DCB Bank Absolute : ADD Relative : EQUALWEIGHT… · DCB Bank Absolute – ADD Relative –...

April 17, 2018 Analyst: Rohan Mandora [email protected] (+91-9737065666)/Ankit Choudhary [email protected] of 13

Before reading this report, you must refer to the disclaimer on the last page.

DCB Bank Absolute : ADD

Relative : EQUALWEIGHT

4QFY18Results: Est. (↑), Target (↑), Rating () Regular Coverage 9.1% ATR in 11Months

Strong quarter; retain ADD on limited upside Financials

© 2018Equirus All rights reserved Rating Information

Price (Rs) 190

Target Price (Rs) 205

Target Date 31st Mar’19

Target Set On 16thApril’18

Implied yrs of growth (ERE) 20

Fair Value (ERE) 202

Fair Value (DDM) NA

Ind Benchmark BANKEX

Model Portfolio Position -

Stock Information

Market Cap (Rs mn) 58,582

Free Float (%) 85.00 %

52 Wk H/L (Rs) 213/154.9

Avg Daily Volume (1yr) 2,025,605

Avg Daily Value (1yr) 375

Equity Cap (Rs Mn) 3,081

Face Value (Rs) 10

Bloomberg Code DCBB IN

Ownership Recent 3M 12M %

Promoters 15.0 % 0.0 % -1.2 %

DII 24.9 % 1.1 % 7.9 %

FII 21.3 % 0.1 % -2.2 %

Public 38.7 % -0.7 % -4.5 %

Price % 1M% 3M% 12M%

Absolute 16.5 % -1.9 % 5.8 %

Vs Industry 13.7 % 1.4 % -9.0 %

CUB 3.1 % 3.2 % 31.6 %

SIB 0.2 % -21.0 % 11.8 %

Consolidated Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (FY18) 2.2 1.9 1.9 2.2

EPS (FY19E) 2.4 2.5 2.7 2.8

DCB Bank (DCBB) posted a strong all-round 4QFY18 performance with a ~22% yoy PAT

growth (Rs 642mn, EE Rs 607mn), 29% yoy loan growth and better asset quality

(GNPA/NNPA improving to 1.8%/0.7% on lower slippages at 1.7%). While core fee income

grew by a strong 40% yoy, NIM (calc.) contracted 8bps qoq. In FY19E, we expect (i) DCBB

to maintain healthy loan growth of ~24% yoy as it gains incremental business from SOE

banks, (ii) NIMs to moderate further, in line with the trend seen in 2HFY18 (FY19E/FY20E

calc. NIM at 3.7%/3.6%), (iii) fee income to be marginally ahead of assets growth driven

by higher cross-selling and (iv) stable asset quality given a granular loan book. We raise

our FY19E/FY20E PAT by 6%/8% as we upgrade our fee estimates. Retain ADD with an

ERoE-based Mar’19 TP of Rs 205 (Rs 196 earlier) set at a 2.2x Mar’19 ABV of Rs 92. Core fee income growth robust, pricing pressure hurts NIM: Non-interest income

jumped 34% yoy driven by bancassurance, fx products for retail, SME/retail trade

products, and sale of PSL certificates. NII grew ~20% yoy to Rs 2.64bn. Pricing pressure

pulled down NIMs by ~31bps in 4QFY18 vs. 2QFY18; we expect NIMs to moderate

further in FY19E as competition intensifies from SFBs and NBFCs. Opex increased by

23% yoy in 4QFY18(FY18: 24%). However, with management guidance on the pace of

branch addition moderating to ~15/year in both FY19E/FY20E, we expect the C/I ratio

to improve to 57.6%/55.5%. We build in a ~18bps/9bps contraction in FY19E/FY20E

NIMs and a 25%/22% growth in fee income. Advances up ~29% yoy, cross Rs 200bn: DCBB’s loan growth was driven by CV/

corporate banking segments while the share of mortgages declined to 40% vs. 42% in

3QFY18 as the foreclosure rate was ~30-40% higher than last year. ~70% of current

advances with ticket sizes below Rs 30mn and management guides to keep the loan

book mix remaining broadly similar with a sustained focus on granular loans. Deposits

were up 24.5% yoy with the CASA ratio declining 134bps qoq to 24.3%. We build in

FY19E/FY20E loan growth of 24%/24%, but feel DCBB would need to raise capital in

FY20E to support growth. GNPL/NNPL ratios improve to 1.8%/0.7%: Overall, fresh slippages moderated to 1.7%

vs. 2.3% qoq. NPAs in gold loans/mortgages inched up to 2.6%/1.7% vs. 1.9%/1.6% in

3Q. GNPA ratios moderated by more than 20bps qoq in the corporate (2.4%), SME

(1.3%), CV (2.5%) and AIB (1.7%) segments. One NPA restructured loan worth Rs 90mn

was upgraded to standard restructured. Upgrades and recoveries were healthy at

Rs 667mn (Rs 669mn of total reduction in NPAs). We expect asset quality to remain

robust and considerably better that the systemic average. Risks: (1) A sharp increase in slippages, (2) other FIs offering unsecured loans and

top-up loans, leading to higher competition, and (3) a slowdown in the growth rate of

mortgage loans.

Revised Estimates % Change

FY19E FY20E FY19E FY20E

NII 11,778 14,037 -0.7% -1.9%

Provisions 1,726 2,128 9.2% 8.4%

PAT 3,195 4,048 6.1% 7.9%

EPS (Rs.) 10.4 13.1 5.8% 7.6%

Advances 252,175 312,697 2.0% 1.2%

Deposits 297,685 369,129 11.8% 13.7%

Consolidated Financials

Rs. Mn YE Mar FY18A FY19E FY20E FY21E

NII 9,954 11,778 14,037 17,221

Other Income 3,103 3,878 4,732 5,631

Total Income 13,057 15,656 18,769 22,852

Operating Exp 14,084 16,822 19,429 22,454

PPoP 5,250 6,641 8,355 10,812

Provisions 1,388 1,726 2,128 2,778

PAT 2,453 3,195 4,048 5,222

Loan and Advances

203,367 252,175 312,697 384,617

Deposits 240,069 297,685 369,129 457,721

Net Worth 28,078 30,917 34,501 39,259

NIM 3.8 % 3.7 % 3.6 % 3.6 %

Prov/Avg Loans 0.77 % 0.76 % 0.75 % 0.80 %

Rs Per Share FY18A FY19E FY20E FY21E

EPS 8.3 10.4 13.1 16.9

Adjusted EPS 8.3 10.4 13.1 16.9

Book Value 91.1 100.4 112.0 127.4

Adjusted BVPS 86.4 92.7 102.0 115.5

DPS 0.8 1.0 1.3 1.3

P/E (x) 23.0 18.3 14.5 11.2

Adj P/B (x) 2.2 2.1 1.9 1.6

ROE (%) 10.3 % 10.8% 12.4% 14.2%

RoA (%) 0.9 % 1.0% 1.0% 1.1%

mailto:[email protected]


DCB Bank Absolute – ADD Relative – EQUALWEIGHT 9.1% ATR in 11 Months


Quarterly performance

Particulars

%Variation

Profit & Loss (Rs mn) 4QFY18 4QFY18E 4QFY17 3QFY18 4QFY18E 4QFY17 3QFY18

Net interest income (NII) 2,637 2,574 2,203 2,505 2.4% 19.7% 5.3%

Other income 849 771 633 749 10.1% 34.0% 13.2%

Total income 3,486 3,345 2,836 3,254 4.2% 22.9% 7.1%

Operating expenses 2,070 2,086 1,682 2,029 -0.8% 23.0% 2.0%

- Staff expenses 1,017 993 815 970 2.4% 24.7% 4.8%

- Other expenses 1,053 1,093 867 1,059 -3.7% 21.5% -0.5%

Operating profit 1,416 1,259 1,153 1,225 12.4% 22.8% 15.5%

Total provisions 388 381 339 343 1.8% 14.4% 13.3%

Profit before tax 1,028 878 814 883 17.1% 26.2% 16.4%

Tax 386 271 286 313 42.3% 35.1% 23.3%

Profit after tax 642 607 529 570 5.8% 21.5% 12.6%

Balance sheet (Rs mn) 4QFY18 4QFY18E 4QFY17 3QFY18 % change vsEst % change y-o-y % change q-o-q

Deposits 240,069 221,826 192,892 212,959 8.2% 24.5% 12.7%

Advances 203,367 197,720 158,176 185,952 2.9% 28.6% 9.4%

Investment 62,190 57,255 58,179 57,136

6.9% 8.8%

Gross NPL (Rs mn) 3,690

2,542 3,545

45.2% 4.1%

Net NPL (Rs mn) 1,467

1,184 1,615

23.9% -9.1%

Ratios (%) 4QFY18 4QFY18E 4QFY17 3QFY18

bp change y-o-y bp change q-o-q

Profitability ratios - Reported

Yield on Advances 11.4%

12.0% 11.3%

-62 16

Cost of Funds 6.3%

6.5% 6.4%

-20 -14

NIM 4.2%

4.2% 4.1%

-1 4

RoaA 0.9%

0.9% 0.9%

1 5

RoaE 10.2%

10.0% 9.3%

25 91

Asset Quality

Gross NPL ratio 1.79%

1.6% 1.89%

20 -10

Net NPL ratio 0.72%

0.8% 0.87%

-7 -15

Coverage ratio 75.7%

73.8% 73.4%

192 236

Business & Other Ratios

CASA 24.3%

24.3% 25.7%

2 -134

Cost-income ratio 59.4%

59.3% 62.3%

6 -296

Non int. inc / total income 24.3%

22.3% 23.0%

202 132

Credit deposit ratio 84.7%

82.0% 87.3%

271 -261

CAR 16.5%

13.8% 15.8%

271 70

Tier-I 12.7%

11.9% 12.5%

85 18

Source: Company, Equirus Securities





Exhibit 1:Provisioning coverage (excluding technical write-off) stood at 60.2%

Source: Company, Equirus Research

Exhibit 2:GNPL ratio inched up qoq for mortgages & gold loans and declined for others


Exhibit 3: Share of mortgages slid to 40% (3Q: 42%); management expects to maintain a similar loan book going ahead


Exhibit 4: NIMs for FY18 stood 4.16% vs. 4.04% in FY17


0%

10%

20%

30%

40%

50%

60%

70%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

4Q

FY18

GNPA NNPA PCR (Computed) - RHS

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Corporate SME + MSME Mortgages CV AIB Gold Loan Others

4QFY17 3QFY18 4QFY18

40.0%

17.0%

12.0% 2.0%

6.0%

18.0%

3.0% 2.0% Mortgages

Corporate Banking

SME + MSME

Gold loan

CV

AIIB

Construction Finance

Others

3.5%

3.7%

3.9%

4.1%

4.3%

4.5%

4.0%

7.0%

10.0%

13.0%

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

4Q

FY18

Yield On Advances Cost of Fund NIM - RHS





Exhibit 5: CASA ratio stood at 24.3%


Exhibit 6: Slippage ratio moderated qoq to 1.7%

NPA Movement 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18

Opening Balance 1,492 1,688 1,792 1,861 2,064 2,243 2,349 1,974 2,313 2,554 2,279 2,542 2,853 3,158 3,545

Fresh Slippages 418 207 846 572 621 549 502 578 500 793 742 856 775 1,031 805

Addition to Existing NPAs 0 16 12 1 1 2 7 1 1 - 4 31 4 7 9

Deduction 222 119 789 370 443 445 884 240 260 1,068 483 576 474 651 669

Closing Balance 1,688 1,792 1,861 2,064 2,243 2,349 1,974 2,313 2,554 2,279 2,542 2,853 3,158 3,545 3,690

Slippage Ratio 2.0% 1.0% 3.4% 2.2% 2.3% 1.9% 1.7% 1.8% 1.4% 2.2% 2.0% 2.2% 1.9% 2.3% 1.7% Source: Company, Equirus Research

25.4%

23.4%

23.0% 23.4%

23.1%

24.3%

26.9%

24.3%

21%

23%

25%

27%

29%

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

4Q

FY18

CASA Ratio





Earnings call takeaways

Business Update

Key drivers of growth in fee income: Bancassurance, fx products for retail,

SME/retail trade products, sales of PSL certificates.

So far, the bank has trained more than 1,000 employees who are now certified for

cross-selling various insurance/MF products.

DCBB has not purchased any loan portfolio during FY18. Adjusting for rundown in

earlier buyout pools, organic loan growth is ~30-31%.

Management is not looking to grow corporate banking aggressively, with the segment

likely to constitute ~15-20% of its overall loan book.

While the focus would remain on mortgages, recent changes in mortgage credit

underwriting are leading to slower growth in the segment.

DCBB is offering 2W/car loans only to existing customers, with no dedicated staff to

market these products.

The foreclosure rate of mortgage loans has gone up by 30-40% vis-à-vis last year.

On retail term deposits, DCBB is seeing good traction in Suraksha FDs which offers

free life insurance cover up to the deposit amount with a cap of Rs 5mn.

Asset Quality

One NPA restructured LRD account worth Rs 90mn was upgraded to standard

restructured as the borrower had been regular on paying two loans. A delay in one of

the loans was due to cancellation of a lease agreement.

Increase in CV NPAs is due to the impact of GST and industry-specific issues.

Strong controls are in place for gold loans. Management is confident of no

frauds/operational losses in gold loans.

Guidances

FY19 exit quarter targets were retained with a C/I ratio of 55% and RoAs/RoEs of

1%/14%.

Long-term RoE target is at 17-18%.

Management remained cautious on NIMs and retained its FY19 guidance at ~3.75%.

DCBB plans to expand its branch network by ~15-20 in FY19/FY20 each.

Data Points

The ticket sizes for 70%+ of loans are below Rs 30mn.

Split of HL: LAP in mortgage is 70%:30%. Typically, HL borrowers take a top-up loan

in 2-3 years, thereby converting a HL into LAP.

~70-80% of CV loans are PSL-compliant. Within CVs, ~20% loans are refinanced.

O/S SRs: Rs 620mn.

Employee count: 5,790.

The bank did not amortize any MTM losses/provisions during the quarter.

Avg. opex/branch is Rs 6mn.

DCBB recorded Rs 20mn one-off expenses in the tax line.

Management expects to maintain the C/D ratio between 80-86%.





Exhibit 7: ROE-ROA Tree Analysis

Particulars (Rs mn) FY17A FY18A FY19E FY20E FY21E

Yield on Loans and Advances 11.5% 10.7% 10.9% 10.9% 10.9%

Yield on Investments 7.8% 7.0% 7.2% 7.2% 7.2%

Cost of Funds 7.0% 6.1% 6.7% 6.7% 6.7%

Net Interest Margin 3.9% 3.8% 3.7% 3.6% 3.6%

Advances (A) 158,176 203,367 252,175 312,697 384,617

Investments (B) 58,179 62,190 83,680 98,339 119,759

Cash In Hand &Bal with RBI (C) 8,583 11,364 13,378 16,451 20,252

Balances with Banks (D) 3,342 12,356 3,982 4,896 6,027

Int. Earning Assets (A+B+C+D) 228,280 289,276 353,215 432,383 530,655

Average Interest Earning Assets 204,871 258,778 321,245 392,799 481,519

NII/Avg Int Earning Assets 3.9% 3.8% 3.7% 3.6% 3.6%

Non Int Inc/Avg Int Earning Assets 1.2% 1.2% 1.2% 1.2% 1.2%

Tot. Inc/Avg Int Earning Assets 5.1% 5.0% 4.9% 4.8% 4.7%

Op. Costs/AvgInt Earning Assets 3.1% 3.0% 2.8% 2.7% 2.5%

PPI/Avg Int Earning Assets 2.0% 2.0% 2.1% 2.1% 2.2%

Provisions/Avg Int Earning Assets 0.5% 0.5% 0.5% 0.5% 0.6%

Taxes/Avg Int Earning Assets 0.5% 0.5% 0.5% 0.6% 0.6%

Return on Avg Int Earning Assets 1.0% 0.9% 1.0% 1.0% 1.1%

Extraordinary item 0.0% 0.0% 0.0% 0.0% 0.0%

Adj. Return on Avg Int Earning Assets 1.0% 0.9% 1.0% 1.0% 1.1%

Productivity (Avg Int Earning Assets/Avg Total Assets) 94.9% 95.4% 96.0% 96.4% 96.8%

Return on Average Total Assets 0.9% 0.9% 1.0% 1.0% 1.1%

Leverage (Average Total Assets/Average Equity) 11.7 11.4 11.3 12.5 13.5

Return on Average Equity 10.8% 10.3% 10.8% 12.4% 14.2%

Source: Company, Equirus Securities





Company snapshot How we differ from Consensus

Equirus Consensus % Diff Comment

EPS FY18E 10.4 10.4 0 %

We expect consensus to be updated

FY19E 13.1 13.2 -1 %

NII +

Other

Inc

FY18E 15,656 15,556 1 %

FY19E 18,769 18,774 0 %

PAT FY18E 3,195 3,201 0 %

FY19E 4,048 4,122 -2 %

Our key investment arguments: (1) Core PPOP growth to remain healthy. (2) Loan

growth to be above systemic trends at 24%. (3) C/I ratio to improve to 55.5% by FY20E.

(4) While there could be a marginal uptick in slippages, overall losses to be contained

owing to good quality of underlying collaterals.

Key Assumptions 2017A 2018A 2019E 2020E 2021E

Net Interest Income (Rs mn) 7,971 9,954 11,778 14,037 17,221

Net interest margin (%) 3.9% 3.8% 3.7% 3.6% 3.6%

Other Income (Rs mn) 2,488 3,103 3,878 4,732 5,631

Total Income (Rs mn) 10,459 13,057 15,656 18,769 22,852

Operating Expense (Rs mn) 6,277 7,807 9,015 10,414 12,040

Cost to Income Ratio (%) 60.0% 59.8% 57.6% 55.5% 52.7%

Credit Cost (%) 0.8% 0.8% 0.8% 0.8% 0.8%

PAT (Rsmn) 1,997 2,453 3,195 4,048 5,222

Advances Growth (%) 22.4% 28.6% 24.0% 24.0% 23.0%

Deposits Growth (%) 29.2% 24.5% 24.0% 24.0% 24.0%

Key risks: A substantial increase in slippages from the mortgage portfolio, overleveraging

of borrowers, and heightened competitive intensity leading to pricing pressures and delay

in productivity of new branches.

Sensitivity to Key Variables % Change % Impact on EPS

Net Interest Income 10 % 24.4%

Provisioning Costs 10 % -3.6%

Loans & Advances Growth 10 % 5.1%

ERoE Valuations & Assumptions

Rf Ke Term. Growth RoE in Terminal Yr

6.9 % 13.5 % 5.0 % 15.4 %

-

FY18E FY20-23E FY24-28E FY29-38E

PAT Growth 30.2 % 22.5 % 14.9 % 14.9 %

Dividend Payout 11.6 % 10.0 % 10.0 % 10.0 %

BV Growth

10.1% 14.8% 14.9% 14.9%

RoE 10.8 % 15.4 % 15.4 % 15.4 %

-

Years of strong growth

1 5 10 20

Valuation as on date (Rs)

66 129 145 181

Valuation as of Mar ‘19

75 112 165 205

Our TP of Rs 205 is based on an ERoE valuation assuming 20 years of growth, implying 20

years of high growth with an average RoE of 15.4% and cost of equity of 13.5%.

Company description:

DCB is a modern emerging new generation private sector bank. As on 31 Mar’18, it had a

distribution network of 318 branches across 19 states and 3 UTs, and 533 ATMs. Its

promoter – Aga Khan Fund for Economic Development (AKFED) – holds a 16.41% stake at

present.

Comparable valuation Mkt Cap

(Rs Mn)

Price

Target

Target

Date

FY19E

P/E P/B ABPS RoE Divi Yield

Company Reco. CMP FY18A FY19E FY20E FY18A FY19E FY20E FY19E FY18A FY19E FY20E FY18A FY19E FY20E

DCB Bank ADD 190 58,582 205 Mar ’19 23.0 18.3 14.5 2.2 2.1 1.9 92.7 10.3% 10.8% 12.4% 0.4% 0.5% 0.7%

City Union Bank ADD 180 119,784 175 Mar ’19 19.1 16.6 13.7 3.2 2.8 2.4 64.9 15.5% 16.0% 16.6% 0.2% 0.2% 0.2%

South Indian Bank LONG 25 45,492 39 Mar ’19 14.2 5.2 5.2 1.2 1.0 0.9 24.7 6.5% 12.3% 14.6% 1.8% 2.0% 2.2%





Consolidated quarterly earnings forecast and key drivers Rs in Mn 1Q18A 2Q18A 3Q18A 4Q18A 1Q19E 2Q19E 3Q19E 4Q19E 1Q20E 2Q20E 3Q20E 4Q20E FY18A FY19E FY20E FY21E

Interest Income 5,660 5,870 6,108 6,492 7,015 7,401 7,806 8,918 9,376 9,817 10,314 8,359 24,130 31,140 37,866 46,555 Interest Expense 3,329 3,389 3,603 3,855 4,240 4,537 4,757 5,827 6,109 6,405 6,715 4,600 14,176 19,362 23,829 29,334

Net Interest Income 2,332 2,481 2,505 2,637 2,775 2,863 3,049 3,090 3,267 3,412 3,599 3,759 9,954 11,778 14,037 17,221

Non Interest Income 858 653 749 849 901 933 933 1,112 1,121 1,163 1,261 1,187 3,103 3,878 4,732 5,631

Total Income 3,189 3,134 3,254 3,486 3,676 3,796 3,982 4,202 4,388 4,575 4,860 4,946 13,057 15,656 18,769 22,852

Operating and Other Expenses 1,825 1,890 2,029 2,070 2,155 2,220 2,275 2,365 2,462 2,567 2,676 2,710 7,807 9,015 10,414 12,040 Staff Cost 905 921 970 1,017 1,069 1,101 1,145 1,183 1,244 1,288 1,333 1,353 3,812 4,499 5,218 6,053 Other Operating Expenses 920 969 1,059 1,053 1,086 1,119 1,130 1,181 1,218 1,279 1,342 1,357 3,995 4,516 5,195 5,987 Pre-Provision Income 1,364 1,244 1,225 1,416 1,521 1,576 1,707 1,837 1,926 2,008 2,185 2,236 5,250 6,641 8,355 10,812 Provisions and Write-offs 355 302 343 388 404 390 427 505 475 484 530 640 1,388 1,726 2,128 2,778 PBT 1,009 942 883 1,028 1,117 1,186 1,280 1,333 1,451 1,524 1,655 1,596 3,862 4,916 6,227 8,033 TAX 357 353 313 386 391 415 448 466 508 534 579 559 1,408 1,720 2,179 2,812 Extraordinary 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 PAT 652 589 570 642 726 771 832 866 943 991 1,076 1,038 2,453 3,195 4,048 5,222 EPS (Qtrly) 2 2 2 2 2 3 3 3 3 3 3 3 8 10 13 17 Key Drivers - - - - - - - - - - - - - - - - YoA 11.7 % 11.4 % 11.3 % 11.4 % 10.9 % 10.9 % 10.9 % 10.9 % 10.9 % 10.9 % 10.9 % 10.9 % 10.7 % 10.9 % 10.9 % 10.9 % YoI 7.4 % 7.3 % 7.4 % 7.2% 7.4 % 7.4 % 7.4 % 7.4 % 7.4 % 7.4 % 7.4 % 7.4 % 7.0 % 7.2 % 7.2 % 7.2 % CoF 6.6 % 6.5 % 6.4 % 6.3 % 6.3 % 6.3 % 6.3 % 6.3 % 6.3 % 6.3 % 6.3 % 6.3 % 6.1 % 6.7 % 6.7 % 6.7 %

NIM 4.2 % 4.2 % 4.1 % 4.2% 3.7 % 3.7 % 3.7 % 3.6 % 3.6 % 3.6 % 3.6 % 3.6 % 3.8 % 3.7 % 3.6 % 3.6 %

C/I Ratio 57 % 60 % 62 % 59 % 59 % 58 % 57 % 56 % 56 % 56 % 55 % 55 % 60 % 58 % 55 % 53 % CD Ratio 84.9 % 84.6 % 87.3 % 84.7 % 85.6 % 86.4 % 87.3 % 84.7 % 85.6 % 86.4 % 87.3 % 84.7 % 84.7 % 84.7 % 84.7 % 84.0 % Non-Interest Income/ Total Income 26.9 % 20.8 % 23.0 % 24.3 % 24.5 % 24.6 % 23.4 % 26.5 % 25.5 % 25.4 % 25.9 % 24.0 % 23.8 % 24.8 % 25.2 % 24.6 % ROA 1.1 % 0.9 % 0.9 % 0.9 % 0.9 % 0.9 % 1.0 % 1.0 % 1.0 % 1.0 % 1.0 % 1.0 % 0.9 % 1.0 % 1.0 % 1.1 % ROE 10.7 % 8.8 % 9.3 % 10.2% 10.2 % 10.6 % 11.1 % 11.3 % 12.0 % 12.3 % 12.9 % 12.1 % 10.3 % 10.8 % 12.4 % 14.2 % Sequential Growth (%) - - - - - - - - - - - - - - - -

NII 5.9 % 6.4 % 0.9 % 5.3 % 5.2 % 3.2 % 6.5 % 1.3 % 5.7 % 4.4 % 5.5 % 4.4 % - - - -

TI 12% -2% 4% 7% 5% 3% 5% 6% 4% 4% 6% 2%

PPI 18.3 % -8.8 % -1.5 % 15.5 % 7.4 % 3.6 % 8.3 % 7.6 % 4.8 % 4.3 % 8.8 % 2.3 % - - - - Provisions and Write-offs 5 % -15 % 13 % 13 % 4 % -3 % 10 % 18 % -6 % 2 % 10 % 21 % - - - - PAT 23 % -10 % -3 % 13 % 13 % 6 % 8 % 4 % 9 % 5 % 9 % -4 % - - - - EPS 17 % -12 % -3 % 13 % 9 % 6 % 8 % 4 % 9 % 5 % 9 % -4 % - - - - Advances 3 % 7 % 7 % 9 % 6 % 6 % 6 % 3 % 6 % 6 % 6 % 3 % - - - -

Deposits -1 % 7 % 4 % 13 % 5 % 5 % 5 % 6 % 5 % 5 % 5 % 6 % - - - -

Total Business 5 % -1 % 7 % 6 % 6 % 6 % 6 % 6 % 5 % 6 % 6 % 8 % Yearly Growth (%) - - - - - - - - - - - - - - - - NII 32 % 30 % 20 % 20 % 19 % 15 % 22 % 17 % 18 % 19 % 18 % 22 % 25 % 18 % 19 % 23 % TI 34 % 24 % 19 % 23 % 15 % 21 % 22 % 21 % 19 % 21 % 22 % 18 % 25 % 20 % 20 % 22 % PPI 47 % 23 % 12 % 23 % 12 % 27 % 39 % 30 % 27 % 27 % 28 % 22 % 26 % 27 % 26 % 29 %

Provisions and Write-offs 73 % 14 % 12 % 14 % 14 % 29 % 25 % 30 % 18 % 24 % 24 % 27 % 24 % 24 % 23 % 31 %

PAT 39% 21% 11% 21% 11% 31% 46% 35% 30% 29% 29% 20% 23% 30% 27% 29%

EPS 32% 12% 3% 21% 7% 26% 41% 30% 30% 29% 29% 20% 18% 25% 27% 29% Advances 22 % 20 % 28 % 29 % 33 % 32 % 32 % 24 % 24 % 24 % 24 % 24 % 29 % 24 % 24 % 23 % Deposits 22 % 16 % 13 % 24 % 32 % 29 % 32 % 24 % 24 % 24 % 24 % 24 % 24 % 24 % 24 % 24 %

Total Business 22.1% 18.2% 19.3% 26.3% 32.4% 30.7% 31.6% 24.0% 24.0% 24.0% 24.0% 24.0% 26.3% 24.0% 24.0% 23.5%





Consolidated financials

P&L (Rs mn) FY18A FY19E FY20E FY21E

Balance Sheet (Rs mn) FY18A FY19E FY20E FY21E

Particulars FY18A FY19E FY20E FY21E

Interest Income 24,130 31,140 37,866 46,555 Capital 3,081 3,081 3,081 3,081 Asset Quality

Interest Expense 14,176 19,362 23,829 29,334 Reserves and Surplus 24,998 27,836 31,420 36,178 Gross NPA (Rs mn) 3,690 4,740 5,886 7,267

Net Interest Income 9,954 11,778 14,037 17,221 Deposits 240,069 297,685 369,129 457,721 Gross NPA (%) 1.8% 1.9% 1.9% 1.9%

% Growth 24.9% 18.3% 19.2% 22.7% Borrowings 19,267 20,836 22,563 24,462 Net NPA (Rs mn) 1,467 2,370 3,078 3,676

Treasury Income 593 500 500 500 Other Liab & Provisions 14,807 17,768 21,322 25,586 Net NPA (%) 0.7% 0.9% 1.0% 1.0%

Other Inc. 2,510 3,378 4,232 5,131 Total liabilities 302,221 367,207 447,515 547,028 % coverage of NPA 39.8% 50.0% 47.7% 49.4%

Total Income 13,057 15,656 18,769 22,852 Cash & Bal with RBI 11,364 13,378 16,451 20,252 Delinquencies (%) 1.9% 2.0% 2.0% 2.0%

Employees Expenses 3,812 4,499 5,218 6,053 Bal. with banks 12,356 3,982 4,896 6,027 Business Ratios

Other Op. Expenses 3,995 4,516 5,195 5,987 Investments 62,190 83,680 98,339 119,759 Credit / Deposit(%) 84.7% 84.7% 84.7% 84.0%

Operating Profit 5,250 6,641 8,355 10,812 Advances 203,367 252,175 312,697 384,617 Invest/ Deposit (%) 25.9% 28.1% 26.6% 26.2%

% Growth 25.5% 26.5% 25.8% 29.4% Fixed Assets 4,940 5,187 5,447 5,719 CASA (%) 24.3% 24.3% 24.3% 24.4%

Tax 1,408 1,720 2,179 2,812 Other Assets 8,004 8,805 9,685 10,654 RoaA (%) 0.9% 1.0% 1.0% 1.1%

Total Provisions 1,388 1,726 2,128 2,778

Total assets 302,221 367,207 447,515 547,028 RoE (%) 10.3% 10.8% 12.4% 14.2%

Net Profit 2,453 3,195 4,048 5,222 % Growth 25.7% 21.5% 21.9% 22.2% Dividend Yield (%) 0.1% 0.1% 0.1% 0.1%

% Growth 22.9% 30.2% 26.7% 29.0% Key assumptions CAR

Earnings Ratios Deposits RWA (Rs. bn) 207.6 247.4 297.9 356.1

Int Inc. / Avg.assets 8.9% 9.3% 9.3% 9.4% Avg deposit growth (%) 24.5% 24.0% 24.0% 24.0%

Tier I (%) 12.7% 11.8% 11.0% 10.5%

Int. Exp./ Avg assets 5.2% 5.8% 5.8% 5.9% Avg cost of deposits (%) 6.5% 6.7% 6.7% 6.7%

Tier II (%) 3.8% 3.1% 2.6% 2.2%

NIM (%) 3.8% 3.7% 3.6% 3.6% Advances Total CAR (%) 16.5% 15.0% 13.6% 12.7%

Int. exp/ Int earned 58.7% 62.2% 62.9% 63.0% Avg. adv growth (%) 28.6% 24.0% 24.0% 23.0% Per Share Data

Oth. Inc./ Tot. Inc. 23.8% 24.8% 25.2% 24.6% Avg yield on advances 10.7% 10.9% 10.9% 10.9% BVPS 91.1 100.4 112.0 127.4

Staff exp/Opex 48.8% 49.9% 50.1% 50.3% Investments Adj. BVPS, Rs. 86.4 92.7 102.0 115.5

Cost/ Income Ratio 59.8% 57.6% 55.5% 52.7% Avg. invest growth (%) 6.9% 34.6% 17.5% 21.8% Price/ Adj. BV 2.2 2.1 1.9 1.6

Prov./ Oper Profit 26.4% 26.0% 25.5% 25.7%

Avg. yield on invest (%) 7.0% 7.2% 7.2% 7.2%

EPS, Rs. 8.3 10.4 13.1 16.9

Prov./Avg. loans 0.8% 0.8% 0.8% 0.8%

P/E Ratio 23.0 18.3 14.5 11.2

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Historical consolidated financials

P&L (Rs mn) FY15A FY16A FY17A FY18A

Balance Sheet (Rs mn) FY15A FY16A FY17A FY18A

- FY15A FY16A FY17A FY18A

Interest Income 14,224 16,985 20,762 24,130 Capital 2,820 2,844 2,853 3,081 Asset Quality

Interest Expense 9,142 10,790 12,791 14,176 Reserves and Surplus 13,066 15,077 19,195 24,998 Gross NPA (Rs mn) 1,861 1,974 2,542 3,690

Net Interest Income 5,082 6,195 7,971 9,954 Deposits 126,091 149,260 192,892 240,069 Gross NPA (%) 1.8% 1.5% 1.6% 1.8%

% Growth 38.0% 21.9% 28.7% 24.9% Borrowings 11,638 11,479 12,758 19,267 Net NPA (Rs mn) 1,057 975 1,244 1,467

Treasury Income 353 568 558 593 Other Liabilities 7,708 12,525 12,765 14,807 Net NPA (%) 1.0% 0.8% 0.8% 0.7%

Other Inc. ExcTrery 1,304 1,637 1,930 2,510 Total liabilities 161,323 191,185 240,464 302,221 % coverage of NPA 58.4% 50.9% 50.0% 39.8%

Total Income 6,739 8,400 10,459 13,057 Cash &Bal with RBI 6,337 7,034 8,583 11,364 Delinquencies (%) 1.9% 1.9% 1.8% 1.9%

Employees Expenses 1,960 2,451 3,080 3,812 Bal. with bank 855 1,882 3,342 12,356 Business Ratios

Other Op. Expenses 2,005 2,458 3,197 3,995 Investments 39,622 43,333 58,179 62,190 Credit / Deposit(%) 83.0% 86.6% 82.0% 84.7%

Operating Profit 2,774 3,490 4,182 5,250 Advances 104,651 129,214 158,176 203,367 Investmnt / Deposit 31.4% 29.0% 30.2% 25.9%

% Growth 47.6% 25.8% 19.8% 25.5% Fixed Assets 2,367 2,480 4,886 4,940 CASA (%) 23.4% 23.4% 24.3% 24.3%

Tax 168 666 1,070 1,408 Other Assets 7,492 7,242 7,298 8,004 RoaA (%) 1.3% 1.1% 0.9% 0.9%

Total Provisions 694.2 879.1 1,114.9 1,388.0 Total assets 161,323 191,185 240,464 302,221 RoE (%) 14.5% 11.9% 10.8% 10.3%

Net Profit 1,911.8 1,945.2 1,996.6 2,453.4 % Growth 24.8% 18.5% 25.8% 25.7% Dividend Yield (%) 0.0% 0.0% 0.1% 0.1%

% Growth 26.3% 1.7% 2.6% 22.9% Key assumptions CAR

Earnings Ratios Deposits

RWA (Rs. bn) 106 134 173 208

Int Inc. / Avg.assets 9.8% 9.6% 9.6% 8.9%

Avg deposit growth (%) 22.1% 18.4% 29.2% 24.5%

Tier I (%) 14.2% 12.8% 11.9% 12.7%

Int Exp./ Avg. assets 6.3 % 6.1 % 5.9 % 5.2 % Avg cost of deposits (%) 7.3 % 7.3 % 6.9 % 6.5 % Tier II (%) 0.7% 1.3% 1.9% 3.8%

NIM (%) 3.7 % 3.7 % 3.9 % 3.8 % Advances Total CAR (%) 15.0% 14.1% 13.8% 16.5%

Int. exp/ Int earned 64.3 % 63.5 % 61.6 % 58.7 % Avg. advances growth 28.6 % 23.5 % 22.4 % 28.6 %

Per Share Data

Oth. Inc./ Tot. Inc 24.6 % 26.2 % 23.8 % 23.8 % Avg yield on advances 11.8% 11.6% 11.5% 10.7% BVPS 54.5 61.2 68.3 91.1

Staff exp/Opt. exp 49.4 % 49.9 % 49.1 % 48.8 % Investments Adj. BVPS, Rs. 50.8 57.8 63.9 86.4

Cost/ Income Ratio 58.8 % 58.4 % 60.0 % 59.8 % Avg. investment growth 9.0 % 9.4 % 34.3 % 6.9 % Price/ Adj. BV 3.7 3.3 3.0 2.2

Prov./ Op. Profit 25.0 % 25.2 % 26.7 % 26.4 %

Avg. YoI 6.9 % 7.4 % 7.8 % 7.0 %

EPS, Rs. 7.2 6.9 7.0 8.3

Prov./Avg. loans 0.7 % 0.8 % 0.8 % 0.8 %

P/E Ratio 26.5 27.7 27.1 23.0





Equirus Securities

Research Analysts Sector/Industry Email

Equity Sales E-mail

Abhishek Shindadkar IT Services [email protected] 91-22-43320643 Vishad Turakhia [email protected] 91-22-43320633

Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 SubhamSinha [email protected] 91-22-43320631

Depesh Kashyap Mid-Caps [email protected] 91-79-61909528 Viral Desai [email protected] 91-22-43320635

Dhaval Dama FMCG, Mid-Caps [email protected] 91-79-61909518 Viraj Mehta [email protected] 91-22-43320634

Manoj Gori Consumer Durables [email protected] 91-79-61909523 Dealing Room E-mail

Maulik Patel Oil and Gas [email protected] 91-79-61909519 Ashish Shah [email protected] 91-22-43320662

Pranav Mehta Building Materials [email protected] 91-79-61909514 IleshSavla [email protected] 91-22-43320666

Praful Bohra Pharmaceuticals [email protected] 91-22-43320611 Manoj Kejriwal [email protected] 91-22-43320663

Rohan Mandora Banking & Financial Services [email protected] 91-79-61909529 Dharmesh Mehta [email protected] 91-22-43320661

Associates E-mail Compliance Officer E-mail

Ankit Choudhary [email protected] 91-79-61909533 Jay Soni [email protected] 91-79-61909561

Bharat Celly [email protected] 91-79-61909524 Corporate Communications E-mail

Harshit Patel [email protected] 91-79-61909522 Mahdokht Bharda [email protected] 91-22-43320647 Hetal Bhatia [email protected] 91-79-61909532

Meet Chande [email protected] 91-79-61909513

Nishant Bagrecha [email protected] 91-79-61909526

Ronak Soni [email protected] 91-79-61909525

Samkit Shah [email protected] 91-79-61909520

Shreepal Doshi [email protected] 91-79-61909541

Varun Baxi [email protected] 91-79-61909527

Vikas Jain [email protected] 91-79-61909531

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

Registered Office:

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Unit No. 1201, 12th Floor, C Wing, Marathon Futurex,

N M Joshi Marg, Lower Parel,

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Tel. No: +91 – (0)22 – 4332 0600

Fax No: +91- (0)22 – 4332 0601

Corporate Office:

3rd floor, House No. 9,

Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge,

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Tel. No: +91 (0)79 - 6190 9550

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Analyst Certification

We, Rohan Mandora/Ankit Choudhary, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or

their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclosures

Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the

Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock

Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH000001154), as a Portfolio Manager under SEBI (Portfolio Managers

Regulations, 1993 (Reg. No.INP000005216) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No.IN-DP-324-2017). There are no disciplinary actions taken by any regulatory

authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to

merchant banking services, private equity, mergers & acquisitions and structured finance.

As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for

investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have

received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their

directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in

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The Research Analyst engaged in preparation of this Report:-

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subject company.

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Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

Research Analyst’ or Relatives’ financial interest No

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Research Analyst’ or Relatives’ material conflict of interest No

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ESPL/its affiliates are not a registered broker–dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Equirus is not a

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