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Govt’s economic relief for banks, NBFCs might fall short, could fail to offset coronavirus shock

The support measures announced by the central government for the financial sector as part of the Rs 21 lakh crore economic package might ease credit risk but will fail to achieve its ultimate goal of helping the sector dodge the impact of coronavirus, said Moody’s Investor Service. The rating agency discussed the Rs 3.70 lakh crore support package for the MSME sector, Rs 75,000 crore for the non-banking finance companies, and Rs 90,000 crore for the power distribution firms. Moody’s said, ‘‘While these measures will help ease asset risks for the financial sector, they will not fully offset the negative impact from the coronavirus outbreak.’’

The government-guaranteed, automatic and uncollateralized loans to the MSME sector was termed as the most significant announcement by Moody’s. Although this move will improve the near-term liquidity of micro, small, and medium enterprises, the sector is already dealing with a lot of pain. “The MSME sector was already under financial strain before the outbreak of the coronavirus because of the gradual slowdown in India’s economic growth over the past 18 months and as a consequence have limited capacity to weather another economic shock. The deeper and broader economic slowdown in India’s growth, the more the MSMEs will face liquidity stress, leading to asset quality problems for the financial system,” Moody’s said.

The relief measures for the NBFC sector will fall short of solving the liquidity needs of the sector, according to Moody’s which in place will continue to pose a risk for banks’ asset quality. The government will set up a special purpose vehicle that will subscribe to new and existing bonds issued by NBFCs up to a maximum of Rs 30,000 crore. “This is the first instance of direct support to the NBFC sector from the government, but the size of support is far lower than the immediate liquidity requirements of those companies. The planned debt purchase represents about 2 per cent of the total outstanding debt of the top 20 NBFCs that represent close to 75 per cent of the assets of the NBFC sector,” it added.

For the power sector, the government’s package included a support of Rs 90,000 crore. The move is likely to help the DISCOMs clear their dues and alleviate near-term default risks but will also put PFC and REC under pressure and increase their leverage unless the two companies raise equity capital. “Weak credit profiles of the DISCOMs and low capacity utilization will continue to strain further already stressed conditions of power generating companies,” Moody’s said. PFC and REC have a BAA3 stable rating from Moody’s

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Reliance Industries Rs 53,000 crore rights issue opens this week, should investors subscribe or not?

Mukesh Ambani led Reliance Industries Ltd (RIL) is set to kick-off India’s biggest-ever rights issue as the company returns to the public for raising funds after a gap of three decades. RIL’s Rs 53,125 crore rights issue will open on May 20 and close on June 3 with the shares of the company being offered at Rs 1,2570 per share, a 14.8% discount from the current market price. RIL is offering one share for every 15 shares held by an investor, but should investors go in at this stage when the markets have been treading on choppy waters?

Dalal Street experts say investors should grab this opportunity with both hands keeping in mind the four deals that Reliance has just signed, bringing in Rs 67,000 crore for a 14.8% stake sold in bits and parts to different investors, the biggest being the Facebook deal. “In my opinion, this is the perfect opportunity for investors to participate in the medium-term growth story for the company, Ajay Bodke, CEO (PMS) Prabhudas Lilladher told Financial Express Online. RIL could use the money raised from the public and by selling a stake in Jio Platforms to bring its net best to zero by the end of this financial year. “As indicated by the Chairman (Mukesh Ambani) in the last AGM, the firm is well on its way to become a zero-net-debt firm by March 2021, even the consumer-focused businesses I think will very soon start contribution up to 50% in the profits of the company,” Bodke said.

RIL’ s rights issue will look to raise Rs 53,125 crore in total but investors subscribing to the issue will only have to pay 25% of the amount at the time of subscription. The balance will be paid to the company in May and November next year. RIL’s board said that investors have to 25% of the amount on subscription, of the remaining amount Rs 314.25 will be paid in May next year and the remaining Rs 628.50 will be paid in November 2021.

Reliance might be facing the heat when it comes to its oil and petrochemical business as demand falters, but stake sale in Jio to foreign investors hints that RIL has other avenues to back the business. “Investors should subscribe, they (Reliance Industries) have a great idea, have great partners and good investors so there’s a huge opportunity for them to execute so I think with all these cash infusions they are very well capitalized to invest in the opportunity they see, so the outlook is very positive,” Nilesh Shah Envision MD & CEO Envision Capital told Financial Express Online.

Although equity markets have not recovered fully since their March lows, RIL has a different story with the stock surging 66% from its lows. “I think if as an investor you are looking to maintain or increase your equity exposure then this is a good opportunity unless you are afraid of equities now or want to sever ties with all equities then you should sell your original Reliance shares too,” Deepak Jasani, Head Retail Research, HDFC Securities told Financial Express Online. “Investors looking to maintain exposure in equities can look to subscribe to rights because this is one of the better mega-cap companies at this point in time,” he added.

At the end of March 2020, RIL’s outstanding debt stood at Rs 3.3 lakh crore while the net-debt was at Rs 1.6 lakh crore. In an effort to bring that down RIL has sold stakes in Jio platforms to Facebook, Silver Lakes, Visa, and General Atlantic bringing in Rs 67,194 crore.

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Manappuram Finance share price rallies 42% in less than two months as Q4 results surprise

Manappuram Finance share price surged as high as 7.23 per cent to hit a day’s high of Rs 131.90 apiece on BSE in Friday’s weak session. Manappuram Finance on Thursday posted a nearly 44 per cent rise in net profit at Rs 398.20 crore for the quarter ended on March 31. The company had posted a net profit of Rs 277.39 crore in the corresponding period of preceding fiscal. Manappuram Finance share price has risen over 42 per cent in less than two months from Rs 75.60. However, the stock is still 32 per cent off from its 52-week high of Rs 194.60 touch in the first month of the calendar year 2020. “In the lockdown period, the company has been disbursing gold loans worth Rs 7-8 billion daily through the online channel,” Manappuram Finance concall highlighted.

Manappuram Finance shares were trading 3.25 per cent higher at 127 apiece on BSE. It also added that hardly any customers have taken moratorium. “Interest collections not impacted as the level of interest accrued pre and post Covid remains similar,” it said. Research and brokerage firm YES Securities has given a ‘buy’ rating to the stock with a 12 months target price of Rs 165, which translates to an upside of over 25 per cent. the brokerage further added that robust profitability in gold loan business will mitigate COVID-19 impact on other loan segments.

Manappuram also raised Rs 100 crore through TLTRO scheme and additional bank lines worth Rs 200 crore got sanctioned since March 31. “It expects bank sanctions to open-up in the coming months,” Concall highlighted. The company’s gold holding went up to 72.4 tonne from 67.5 tonne, a surge of 7.2 per cent over the year. Similarly, during the year, aggregate gold loan disbursements increased up to Rs 168,909 crore from Rs 89,649 crore in the last year. As of March 31, 2020, the number of live gold loan customers stood at 26.2 lakh.

Manappuram Finance also reappointed Madhu Mohan, General Manager as the Chief Risk Officer (CRO) of the company for a period of one year, with effect from July 17, 2020. The company said it has offered its customers to opt for a three-month moratorium as per Reserve Bank of India’s (RBI) directions.

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REC share price, PFC stock fall even as power stocks rally on liquidity push from Modi’s package

Power stocks rallied up to 13 per cent on BSE in otherwise weak trade on Thursday after Finance Minister Nirmala Sitharaman announced a much-awaited relief package for ailing power distributing companies. A part of Rs 20 lakh crore Atma Nirbhar Bharat Abhiyan package will provide a fresh loan of Rs 90,000 crore through PFC-REC to state-run power distribution companies (discoms) which will reduce receivables of electricity generation companies. In today’s trade REC share price fell 2.33 per cent to Rs 98.15, while Power Finance Corporation (PFC) shares dropped 2.17 per cent to Rs 87,65 apiece. However, other power stocks Adani Power share price rallied up to 13 per cent to Rs 36 apiece on BSE, Tata Power shares jumped 9.5 per cent to Rs 33.20 apiece, Reliance Infrastructure shares gained 5 per cent to Rs 18.15.

Similarly, shares of Jaiprakash Power Ventures, Reliance Power, K.P. Energy were up in the range of 3-5 per cent. While JSW Energy, Torrent Power, CESC, Green Power gained up to 3 per cent in the morning trade. However, Power Finance Corporation and PEC shares slipped over 2 per cent each to Rs 87.65 and Rs 98.15, respectively. In comparison, BSE Sensex was down 509 points or 1.59 per cent at 31,499.22. “Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) will infuse liquidity in the discoms to the extent of Rs 90,000 crore in two equal instalments. This amount will be used by discoms to pay their dues to transmission and generation firms,” FM Sitharaman said.

The government has also announced to give loans against state guarantees for the exclusive purpose of discharging liabilities of discoms to gencos. Also, discoms will provide the facility of digital payments to consumers. “For the DISCOMS, the amount may be small but useful for them as they can use the funds to pay the generators and transmission companies. The Rs 90,000 cr will be paid from reserves or alternatively borrowed from the market,” CARE Ratings said.

The loans will be secured against receivables and guaranteed by respective state governments. “However, since it comes with additional riders and conditions on digitization, reducing AT&C losses, etc., it is to be seen how much of this will be actually disbursed,” Emkay Global Financial Services said in its recent report. “Given the adequate capitalization levels of PFC/REC, the fiscal impact should be negligible,” it added.

“We welcome the reforms announced by the government around discoms as it ensures a steady flow of income. However, it just puts the burden on REC and PFC,” Amar Ambani, Senior President and Head of Research, YES Securities, said.

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