Recent Posts

1

India Credit Cards / Personal & Business Loans / How Banks Built Moat for Credit Card Business in India?

« Last post by resh on February 09, 2020, 12:33:57 PM »

80% of the Credit Card Industry in India is controlled by just Top 5 Players. A strong inherent customer base (HDFC, SBI, ICICI, Axis, Kotak); b) dominance in merchant acquiring (HDFC, SBI, Citi, ICICI, Axis); and c) strong analytics &partnership capabilities (essentially foreign and private banks). Inherent customer base (low acquisition cost, ~50% of external sourcing), better merchant acquisition infrastructure (enable better throughput, customer retention through reward points & cash backs) and strong analytics (better
know-how of customer transactions) impart private banks an edge.

A vital part, which is often overlooked, is the development of merchant acquisition infrastructure (essentially POS) and the associated cost. This, while underappreciated, is important as: a) it enables better throughput, customer retention through reward points & cash backs b) entire dynamic of fee structure changes if the issuing & acquiring bank is the same; and c) strong analytics (better know-how of customer transactions).

The Card POS infrastructure dynamics will essentially play in favour of larger banks giving the man impregnable moat (atleast in the near to medium term). Moreover, fee dynamics change significantly when the issuer and acquiring bank are the same.

This imparts a strong competitive advantage to incumbents who have developed scale to mask the associated cost (given scale of operations) and is challenging for a player new into the game.

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India Credit Cards / Personal & Business Loans / What are Key Issues for POS Infrastructure ?

« Last post by resh on February 09, 2020, 12:32:37 PM »

A few key impediments to build Debit / Credit Card POS infrastructure in India are:

High cost (installation and operations): As per various estimates  the cost of a POS terminal in India ranges from INR8k-12k (including countervailing duties and taxes). In addition, the annual operating cost is INR3k-5k per POS.

Low volumes and higher attrition at merchants: A high 30-40% per year staff attrition rate at merchants makes the capacity building process onerous. Finally, low transaction values and volumes at smaller merchants, especially outside Tier 1 cities, make it unviable for banks to expand their footprint to such segments.

3

Sensex and Nifty Company Analysis / CLSA Upgrades Reliance Industries

« Last post by resh on December 05, 2019, 12:09:08 PM »

CLSA Upgrades Reliance Industries,

Jio announced an up-to-35% hike in its tariff which will boost its Ebitda by US$1.1bn-US$1.3bn. Despite this hike, Jio is at a 7%-20% discount to its competition, maintaining its strong relative positioning. We see a good chance of further upside to Jio’s profit as the tariff hike on the JioPhone is still awaited, interconnect costs may fall below our forecast and Arpu may be higher as customers may prefer 28-day over 84-day plans. We raise our EPS by 1%-8% and target price from Rs1,710 to Rs2,010. Strong near-term quarterly profit due to IMO and tariff hikes and the closure of the fiber and Aramco deals are triggers. BUY.

4

India Credit Cards / Personal & Business Loans / The co-branded card economics

« Last post by resh on November 04, 2019, 02:02:15 PM »

Co-branded cards have been in vogue in India since the mid-1990s. A recent PwC study of popular co-branded cards in India indicates travel as the most prolific use case followed by fuel, e- tail and retail shopping.

Co-branded card - the value proposition for stakeholders

For Issuers
Access to focused customer base
Increased average spends per card
Improved customer stickiness

For Partners
Contribution to topline and bottomline with shared revenues
Better brand visibility
Enhances customer loyalty

Co-branded cards are typically characterized by high customer stickiness (benefits and rewards are vendor-specific), higher spends, better activation (low dormancy) and lower acquisition costs (much more targeted).

Major Revenue Vs Cost
Joining Fees & Annual Fees - Revenue
Discount / voucher expenses and Reward redemption - Expenditure
Marketing Expense - Shared Cost


Our discussion with practitioners suggests that new partnership models are emerging in the co-branded space as issuers look for better targeting of customers and smarter acquisition.Although co-branding has conventionally been popular in the credit cards business, banks are now beginning to extend co-branded tie-ups to debit cards and prepaid cards.

5

India Credit Cards / Personal & Business Loans / What are Key Control Parameters for Credit Card Business in India

« Last post by resh on November 04, 2019, 01:33:24 PM »

The key variables that really move the needle in the Indian Credit Card Industry are as mentioned below:

Number of Cards - Size of the customer base and penetration of existing customer franchise
Expenses - Predominantly includes the acquisition costs, A&P expenses (largest component around reward points), collection & recovery costs and fixed costs (employee, admin etc.)
Spends - Spends drive the interchange fee and higher spends can translate into revolving loans
Revolving Rate  - Denotes conversion of card spends into interest-bearing loans - key variable for driving the interest income
Merchant EMI conversion Rates - Denotes conversion of card spends into relatively lower interest-bearing personal loans
Delinquencies - Higher delinquencies/default on loans will suppress the overall profitability

6

MidCap Stock Picks / Re: CDSL - Good business, rough weather

« Last post by resh on November 01, 2019, 11:30:30 PM »

JM Financial on the CDSL Stock

CDSL’s annuity based revenue stream, new growth avenues of commodity repository, academics and dematerialisation of unlisted public companies, fixed operating costs, robust cash flow generation coupled with a strong balance sheet and stable dividend policy is likely to drive earnings growth. a) Low pricing power, b) dependence on capital market volume, c) regulatory oversight (new license issue), are the key risks to our estimates. Return ratios are optically suppressed due to net cash of c.INR 7.1bn in the Balance Sheet. We forecast
a c.9% EPS CAGR over FY19-FY21E and value the stock at 25x FY21E. Maintain BUY with target of Rs 322.

7

MidCap Stock Picks / CDSL - Good business, rough weather

« Last post by resh on November 01, 2019, 11:29:56 PM »

CDSL has a diversified revenue stream, ~36% of the revenue is annuity in nature and ~42% is market-linked (Transaction, IPO/corporate action and KYC). The big opportunity related to demat of ~60K unlisted public companies is unfolding. At current run-rate, it will contribute ~7% to FY20 growth with negligible incremental cost. Transactions charges/KYC revenue will revive with better retail participation and improved market sentiments. New revenue streams like National Academic Depository (NAD) and e-warehouse receipts are future growth drivers. We have moderated our estimates for FY20/21E and now expect revenue/EBIT/PAT to grow at a CAGR of 12/5/6% over FY19-22E.

HDFC Sec has a BUY Rating with a Target Price of Rs 286

8

India Credit Cards / Personal & Business Loans / Axis Bank - Credit Card For Existing Clients

« Last post by resh on October 28, 2019, 06:37:02 AM »

Axis Bank under the new management of Mr. Amitabh Chaudhary has started aping Best Practices from the HDFC Group.

93% of Axis Bank Credit Card loans are from existing customers of the Bank. They've Launched premium credit card offering in this quarter called us– Magnus

It has is the fourth-largest bank in terms of credit cards issuer, spending from debit cards at point of sales terminals and in transactions through mobile, constituting market share of 8%, 12% and 14%, respectively. In terms of forex cards issued, Axis Bank stood at No. 1 position and has 38% market share.

9

Mutual Funds in India / HDFC AMC Top Manager's Pay 2018-19

« Last post by resh on October 07, 2019, 08:30:53 PM »

Here is the List of Top Paid Executives in HDFC Mutual Fund Asset Management Company for the Year ending March 2019.

You decide do they deserve the pay for the performance they have delivered ?

Sr.No    Employee Name    Designation    Amount (Rs. in Lakhs)
1    ALOK SHEOPURKAR    Head - Human Resources    130.19
2    AMAR KALKUNDRIKAR    Senior Equity Analyst    120.92
3    AMIT GOLCHHA    Senior Equity Analyst    44.61
4    ANAND A. LADDHA    Joint Assistant Vice President - Derivatives    104.06
5    ANIL BAMBOLI *    Senior Fund Manager    220.40
6    ANUPAM JOSHI    Fund Manager - Fixed Income    173.19
7    ARTHUR COSTA    Assistant Vice President - Sales    30.39
8    ARUN AGARWAL    Associate Vice President - Equities    99.93
9    BHAGYESH KAGALKAR    Senior Equity Analyst    99.86
10    CHIRAG DAGLI    Senior Equity Analyst    110.53
11    CHIRAG SETALVAD *    Senior Fund Manager    281.05
12    G SRIKANTH    Vice President and Zonal Head - South    104.09
13    GOKULNATH S.    Assistant Vice President - Sales    45.30
14    JASMIN MEHTA    Vice President and Zonal Head - West    102.26
15    JOHN MATHEWS *    Head - Client Services    152.95
16    KIRAN KAUSHIK    Executive Vice President    143.57
17    KRISHAN KUMAR DAGA    Senior Fund Manager    141.14
18    MANISH SHAH    Deputy Vice President - Equities    108.14
19    MILIND BARVE *    Managing Director    720.32
20    MITEN LATHIA *    Fund Manager - Equities & Senior Equity Analyst    155.77
21    MUDEITA PATRAO *    Senior Vice President and Head - Digitization    120.74
22    NAVEEN GOGIA    Senior Vice President and Head - Sales (North & West)    177.53
23    PIYUSH SURANA    Chief Financial Officer    138.62
24    PRASHANT JAIN *    Executive Director & Chief Investment Officer    720.73
25    RAJAT MALHOTRA    Deputy Vice President and Zonal Head - North    75.50
26    RAJIV MANIAR    Senior Vice President and Head - Sales (East & South)    136.61
27    RAKESH VYAS    Fund Manager - Foreign Securities & Senior Equity Analyst    131.38
28    SATISH JAIN    Senior Portfolio Manager - Client Funds    123.46
29    SHOBHIT MEHROTRA *    Senior Fund Manager & Head of Credit    230.35
30    SHYAMALI BASU    Senior Vice President and Head - Products & Marketing    114.25
31    SIMAL KANUGA    Head - PMS Sales & New Initiatives and Chief Investor Relations Officer (AMC)    172.84
32    SRINIVAS GADE    Joint Assistant Vice President - Financial Control    38.80
33    SRINIVAS RAO RAVURI    Senior Fund Manager    146.44
34    SYLVIA FURTADO    Company Secretary    80.62
35    V SURESH BABU    Head - Operations    160.67
36    VINAY KULKARNI    Senior Fund Manager    174.56
37    YEZDI KHARIWALA     Chief Compliance Officer    152.62

10

Sensex and Nifty Company Analysis / BUY HDFC - Morgan Stanley

« Last post by resh on October 06, 2019, 03:02:34 PM »

Morgan Stanley in a Report on India's Largest Housing Finance Company HDFC Released couple of days ago said,

Our price target of Rs 2,600 is based on a probability-weighted sum-of-the-parts methodology. The core mortgage business (49%), HDFC's stake in HDFC Bank (34%) and its stake in HDFC Life (8%) account for most of our base case scenario valuation (prior to applying a 20% holdco discount to value of the stakes in subsidiaries and associates - HDFC AMC, GRUH Finance, Credila Finance, HDFC Property Fund and HDFC ERGO)

We believe the share price will rise relative to the industry over the next 30 days.