CREDIT INSIGHT September 6, 2021 - Principal Mutual Fund
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CREDIT INSIGHT September 6, 2021
Monthly Credit Update
Fixed Income: Investment Process
• Monthly Asset
Allocation Matrix
• Benchmark & Peer
Group Analysis
• Daily Performance
Attribution
• Rates: Access to best • Portfolio Laddering • Limit monitoring/
ofInternal/External & compliance
Proprietary • Monthly Review of Risk
• Credit: Exhaustive top Fund Areas
down process combined Management • Global Supervision of
with "bottom up" Risk Processes
issuer selection
Risk
Research
Management
Highlights of the Credit Research Process
Board approved Internal Credit Risk Assessment Policy
“Credit Tracker” list of approved Credits: LT & ST: Bottom Up Approach
Inclusion and sustainability of a credit in the record/list is determined by the established credit
process, which includes two broad areas :
• Approval for new credits (through credit note)
• Review and monitoring of existing credits
“Early in- Early Exit” Identify new promising credits early on, take shorter exposures
Access to in house Equity Team expertise on sector/stock coverage where we take exposureKEY CREDIT NOTES
LIC Housing
Finance Ltd
Reliance
Housing
Industries Ltd
Development
Finance Corporation
Ltd
Larsen And Toubro
Astec Lifesciences
Limited
Ltd
HDB Financial
Grasim Industries Services
LimitedRELIANCE INDUSTRIES LTD
Rating: CRISIL AAA (stable)/A1+, ICRA AAA (stable)/A1+, India Ratings AAA (stable)/A1+, CARE AAA
(stable)/A1+
Rating change in last month: No change
Sector: ENERGY
About: Reliance Industries Limited (RIL) is one of India's largest private sector companies (maket cap > 14lakh
crores as on 31st Jul 2020), with diverse interests, including petrochemicals, oil refining, and upstream oil
and gas E and P.. In the recent past, RIL has diversified into newer businesses which includes organized
retail and digital services. RIL operates one of the most complex refineries globally which improves its
flexibility in terms of crude sourcing resulting in relatively high Gross Refining Margins (GRMs). RIL’s
strength in the petrochemicals business has also grown following large-scale capacity expansions,
including the refinery off-gas cracker, in the previous fiscal and healthy ramp up of operations. The
company’s digital services venture, where it has made sizeable investments, has been gaining
subscribers at a healthy pace since inception. RIL has recently raised a record amount of equity capital
from marquee investors globally which shows the immense strength in its newer businesses which
includes telecom, retail and digital services.
Parameter (`Crore) Mar-2021 Mar-2020 Mar-2019 Mar-2018 Mar-2017
Net Sales 245,667 334,933 369,988 289,283 240,363
Operating Income 245,667 334,933 369,988 289,283 240,363
Operating Margin (%) 13.6 15.6 15.8 18.0 18.1
Profit After Tax 31,944 30,903 35,163 33,612 31,425
Net Profit Margin (%) 13.0 9.2 9.5 11.6 13.1
Net Worth 447,672 403,633 390,627 298,660 266,159
Total Debt 193,750 262,345 161,720 122,946 114,970
Debt-Equity ratio (x) 0.4 0.7 0.4 0.4 0.4
HOUSING DEVELOPMENT FINANCE CORPORATION LTD
Rating: CRISIL AAA (stable)/A1+ , ICRA AAA (stable)/A1+, CARE AAA (stable)/A1+
Rating change in last month: No change
Sector: FINANCIAL SERVICES
About: Housing Development Finance Corporation Limited (HDFC), India's premier housing finance entity, is in
existence for over 40 years. With a presence in banking, insurance and asset management, the HDFC
Group is an important part of the Indian financial services sector. HDFC's has a strong franchise and has
demonstrated ability to grow in the competitive mortgage finance market, its focus on prime salaried
customers within the home loan segment and its good asset quality indicators over credit cycles. HDFC
has a strong capitalization, moderate gearing and good profitability indicators. During FY2020, HDFC
reported an asset base of Rs. 5,16,800 compared to an asset base of Rs. 4,58,776 crore in FY2019. HDFC
reported Profit After Tax (PAT) of Rs. 17,769 crore during the year ended March 31, 2020 compared to Rs.
9,632 crore during the year ended March 31, 2019.
For FY21, core PBT / core operating profit grew a healthy 15%/17% YoY to INR126b/INR146b, despite an
additional ESOP charge of INR3.4b. Strong disbursement growth (on a low base) of 60% YoY, stable QoQ
spreads at 2.3%, GNPA at 1.98%, and a reduction of 74bp QoQ in stage 2 assets were the key positives for
the quarter. In Mar'21, for the Individual Lending business, collection efficiency (CE) stood at 98.0% on an
overall basis (97.6% in Dec'20) – similar to pre-COVID levels.Parameter (` Crore) Mar-2021 Mar-2020 Mar-2019 Mar-2018 Mar-2017
Equity Share Capital 361 346 344 335 318
Reported Networth 108,783 86,158 77,355 65,265 39,817
AUM 488,006 442,262 402,257 358,721 296,388
Total assets 569,046 525,341 458,770 398,905 336,354
Total borrowing 441,365 419,102 365,266 319,716 279,732
Interest Income 42,812 42,683 38,194 32,542 30,378
Interest expenses 28,686 31,076 27,897 23,544 20,934
Operating expenses
(incl. depreciation) _ _ _ _ _
Total income 47,208 49,636 42,827 40,598 33,662
PAT 12,027 17,770 9,632 10,959 6,869
Gross NPA 2.38 2 1.18 1.12 0.8
Net NPA 1.15 1.49 0.84 0.8 0.54
Overall CAR 22.17 17.59 19.08 19.16 15.79
Note: No Reported Financials Available
Source: CRISIL Research. Financials are displayed as per the standard adjustments done by CRISIL.
LIC HOUSING FINANCE LTD
Rating: CRISIL AAA (stable)/A1+ , ICRA A1+, CARE AAA (stable)
Rating change in last month: No change
Sector: FINANCIAL SERVICES
About: LIC is the single-largest shareholder in LIC Housing with a stake of 40.31% as on Mar 30, 2020. It is India's
second-largest housing finance company, with 9 regional offices, 23 back offices, and 273 marketing units in
India, and 2 overseas representative offices (1 each in Dubai and Kuwait), as on March 31, 2020. LIC Housing
benefits from LIC's strong brand equity, access to its agency network for origination of loans, and funding
support. LICHF recently announced further support from its parent LIC which is likely to increase equity
stake in the company. Preferential allotment of 45.4m shares to LIC will increase the promoter stake to
48.5% from 40.3% currently. This will mitigate leverage risk hovering over the company for the past several
years. For FY 21, NII was 5244cr vs 4821cr and PAT was Rs 2734cr vs 2401cr in FY20
Parameter (` Crore) Mar-2020 Mar-2019 Mar-2018 Mar-2017 Mar-2016
Equity Share Capital 10,099 10,099 10,099 10,099 10,100
Reported Networth 2,052,131 1,819,309 1,625,927 1,270,000 1,107,703
Total assets 23,562,740 21,690,000 20,060,000 17,185,000 15,090,000
Total borrowing 20,760,000 19,120,000 17,060,000 14,534,000 11,130,000
Interest Income 1,969,711 1,960,594 1,725,612 1,472,971 1,391,769
Interest expenses 1,445,258 1,481,722 1,289,155 1,114,385 1,023,149
PAT 273,434 240,184 243,097 200,250 193,105
Overall CAR 15.28 13.89 15.49 15.49 15.64ASTEC LIFESCIENCES LTD
Rating: ICRA A1+/AA-(stable)
Rating change in last month: No change
Sector: FERTILISERS & PESTICIDES
About: Astec is engaged in the manufacturing and sale of intermediates, active ingredients and formulations,
with a focus on the agro-chemical sector. The manufacturing is undertaken at four facilities in
Maharashtra. In FY2012, the company also forayed into the CRAMS segment by bagging contracts from
reputed global players Post Godrej Agrovet ltd’s (rated [ICRA]AA (Stable) / [ICRA]A1+) majority stake
purchase in the company in late FY2016, Astec has benefitted in terms of managerial support as well as
improved financial flexibility, resulting in an improved financial performance since FY2017. Astec is
expected to continue to benefit from strong linkages to the Godrej Group, which may aid in its future
expansion plans and may enable it to attract high-quality talent for strengthening its R&D function.
The company reported sales of Rs. 555cr and PAT of Rs. 65cr in FY 21 vs sales of Rs. 522cr and PAT of Rs.
47cr in FY 20. D/E ratio remained at manageable level of 0.6.
Parameter (` Crore) Mar-2021 Mar-2020 Mar-2019 Mar-2018 Mar-2017
Net Sales 555 522 431 357 288
Operating Income 555 529 438 387 298
Operating Margin (%) 20.1 19.5 19.5 24.0 21.1
Profit After Tax 65 47 36 35 19
Net Profit Margin (%) 11.7 9.0 8.1 9.0 6.4
Net Worth 304 243 200 167 134
Total Debt 187 99 176 125 127
Debt-Equity ratio (x) 0.6 0.4 0.9 0.7 0.9
Note: No Reported Financials Available
Source: CRISIL Research. Financials are displayed as per the standard adjustments done by CRISIL.LARSEN AND TOUBRO LIMITED
Rating: CRISIL A1+/AAA (Stable) ICRA A1+/AAA (stable) India Ratings A1+/AAA (stable)
Rating change in last month: No change
Sector: CONSTRUCTION
About: L&T is the largest company in the engineering and construction sector in India, with interest in projects,
infrastructure, real estate development, manufacturing, IT and financial services. It provides EPC
services in all major segments such as buildings & factories, transportation and civil infrastructure, power
(generation – thermal, hydro and nuclear, transmission and distribution), water and related, oil & gas and
material handling. The company also undertakes infrastructure development project (roads, metro rail,
power and transmission lines) through special purpose vehicles L&T IDPL, L&T Power Development and
LTMRHL. We factor in the strong financial risk profile characterized by healthy cash accruals supported
by its diversified revenue profile, stable operating profitability, and strong balance sheet marked by low
net-gearing, strong liquidity position, and healthy financial flexibility arising from its exchange-listed
subsidiaries. The liquidity position, thus, remains strong with cash and cash balances of ~Rs. 20,000 crore
and unutilized working capital limits of ~Rs. 4,500 crore as on May 31, 2020. The capital structure of the
company remains comfortable with gearing (Total Debt / Tangible Net-worth) of 0.4 times as on March
31, 2021 at a standalone level. L&T reported total operating income of Rs. 73,316 in FY21 vs 81,550cr in
FY20 and PAT of Rs. 11,337cr vs 6,678cr in the previous year
Parameter (`Crore) Mar-2021 Mar-2020 Mar-2019 Mar-2018 Mar-2017
Net Sales 73,316 81,520 80,936 73,235 64,661
Operating Income 73,316 83,026 82,559 75,068 66,274
Operating Margin (%) 9.9 8.5 8.8 9.6 10.2
Profit After Tax 11,337 6,679 7,491 5,387 5,454
Net Profit Margin (%) 15.5 8.0 9.1 7.2 8.2
Net Worth 60,310 52,091 49,648 48,780 45,687
Total Debt 23,809 25,785 11,990 10,561 10,558
Debt-Equity ratio (x) 0.4 0.5 0.2 0.2 0.2GRASIM INDUSTRIES LIMITED
Rating: CRISIL AAA (stable)/A1+, ICRA AAA(stable),India Ratings ltd AAA(stable),A1+
Rating change in last month: No change
Sector: CEMENT & CEMENT PRODUCTS
About: Incorporated in 1947, Grasim is the flagship company of the Aditya Birla group. It commenced operations
in 1948 as a textile manufacturer and is the sole producer of VSF in the domestic market. The viscose
segment also comprises the viscose filament yarn business of merged ABNL and acquired rights to
manage and operate Century Textiles and Industries Ltd's ('CRISIL AA/stable/CRISIL A1+') rayon division
with effect from February 1, 2018. The chemical segment comprises caustic soda, allied chemicals, and
epoxy. Also, the company has presence in fertilisers, textile and insulators.
UltraTech, Grasim's 57% subsidiary, is the largest cement producer in India. On August 11, 2016, Grasim
announced a composite scheme of merger of ABNL with itself, followed by demerger of the financial
services business into a separate listed entity, ABCL. Following the merger, effective July 1, 2017, ABCL
was listed in September 2017. Grasim holds 54.24% of equity in ABCL as on 31st March, 2021.
Parameter (`Crore) Mar-2021 Mar-2020 Mar-2019 Mar-2018 Mar-2017
Net Sales 12,386 18,387 20,370 15,651 10,208
Operating Income 12,386 18,661 20,624 15,835 10,345
Operating Margin (%) 12.6 12.8 20.1 19.6 20.8
Profit After Tax 905 1,270 515 1,769 1,560
Net Profit Margin (%) 7.3 6.8 2.5 11.2 15.1
Net Worth 41,745 36,580 40,780 43,513 16,202
Total Debt 4,011 5,068 3,311 2,969 701
Debt-Equity ratio (x) 0.1 0.1 0.1 0.1 0HDB FINANCIAL SERVICES
Rating: CRISIL AAA (stable)/A1+, CARE AAA(stable)
Rating change in last month: No change
Sector: FINANCIAL SERVICES
About: HDB Financial Services Limited (HDBFS) was set up as a non bank financing company, by HDFC bank in
June 2007. The company began operations in fiscal 2008. The bank owned 95.9 percent of HDBFS equity
shares. The company had 1350 branches across 961 cities in India. Apart from the lending business,
HDBFS also distributes general and life insurance products for HDFC Ergo General Insurance Company
and HDFC Standard Life Insurance Company, respectively. The company also runs business process
outsourcing (BPO) services that undertakes collection services, back office and sales support functions
under a contract with HDFC Bank. For FY21 HDB's recorded a modest 5% increase in its loan book to Rs
58,947 cr from Rs 55,930 cr a year ago. Net interest income grew 15% to Rs 1,252 cr from Rs 1,084.5 cr a
year ago. Net profit for the fiscal ended March 2021 halved to Rs 503 cr from Rs 1,037 cr a year earlier.
However, HDB could arrest the deterioration in asset quality during the quarter as gross NPA at the end of
March 2021 was 3.9% down from the reported proforma NPA of 5.9% as of December 2020. HDB has a
liquidity coverage ratio (LCR) of 265% and capital adequacy of 19% higher than the 15% required by
regulations
Parameter (`Crore) Mar-2021 Mar-2020 Mar-2019 Mar-2018 Mar-2017
Equity Share Capital 789 788 786 783 780
Reported Networth 8,446 8,018 7,178 6,202 5,363
AUM 58,811 57,210 53,922 43,159 31,996
Total assets 63,097 60,705 55,698 44,749 33,470
Total borrowing 50,935 49,916 46,308 36,132 26,301
Interest Income 8,488 8,233 6,712 5,146 4,089
Interest expenses 3,917 4,133 3,380 2,409 2,102
Operating expenses
(incl. depreciation) _ _ _ _ _
Total income 10,903 10,755 8,655 7,062 5,714
PAT 391 1,005 1,153 952 699
Gross NPA 4.69 4.02 1.86 1.58 1.45
Net NPA 3.22 3.24 1.26 0.98 0.84
Overall CAR 18.89 19.36 17.91 17.94 20.79
Note: No Reported Financials Available
Source: CRISIL Research. Financials are displayed as per the standard adjustments done by CRISIL.Issuer wise Holding as on August 31, 2021
Principal Principal
Principal Principal
Cash Ultra
Issuer Low Duration Short Term
Management Short Term
Fund Debt Fund
Fund Fund
Astec Lifesciences Ltd. 0.040256735 0.041693935
Axis Bank Ltd. 0.06835794 0.05003423
Export-Import Bank of India 0.028828527
Grasim Industries Ltd. 0.025674098
HDB Financial Services Ltd. 0.045280362 0.022425081 0.032827837
HDFC Bank Ltd. 0.040119015
Hindustan Petroleum
Corporation Ltd. 0.038327506
Housing Development Finance
Corp Ltd. 0.057652953 0.086448029 0.053886232 0.033438279
ICICI Bank Ltd. 0.039126345
Indian Oil Corporation Ltd. 0.052110232 0.045034578
Indian Railway Finance
Corporation Ltd. 0.017296157 0.028054829 0.067503343
IndusInd Bank Ltd. 0.033729919 0.065835825
Larsen & Toubro Ltd. 0.017578946 0.025733632
LIC Housing Finance Ltd. 0.038531685 0.008465444
National Bank for Agri &
Rural Develop 0.088326564 0.045067974 0.04305219
National Housing Bank 0.053141273 0.039335272
NTPC Ltd. 0.045725552 0.0449874
Power Finance Corporation Ltd. 0.028933672 0.038807262
REC Ltd. 0.017369373 0.030771642 0.05927054
Reliance Industries Ltd. 0.038846688 0.042834142
Small Industries Development
Bank Of India 0.035292481 0.043053572DISCLAIMER
Disclaimer:
The investment strategy stated above may change from time to time without any notice and shall be in accordance
with the strategy as mentioned in the Scheme Information Document of the scheme. The views contained herein are
not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Diversification does
not guarantee investment returns and does not eliminate the risk of loss. They are considered to be reliable at the time
of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change
without reference or notification to you. It should be noted that the value of investments and the income from them
may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full
amount invested. Past performance may or may not be sustained in future. The views and strategies described may
not be suitable for all investors. Furthermore, whilst it is the intention to achieve the investment objective of the
investment product(s), there can be no assurance that those objectives will be met. Investors are advised to consult
their Investment advisors for determining their risk appetite and Tax Advisor before taking any investment decision.
The data/statistics/ comments are given to explain general market trends in the securities market, it should not be
construed as any research report/research recommendation.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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