RBI approves LIC to acquire up to 9.99% holding in the bank.

When it went up at 2:30pm on Saturday for absolutely no reason you didn’t ask this question. But now when the stock came back to the same level the next day you are looking for a fundamental reason for which it fell. Pre-Budget usually there is a lot of volatility and some selling pressure given the risk of government policy change.

As far as the results are concerned, the company gives monthly data on the volumes, and the results are rarely surprising.

Quick notes on Equitas SFB concall:

• CD Ratio → bringing it down to 85% by March 25; currently ~91%; retail deposits have been increasing, currently more of RD TD as compared to CASA
• Increase in slippages → Attributed to floods in Tamil Nadu, especially impacting vehicle finance and microfinance; historical slippage rate maintained between 3-4%.
• Collection efficiency → Peaks in Q4; anticipates credit cost around 1.25% for the year.
• Vehicle finance → New LOS implemented for vehicle finance across branches; witnessed 30% growth and expects to sustain this momentum.
• Disbursement Yield → Small Business Loan , vehicle finance, micro finance have increased disbursement yield; marginal increase in affordable housing; new CV from 18.28% (March 2023) to 19.56% (December 2023); SBL from 16.33 (March 2023) to 17.16% (December 2023)
• Disbursement Strategy: Management avoids sacrificing NIMs for topline growth; maintains a focus on high-yield products; flat disbursement not solely due to reducing CD ratio.
• Securitisation → SBL 221crs, HF 271crs, VF 897 crs have been securitized; shown as other income
• Guidance → Targets 25% growth over the medium term; aims for 8% NIM for this financial year; RoA of 2.25%+.
• Cost to Income → Major investments directed to Affordable Housing Finance and Personal Loans; no significant branch expansion; CI expected to remain within the same range.
• NIMs → About 85% fixed interest rate book; if interest rates remain stable, NIMs will improve due to rising advances yield; impact of CD ratio coming down on NIMs will be very marginal

Listing down some quick pointers

1. Anecdotal thinking: Cash vs UPI. Cash may eventually decline, but it still is salient in T2/3/4 and low-mid income strata. Cash in circulation is showing no signs of degrowth. Even after withdrawal of high denom. Rs. 2000 notes, CIC has grown by 4%! The volume of ATM withdrawals is growing too, albeit at a slower pace than pre-covid. CMS’ business model is anyway not dependent on volumes of cash handled. If cash in the system declines, the velocity might increase and counter-intuitively offer more business to CMS. Their pricing model is per-trip/visit based.
2. My hypothesis, with limited evidence: the Market sees this as a pure cash logistics company. IMO, its a B2B Business services firm with declining dependence on cash mgmt (managed services now form 40%). Moreover, formalization of retail serves a long runway for growth in cash mgmt business. Some evidence is seen in their healthy return metrics. A pure logistics company may not enjoy such healthy return ratios without a strong tailwind.
3. Headwinds: ATM additions may not pan out as projected/anticipated by the market in 2020-21. Some concerns related to the banking sector growth.

Do read their investor day presentation and concall. I’m sure you’ll find more reasons, e.g. binary thinking, consolidating industry, UPI growth post covid, poor financials of most peers etc.

Disclaimer: SEBI-registered. This is not an investment advice. Holding significant quantities in family + client accounts.

Excellent numbers; company ever communicated about their plan about moveing to the BSE mainboard?