 1.41
• 1 year stock performance = -22%
• Profit Growth TTM CAGR = -41%
• Negative ROE, high D/E ratio, poor growth over last 5 year attributed to the 22% fall in the stock performance of Tata Power.

Conclusion

• We expect SBI Life Insurance, ICICI Prudential Life Insurance and Siemens to be the probable additions, while Glenmark Pharmaceuticals, Indiabulls Housing Finance and Vodafone Idea to be the probable deletions in the coming MSCI India Domestic Index semi-annual review announcement.
• The changes to be announced in the index review will be effective from November 27, 2019.

Robust Operating Performance and Improved Asset Quality of ICICI Bank in Q2 FY20

Introduction

Private sector lender ICICI bank has reported a robust operating performance and improved asset quality in Q2 FY20 results. However, the bank’s net profit was hurt by a higher tax expense. Net profit fell by 28% YoY to Rs.655 Cr due to the impact of one-time additional charge of Rs.3,712 Cr due to re-measurement of accumulated deferred tax.

ICICI Bank Q2 FY20 Result Update

Q2 FY2019-20 Result Analysis – Robust Operating Performance

• Interest Earned
  • This is the primary source of income of any bank. It consists of following heads :
    1. Interest on advances and bills
    2. Interest on Investments
    3. Interest on balance with RBI and any other inter-bank funds
    4. Other type of interests
  • In Q2 FY20, Interest earned by the bank grown by 23% YoY to Rs.18,565 Cr from Rs.15,106 Cr in Q2 FY19. While QoQ growth was 3%.
• Net Interest Income (NII)
  • It is calculated as : Net Interest Income = Interest Earned – Interest Expended
  • Thus, Net Interest Income is the core income of the bank after deducting its interest expenses ie. interest on term deposits, savings accounts etc.
  • NII of the bank is increased 26% YoY to Rs.8,057 Cr in Q2 FY20 over Rs.6,418 Cr in Q2 FY19.
• Operating Profit
  • It is calculated as : Operating Profit = Operating Income – Operating Expenses
  • Operating Profit of ICICI bank is increased 31% YoY to Rs.6,874 Cr in Q2 FY20 over Rs.5,250 Cr in Q2 FY19. The QoQ growth in operating profit is also significant ie. 9%.
  • Such a robust growth in operating profit is mainly driven by lower cost-to-income ratio (C/I ratio). It means due to the higher deposits growth of the bank in Q2 FY20, the bank’s borrowings were lower.
  • Thus, it reduces the cost of borrowings of the bank backed by the availability of the liquidity with it for lending or for advances.
• Provisions
  • Higher Provision Coverage Ratio and lower slippage led to lower provisioning in Q2 FY20.
  • The provisions were reduced 37% YoY to Rs.2,507 Cr in Q2 FY20 from Rs.3,994 Cr in Q2 FY19 and Rs.3,496 Cr in June quarter.
• Profit Before Tax (PBT)
  • As a result of de-growth of 37% in the provisions made from the operating profit in September quarter, the bank’s PBT has jumped almost 250% YoY in Q2 FY20. The Profit before Tax rose to Rs.4,367 Cr in Q2 FY20 from Rs.1,250 Cr in Q2 FY19.
  • While the QoQ growth in PBT is seen to be 56% from Rs.2,793 Cr.
• Net Profit (PAT)
  • In spite of 250% rise in PBT, bank’s net profit fell by almost 28% YoY to Rs.655 Cr from Rs.909 Cr in last year same quarter.
  • Net profit was hurt by a higher tax expense. Transition to the new corporate tax rate lead to an accumulated DTA write-down impact of Rs.2,920 Cr resulting in an PAT of Rs.655 Cr lower by 28%
    YoY.
  • PAT without the DTA write down would have been Rs.3,575 Cr for the quarter.

Q2 FY2019-20 Balance sheet Summary

• Total Deposits of the bank grew by almost 25% YoY and 5% QoQ. While, CASA deposits grew by 15% YoY and 9% QoQ. When compared with total deposits growth, CASA deposits share is lower than that of term deposits.
• CASA ratio is deteriorated YoY from 50.8% to 46.7% in Q2 FY20. But, it is improving QoQ from 45.2%
• Advances have also reported at Rs.6.14 Lakh Cr with a steady growth of 13% YoY and 4% QoQ.
• Net Interest Margin (NIM) is improved to 3.64% from 3.33% last year. It is possible only because of the robust growth in the deposits in Q2 FY20 and the reduced borrowings resulting into lowering of the cost of funds raised. Thus, NIM is improved YoY as well as QoQ.
• Capital Adequacy Ratio (CAR) is deteriorated to 16.14% from 17.84% last year same quarter.

Improved Asset Quality

• The bank continued to show improvement in asset quality in September 2019 quarter.
• Bank’s Gross NPAs declined to 6.4% in Q2 FY20 from 8.5% in Q2 FY19 and 6.5% in Q1 FY20.
• On the other hand, Net NPAs have seen a decline to 1.6% in Q2 FY20 from 3.7% in Q2 FY19 and 1.8% in Q1 FY20.
• As far as sector specific exposure is concerned :
  1. NBFC + HFC exposure has reduced by 3% QoQ
  2. Telecom exposure is only to the top 2 players
  3. Builder exposure has increased by 11% QoQ
• The bank has one of the highest provision coverage ratio (PCR) among private banks. For Q2 FY20, PCR is improved to 75% from 57% a year ago and from 73% in June quarter.

ICICI Bank Valuation

• Transition to the new corporate tax rate lead to an accumulated DTA write-down impact is a one-time event.
• Bank’s robust operating profit is witnessing the retail business growth adding to the overall profitability of the bank. If such kind of growth in operating profits will continue with the reduced provisioning in coming quarters also, then the bank will achieve the net profit around Rs.13,000 Cr for FY2020-21.
• The dampening effect of NPAs are also reducing with the falling Gross as well as Net NPA numbers. So, it will offer a boost to the steady growth of net profit in coming quarters.

The current Valuation of the ICICI Bank = Current Market Cap of ICICI bank + Current Value of ICICI Bank’s Stake in its subsidiary companies.

Key Highlights of HDFC Ltd Q2 FY20 Financials

Introduction

HDFC Ltd, India’s premier financier in mortgage lending, has reported 61% YoY growth in the net profits for Q2 FY20. Lets see the key highlights of HDFC Ltd Q2 FY20 results in this article.

HDFC Ltd Q2 FY20 Results Update

Q2 FY2019-20 Financial Results

• Total Interest Income
  • In Q2 FY20, Total Interest Income of the company increased by 10.36% from Rs.9,94, Cr in Q2 FY19 to Rs.10,478 Cr in Q2 FY20.
  • It is mainly because of the substantial growth in the loan book.
• Net Interest Income (NII)
  • We can calculate, Net Interest Income= Total Interest Income – Interest Expended
  • NII for the quarter ended September 30, 2019 stood at Rs.3,021 Cr as compared with Rs.2,594 Cr in Q2 FY19, with a growth of 16.5%. It is the core income for the company.
• Dividend Income has seen a sharp growth of 185% YoY, increased to Rs.1,073.8 Cr in Q2 FY20 from Rs.5.77 Cr in Q2 FY19.
• Profit from Sale of Investments also added Rs.1,627 Cr to the Net Profit of the company from the part stake sale in Gruh Finance.
• Net Profit
  • HDFC Ltd has reported a 61% Y-o-Y growth in standalone net profit at Rs.3,961 Cr for the September quarter of FY20. While, the housing finance firm had posted Rs.2,467 Cr profit in the corresponding quarter last year ie. in Q2 FY19.
  • Due to corporate tax rate cuts, the tax paid in Q2 FY20 is decreased by almost 35% from Rs.733 Q2 FY19 Cr to Rs.473 Cr in Q2 FY20. The net effect is improved profit after tax (PAT).
  • This is inclusive of 3 main heads :
    1. Profit on sale of investments on part stake sale of GRUH Finance of Rs.1,627 Cr during the Q2 FY20
    2. Dividend Income of Rs.1,073.8 in Q2 FY20
    3. Corporate Tax Rate Cut Effect

Q2 FY20 Balance sheet summary and Key Ratios

• As on September 30, 2019, the gross loan book stood at Rs.4,26,739 Cr as against Rs.3,81,950 Cr in the previous year, that is grown by 11.7% Y-o-Y.
• The borrowings in Q2 FY20 is Rs.3,88,976 Cr increased at 14.2% Y-o-Y from Rs.3,40,622 Cr in Q2 FY19. While, if we consider the quarterly growth, borrowings are increased at 4.1% from Rs.3,73,629 Cr.
• HDFC Ltd’s Capital adequacy ratio (CAR) was seen to be 19.6% in Q2 FY20 from 18.8% in Q1 FY20 and increased from 18.4% last year Q2 FY19. Thus, it is improved on Q-o-Q as well as Y-o-Y basis.
• Net Interest Margin (NIM) remained flat Q-o-Q as well as Y-o-Y at 3.3%.

Asset Quality

• In Q2 FY20, HDFC Ltd has seen a slight deterioration in asset quality as a result of macroeconomic slowdown.
• Gross NPA at 1.33% stood higher compared on Q-o-Q as well as Y-o-Y basis. Gross NPA was 1.13% in Q2 FY19 and 1.29% in Q1 FY20. So we can see the erosion in the asset quality.
• Both Individual NPA and Non-individual NPA have seen a considerable growth in Q2 FY20 compared to Q2 FY19 and Q1 FY20.

Advances & Borrowings Mix

Advances Mix

• As we have seen above, the gross loan book of HDFC Ltd has seen a growth of 11.7% Y-o-Y and 2.4% Q-o-Q.
• About 76% of its loan book comprises individual ie. retail loans and the remaining is corporate loans which includes commercial real estate loans, lease rental discounting, etc.
• The major share in the gross loan book is of individual loans and it is increasing consistently year-on-year as well as quarter-on-quarter basis. Individual loans are contributing around 69%, 71% and 72% of the total gross loan book for the quarters Q2 FY19, Q1 FY20 and Q2 FY20 respectively.
• On the other hand, corporate loans contribute around 26% of gross loan book in Q2 FY20, with a consistent decrease in its share in gross loan book, ie from 27% in Q1 FY20 and 29% in Q2 FY19.
• Given the uncertainty and risk averseness in the lending environment for corporate or non-individual loans, the company opted to be prudent by imposing the restrictions on the segment. The slackened corporate loan growth is in-line with company’s stance of scaling down riskier portfolio.
• Almost 76% of the loan book composition is tilted in favor of individual segment on which we can expect significant increase in competition in the housing loan space from banks. Thus, there will be increased competitiveness in the individual loans segment. As a result, the overall gross loan book growth will get impacted with continuous reduction in the corporate loan growth.

Borrowing Mix

• HDFC Ltd’s total Borrowings are comprised of :
  1. Term Loans
  2. Bonds/Debentures/Commercial Papers and
  3. Deposits
• As we can see from the above graph, there is a gradual increase in the share of Term Loans from 18% to 23% to 22% in the quarters Q2 FY19, Q1 FY20 and Q2 FY20 respectively.
• On the contrary, a consistent negative growth is seen in the share of bonds, debentures and commercial papers from 54% to 47 % to 47% in the quarters Q2 FY19, Q1 FY20 and Q2 FY20 respectively.
• While the growth of deposits share was slightly growing, share was changed from 28% to 30% to 31% in the quarters Q2 FY19, Q1 FY20 and Q2 FY20 respectively.