Yes, it was an acceptable result. Last year was supernormal with very low credit costs. This continued till H1. It was only a matter of time. Even now 100 bps guided credit cost is below Pre COVID normal. For next year they have somewhat reluctantly guided 125-130 bps credit cost. A more firm number will be given after Q4.
Then there was the added OPEX from ESOPs, branch expansion, and possible attrition-arresting measures. Even NIMs are at a cyclical trough given in the rate cycle we are in. What I liked was the CASA growth given the tough environment. Much better than anyone in the industry.
Even with credit costs normalizing, NIMs muting, rate tightening, and branch expansion they will still deliver a mid-teen growth in PAT for the full FY24 YoY. They should manage to do 1250 cr PAT in FY24.
The good part is in the con call they said the merger will add 2-2.5 to BVPS. This will comfortably make FY24 end BVPS at 28+.
Now in FY25 even if they deliver a no-growth PAT of 1250 cr, the BVPS by FY25 end will be 34+ easily. If inflation eases and gives central banks room for easing rates, NIMs will expand for the entire industry. PAT should certainly be higher than 1250 cr in the next FY.
PB multiples are up to the market to give, unless some catastrophe strikes 2x looks like the norm given by the market. Could expand to 2.5 or even 3x if the market wishes so.
Now, the only thing I do not like and should be monitored is their secured book expansion. Throughout COVID and now the unsecured micro book has better collection efficiency than affordable housing and MSME. And they do not provide any further segmentation on how much of AH and MSME is micro-LAP. I like the unsecured better but they are not growing that as fast as someone like CAGL is. Yes, unsecured has 0 LGD, while secured could have 50% LGD. But for now, CE, credit costs, and NPAs for secured book are not providing comfort.
Then there is the issue of CEO change. By Jan-25 they need to pick a new CEO. The last outsider pick ended up in a disaster. I hope they pick some insider this time who understands their culture and values better.
Post the merger we should see some selling as the opportunistic arbitrageurs who are not in it for the long term will exit. If they apply and get a universal banking license, the stock PB can get rerated as the operating cost burden should be reduced. Equitas will probably apply 1st for this process to RBI so whatever outcome RBI decides should rub off on this bank as well. RBI can reject the application as well so this is both a risk and opportunity.
Overall, the medium-term future is the same as any other stock, many knowns, unknowns, risks, uncertainty, opportunities, growth and quality. What gives me comfort is the management quality, competence, discipline and transparency. Investors are rewarded for the uncertainty they take on, no stock ride is easy for the long term.
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