MOSL: Morning India (26/June/18): 1. Financials; 2. Phoenix Mills; 3. Metals Weekly (Base metal prices decline 2-6% WoW)
MOrning India (26/June/18): 1. Financials (NPL ageing analysis – the final countdown!); 2. Phoenix Mills (Mall additions brighten rental prospects); 3. Metals Weekly (Base metal prices decline 2-6% WoW)
Today’s top research idea
Financials: NPL ageing analysis – the final countdown!
- Gross NPLs of the banking industry have spiked further in FY18, particularly as balance sheet cleansing continues. Revocation of all asset quality dispensation schemes (SDR, S4A, 5:25, etc.) has further accelerated the recognition of stressed loans and credit cost has thus risen sharply for all corporate banks.
- Credit cost is expected to stay elevated, as banks make provisions towards ageing of NPLs and we estimate this to drive average 800bp improvement in PCR of underlying corporate banks (range of 54% to 63%).
- We estimate that NPL ageing related provisions will alone account for 13-70% of FY19E operating profit, leaving limited room for any meaningful earnings recovery. PNB, BOI and UNBK are the most vulnerable, as we estimate their credit cost to be most sticky while AXSB, ICICIBC and SBIN are relatively better placed and should report a faster earnings recovery.
Piping hot news
Coca-Cola plans to boost muscle with Horlicks buy
- Coca-Cola is set to join global consumer food giants Nestle, Danone and Hindustan Unilever and others in the $4-billion-plus pursuit to buy GlaxoSmithKline’s consumer nutrition business, people close to the development said.
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