INSTITUTIONAL EQUITY RESEARCH Banking sector...

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.

Banking sector update

Strong franchisee would prevail

INDIA | BANKING | SECTOR UPDATE

26 March 2020

Focus on stable and sound balance sheet is the need of the hour Comparison of banks on key parameters such as deposit franchisee, loan book mix, asset quality, capital position and liquidity position indicate that banks such as HDFCB, ICICIBC, and KMB stand out in terms of relative strength. However, for IIB, the relative strength is on the lower side due to a weak deposit franchisee and higher concentration in the vulnerable corporate segment (like LRD, CRE, gems and jewellery) and commercial vehicles. Lockdown to lead to meaningful earnings revision for FY21 The lock down of the domestic and global economies due to the COVID-19 threat will have a meaningful impact on banks’ loan-book growth. We have factored a lockdown of 30-45 days in our revised estimates and cut individual banks’ loan growth in FY21 by 3-5% and taken deterioration in asset quality (detailed below). Our earnings revisions are between -10% to -35% with KMB being the lowest at -10% and IIB the highest at -35%. Earnings revisions are largely because of lower credit growth and higher loan-loss provision. Worst-case scenario analysis The current uncertainty and the country-wide lockdown has made banks vulnerable to a new leg of asset-quality crisis, with the most uncertain part being the lockdown period and the time that the economy would take to return to normalcy. We tried to identify the stress in the loan book for each bank to understand the impact on financials in a worst-case scenario if a lockdown lasts for ~c.3 months. We believe the impact on asset quality would be the least for HDFCB, KMB and DCB, but it would be relatively high for IIB. Key stock recommendations HDFCB: Strong deposit franchisee and stable asset quality puts HDFCB in the top quartile of our relative strength matrix with a score of 1.8 (scale of 1-5, 1 being the best). The worst-case scenario analysis suggests asset quality may see an additional stress of 4.8%. We draw comfort from its strong corporate book and retail loan book (mostly to salaried segment). The on-going lockdown would have a bearing on loan growth and asset quality, so we cut our FY21/22 estimate by 17% and 18%. At CMP, the stock trades at 2.2x/2.0x FY21/22 ABVPS of Rs 342/388. We maintain BUY with a revised target of Rs 1,110 (Rs 1,420 earlier), thus valuing the bank at 3x FY21 ABVPS of Rs 342, and taking a subsidiary value of Rs 106.

KMB: Strong capital and high proportion of low‐cost deposits should allow Kotak Bank to

see loan-book and market-share growth. The bank’s relative strength score is 2.2 (scale of 1-5, 1 being the best) based on our analysis. Even in the worst case, we expect KMB’s asset quality to deteriorate by only 4.9%. While we believe higher margins and cost optimization should lead to an enhanced return ratio in the medium term, we cut our estimates mainly due to lower credit growth and higher credit cost. As a result, our NII estimates decline by 4%/6% for FY21/22, and our PAT estimates decreased by 10%. At CMP, the stock trades at 2.9x/2.6x of our FY21/22 adj. BVPS of Rs 280/319. We upgrade the stock to BUY rating with a TP to 1500, implying a multiple of 3.7x to FY21 adj book value of Rs 280, valuing subsidiary at Rs 465

ICICIBC: The relative strength score for ICICIBC is 2.2 (scale of 1-5). The worst-case scenario analysis suggests asset quality stress of 5.8%. We draw comfort from its strong retail book and lower proportion of MSME book. We cut our FY21/22 estimate by 19% and 21%. At CMP, the stock trades at 1.4x/1.2x FY21/22 ABVPS of Rs 167/188, valuing the subsidiary at Rs 98. We maintain BUY with a revised target of Rs 450 (Rs 660 earlier), thus valuing the bank at 2.1x FY21 ABVPS of Rs 167 and taking the subsidiary value at Rs 98.

Companies

HDFC Bank (HDFCB) Buy CMP, Rs 855 Target Price, Rs 1113 ICICI Bank (ICICIBC) Buy CMP, Rs 317 Target Price, Rs 450 Axis Bank (AXSB) Buy CMP, Rs 326 Target Price, Rs 527 Kotak Mahindra Bank (KMB) Buy CMP, Rs 1290 Target Price, Rs 1500 State Bank of India (SBIN) Buy CMP, Rs 190 Target Price, Rs 269 DCB Bank (DCBB) Buy CMP, Rs 80 Target Price, Rs 107 IndusInd Bank (IIB) Buy CMP, Rs 301 Target Price, Rs 741 Manish Agarwalla, Research Analyst [email protected] Sujal Kumar, Research Analyst [email protected]

Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

BANKING SECTOR UPDATE

Relative business strength This unprecedented scenario has made all the front-line banks trade at levels never seen before. They have broken their historical median valuations and the existing carnage in market capitalization questions their mere existence. Stronger business models have a higher ability to sail through this rough tide. So, we tried to look at their relative business strength and to gauge which business model has the ability to bounce back faster. The heat map below provides a comparison of banks on various parameters such as deposit franchisee, loan-book mix, asset quality, and capital and liquidity position. HDFCB, ICICIBC, and KMB stand out in terms of overall relative strength. SBIN, which has a stable retail deposit franchisee, is not able to standout in terms of loan mix and asset quality, due to its high concentration towards the corporate segment. IIB’s relative strength is on the lower side due to its weak deposit franchisee and higher concentration to the vulnerable corporate segment (such as LRD, CRE, and gems and jewellery) and commercial vehicles.

Table 1: Relative strength heat map Relative strength heat map AXSB DCBB HDFCB ICICIBC IIB KMB SBIN

Deposit Franchisee 4.0 5.0 2.0 2.0 5.0 3.0 1.0

Loan distribution 3.0 3.0 2.0 1.0 4.0 2.0 5.0

Asset quality 4.0 1.0 2.0 3.0 5.0 2.0 4.0

Capital Position 3.0 4.0 2.0 3.0 3.0 1.0 5.0

Liquidity position 3.0 4.0 1.0 2.0 3.0 3.0 1.0

Average Score 3.4 3.4 1.8 2.2 4.0 2.2 3.2

(scale of 1-5, 1 being the best)

Source: PhillipCapital India Research

Table 2: Business parameter analysis Key variable Parameter AXSB DCBB HDFCB ICICIBC IIB KMB SBIN

Deposit Franchisee

CASA % 41.0 23.0 40.0 47.0 42.4 52.5 45.0

Retail deposit (% of total deposit) 56.0 56.1 62.0 60.0 28.0 62.0 75.0

Deposit concentration (% of total deposit) (Top 20 depositors) 11.8 12.0 6.1 5.7 24.3 12.2 3.1

cost of deposit % 5.1 6.6 4.8 4.9 6.6 5.3 5.1

Loan mix

% of total loan

Corporate loan 36 12 35 34 44 30 48

MSME loan* 13 11 15 7 8 15 12

Agri loan 6 21 4 9 12 13 9

Retail loan 45 56 45 50 36 42 31

Mortgage (HL, LAP) 24 41 7 31 5 21 19

Unsecured (PL, CC) 9 0 18 9 6 9 6

Other retail loan 12 15 21 10 26 11 6

Asset quality

NNPA % 2.1 1.0 0.5 1.5 1.1 0.9 2.7

Sectoral GNPA, %

Agriculture 5.5 2.7 4.1 3.7 1.4 3.3 10.7

Industries 11.3 2.3 1.1 17.2 3.7 2.7 11.6

Services 4.1 1.7 1.1 5.1 1.6 1.4 5.1

Retail 0.8 1.5 0.9 1.3 2.6 1.7 1.0

Potential stress in worst case scenario, % (refer table) 7.2 3.8 4.3 5.8 8.4 4.8 7.2

Capital Position CET1, % 14.3 12.3 16.2 13.6 13.6 17.7 10.2

Liquidity position Liquidity coverage ratio, % 113.0 108.0 140.0 127.0 114.0 116.0 147.0

*includes small business loan

Source: PhillipCapital India Research



Revision in earnings estimate Key reasons for revision 1. Lockdown of domestic and global economy due to the COVID-19 threat will have

meaningful impact on loan book growth. We have factored a lockdown of 30-45 days in our revised estimates.

2. The fallout of the Yes Bank episode can be seen on some of the small private banks in terms of withdrawal of deposits from CASA accounts.

3. Direct repercussion on asset quality due to an economic slowdown and a decline in GDP growth.

Table 3: Earnings revisions

Previous estimates Revised estimates Revision

FY20È FY21E FY22E FY20È FY21E FY22E FY20È FY21E FY22E

AXIS BANK

NII, Rs bn 247.3 284.9 339.9 244.2 260.6 303.5 -1% -9% -11%

PPoP, Rs bn 229.8 239.7 291.4 227.2 215.9 255.7 -1% -10% -12%

PAT, Rs bn 47.4 107.4 153.4 45.4 79.3 125.6 -4% -26% -18%

EPS, Rs 16.8 37.8 53.7 16.1 27.9 44.0 -4% -26% -18%

BVPS, Rs 306.9 338.4 383.2 306.3 327.8 363.0 0% -3% -5%

ABVPS, Rs 277.1 314.6 360.8 276.2 301.0 336.5 0% -4% -7%

GNPA, % 4.7 4.0 3.3 4.7 4.6 3.9 6bps 62bps 56bps

Slippage, % 4.0 2.4 2.4 4.1 3.0 2.5 3bps 59bps 14bps

NNPA, % 1.9 1.3 1.1 1.9 1.6 1.3 3bps 25bps 27bps

Loan growth, % 15.4 16.2 16.0 14.0 11.6 15.0 (141bps) (462bps) (100bps)

DCB BANK

NII, Rs bn 12.7 14.5 16.9 12.6 13.9 15.6 -1% -4% -7%

PPoP, Rs bn 7.2 8.1 9.3 7.2 7.8 8.4 -1% -4% -10%

PAT, Rs bn 3.6 4.5 5.2 3.6 3.2 4.6 -2% -29% -11%

EPS, Rs 11.8 14.4 16.8 11.5 10.3 14.9 -2% -29% -11%

BVPS, Rs 113.6 129.6 147.8 113.4 125.2 141.5 0% -3% -4%

ABVPS, Rs 97.0 112.1 129.6 96.5 107.4 123.0 -1% -4% -5%

GNPA, % 2.2 2.1 2.0 2.2 2.6 2.5 6bps 58bps 53bps


NNPA, % 1.0 1.0 0.9 1.1 1.1 1.0 4bps 8bps 8bps


HDFC BANK

NII, Rs bn 560.8 659.2 774.5 556.2 615.7 722.1 -1% -7% -7%

PPoP, Rs bn 485.4 554.8 649.8 480.8 509.7 595.6 -1% -8% -8%

PAT, Rs bn 266.8 332.3 387.1 261.4 275.9 319.3 -2% -17% -18%

EPS, Rs 49.0 61.0 71.1 48.0 50.7 58.6 -2% -17% -18%

BVPS, Rs 312.7 362.3 420.7 311.7 350.9 396.9 0% -3% -6%

ABVPS, Rs 307.5 355.8 412.6 306.5 342.4 388.8 0% -4% -6%

GNPA, % 1.6 1.5 1.4 1.6 2.0 2.0 3bps 49bps 58bps


NNPA, % 0.4 0.4 0.5 0.4 0.6 0.5 1bps 17bps 3bps

Loan growth, % 20.1 19.3 18.3 18.0 15.0 18.3 (206bps) (428bps) (bps)

ICICI BANK

NII, Rs bn 331.5 386.2 450.4 323.5 362.1 416.6 -2% -6% -8%

PPoP, Rs bn 283.2 324.3 374.8 275.1 301.1 342.1 -3% -7% -9%

PAT, Rs bn 106.4 175.1 207.9 100.4 141.3 163.7 -6% -19% -21%

EPS, Rs 16.5 27.0 32.1 15.5 21.8 25.2 -6% -19% -21%

BVPS, Rs 179.4 200.1 225.8 178.5 194.0 212.8 -1% -3% -6%

ABVPS, Rs 153.6 175.0 199.2 152.3 167.5 186.7 -1% -4% -6%

GNPA, % 5.6 4.4 3.2 5.7 5.1 3.9 10bps 65bps 68bps


NNPA, % 1.3 1.1 1.1 1.4 1.3 1.1 7bps 22bps 3bps


Source: PhillipCapital India Research Estimates



Earnings revisions

Previous estimates Revised estimates Revision

FY20È FY21E FY22E FY20È FY21E FY22E FY20È FY21E FY22E

INDUSIND BANK

NII, Rs bn 120.9 139.2 161.6 118.9 126.0 143.9 -2% -9% -11%

PPoP, Rs bn 109.8 122.1 137.7 107.3 106.1 116.7 -2% -13% -15%

PAT, Rs bn 54.3 67.8 80.9 51.1 44.1 56.5 -6% -35% -30%

EPS, Rs 76.7 95.7 114.2 72.1 62.2 79.8 -6% -35% -30%

BVPS, Rs 539.2 622.9 723.8 534.6 584.7 651.1 -1% -6% -10%

ABVPS, Rs 499.5 584.6 680.5 494.9 529.2 588.1 -1% -9% -14%

GNPA, % 2.2 1.9 1.9 2.2 3.3 3.6 8bps 137bps 172bps


NNPA, % 1.1 1.0 1.0 1.2 1.5 1.5 1bps 57bps 57bps

Loan growth, % 13.1 15.4 15.0 12.4 10.9 15.0 (69bps) (450bps) 2bps

KOTAK MAHINDRA BANK

NII, Rs bn 134.6 151.0 175.7 134.2 144.8 166.6 -0.3% -4% -5%

PPoP, Rs bn 99.0 111.8 132.8 98.5 104.7 122.1 -0.5% -6% -8%

PAT, Rs bn 63.8 72.5 87.3 63.5 64.9 79.9 -0.5% -11% -8%

EPS, Rs 33.4 38.0 45.8 33.3 34.0 41.9 -0.5% -11% -8%

BVPS, Rs 257.5 294.3 338.8 257.3 290.3 331.0 -0.1% -1% -2%

ABVPS, Rs 249.4 286.0 329.2 249.3 280.1 319.5 -0.1% -2% -3%

GNPA, % 2.5 2.4 2.3 2.5 2.8 2.7 7bps 42bps 40bps

Slippage, % 1.5 1.1 1.1 1.5 1.5 1.2 0 40bps 10bps

NNPA, % 0.9 0.8 0.7 0.9 1.0 1.0 2bps 23bps 24bps

Loan growth, % 10.0 18.0 19.0 7.0 13.0 17.0 (26bps) (489bps) (-197bps)

STATE BANK OF INDIA

NII, Rs bn 1,001.4 1,044.5 1,143.1 981.6 1,011.9 1,079.4 -2% -3% -6%

PPoP, Rs bn 640.7 607.1 648.9 620.9 569.7 580.1 -3% -6% -11%

PAT, Rs bn 149.1 256.1 305.9 142.5 184.2 222.2 -4% -28% -27%

EPS, Rs 16.7 28.7 34.3 16.0 20.6 24.9 -4% -28% -27%

BVPS, Rs 234.8 260.5 291.2 234.1 251.7 273.0 0% -3% -6%

ABVPS, Rs 178.0 210.5 237.2 175.7 187.5 206.3 -1% -11% -13%

GNPA, % 6.1 5.1 4.7 6.2 6.1 5.7 8bps 101bps 99bps


NNPA, % 2.2 1.7 1.7 2.2 2.3 2.2 8bps 61bps 52bps

Loan growth, % 7.4 10.0 9.9 6.4 5.1 9.9 (100bps) (482bps) (bps)




Valuation matrix and change in target price

Table 4: Valuation matrix

Reco M.Cap (Rs. bn) CMP (Rs.) TP Upside (%)

P/E P/BV

FY20E FY21E FY22E FY20E FY21E FY22E

AXSB IN Equity BUY 922 326 527 61.6 18.9 10.9 6.9 1.0 0.9 0.8

DCBB IN Equity BUY 25 80 107 34.3 6.5 7.3 5.0 0.7 0.6 0.5

ICICIBC IN Equity BUY 2,052 317 450 41.9 20.5 14.5 12.6 1.3 1.2 1.0

IIB IN Equity BUY 209 301 741 146.1 4.0 4.6 3.6 0.5 0.5 0.4

HDFCB IN Equity BUY 4,691 855 1113 30.2 16.0 15.1 13.1 2.2 1.9 1.7

KMB IN Equity BUY 2,467 1,294 1496 15.6 24.9 24.4 19.8 3.2 2.9 2.5

SBIN IN Equity BUY 1,695 190 269 41.3 11.3 8.7 7.2 0.4 0.4 0.4


P/ABV EPS BV ABV

FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E

AXSB IN Equity 1.1 1.0 0.9 16.1 27.9 44 306.3 327.8 363 276.2 301 336.5

DCBB IN Equity 0.8 0.7 0.6 11.5 10.3 14.9 113.4 125.2 141.5 96.5 107.4 123

ICICIBC IN Equity 1.6 1.4 1.2 15.5 21.8 25.2 178.5 194 212.8 152.3 167.5 186.7

IIB IN Equity 0.6 0.5 0.5 72.1 62.2 79.8 534.6 584.7 651.1 494.9 529.2 588.1

HDFCB IN Equity 2.2 2.0 1.7 48 50.7 58.6 311.7 350.9 396.9 306.5 342.4 388.8

KMB IN Equity 3.3 3.0 2.6 33.3 34.0 41.9 257.3 290.3 331.0 249.3 280.1 319.5

SBIN IN Equity 0.6 0.5 0.5 16 20.6 24.9 234.1 251.7 273 175.7 187.5 206.3


Table 5: Historical (10 years) P/ABVPS multiple (one-year forward)

High Median low

Target

Multiple

Premium/discount

to Median

Current

TP

Previous

TP Change %

AXSB IN Equity 3.1 2.0 0.9 1.8 -13% 527 800 -34%

DCBB IN Equity 2.3 1.4 0.5 1.0 -29% 107 150 -28%

ICICIBC IN Equity 2.7 2.0 0.7 2.1 5% 450 660 -32%

IIB IN Equity 4.6 2.5 1.4 1.4 -44% 741 1640 -55%

HDFCB IN Equity 4.3 3.4 1.8 3.0 -12% 1113 1420 -22%

KMB IN Equity 5.3 2.4 0.9 3.8 58% 1496 1660 -10%

SBIN IN Equity 2.5 1.2 0.5 1.0 -17% 269 375 -28%




Worst-case scenario analysis The lockdown of the domestic economy would definitely take a toll on the banks’ growth and asset quality. The government and the regulator are watching the scenario very closely and are expected to come out with some economic measures to handle the situation. The most anticipated amongst these is the forbearance on NPA recognition within the stipulated 90dpd norms. The uncertainty amid the Covid-19 threat and complete lockdown of the country has made banks vulnerable to a new leg of asset-quality crisis. We tried to identify the stress on the loan book of each bank to understand the effect on its financials in a worst-case scenario (if the lockdown lasts for c.3 months). In our worst-case scenario, we have made the following assumptions: 1. Economy locked down for c.3 months. 2. Not factored in the impact of forbearance; assessed asset-quality impact based

on current norms. 3. Asset-quality assessment: Forecasted the corporate slippage based on the

interest coverage ratio (ICR < 1.5x). Retail asset quality assessment is based on the 2009 (post-Lehman) experience. For agriculture, we assumed an increase in GNPA of 50%. We have modelled the MSME stress to double in the worst case.

Table 6: Incremental stress in a worst-case scenario AXSB DCBB HDFCB ICICIBC IIB KMB SBIN

Share

Stress

% Share

Stress

% Share

Stress

% Share

Stress

% Share

Stress

% Share

Stress

% Share

Stress

%

Corporate loan (Refer Table 8) 36% 8.3 12% 6.5 35% 3.4 34% 8.7 44% 14.3 30% 5.8 48% 7.5

MSME loan* 13% 4.5 11% 4.5 15% 4.0 7% 4.0 8% 4.5 15% 4.0 12% 4.5

Agri loan 6% 2.8 21% 1.1 4% 2.0 9% 1.9 12% 0.7 13% 1.6 9% 2.7

Retail loan 45% 1.7 56% 2.5 45% 2.0 50% 1.3 36% 2.6 42% 1.9 31% 1.0

Mortgage (HL, LAP) 24%

41%

7%

31%

5%

21%

19%

Unsecured (PL, CC) 9%

18%

9%

6%

9%

6%

Other retail loan 12%

15%

21%

10%

26%

11%

6%

Total 100% 7.2 100% 3.9 100% 4.8 100% 5.8 100% 8.4 100% 4.9 100% 7.2


In a worst-case scenario, we expect DCBB / HDFCB / KMB to see incremental stress of 3.9% / 4.8% / 4.9%; ICICIBC / AXSB by 5.8% / 7.2% – due to high corporate exposure; SBI by 7.2%, driven by corporate and MSME segments. The worst hit would be IIB due to exposure to segments such as LRD, construction finance, commercial vehicles and gems and jewellery.

Table 7: Impact of worst-case scenario on key parameters and likely valuation Impact (FY21E) AXSB DCBB HDFCB ICICIBC IIB KMB SBIN

BVPS 305.7 122.8 342.0 194.3 549 273 234.3

ABVPS 246.0 98.7 315.7 154.5 393 254 82.6

RoE 1.9 6.7 12.8 8.1 4.8 6.4 1.4

RoA 0.2 0.6 1.52 0.9 0.6 0.9 0.1

Worst case valuation, Rs 369 98.7 895 352 550 1065 198

Multiple (x) 1.5 1.0 2.5 1.5 1.2 2.5 1

Premium/(Discount) to Median -25% -29% -26% -25% -52% 4% -17%

Historical

Peak valuation 3.1 2.3 4.3 2.7 4.6 5.3 2.5

Median valuation 2.0 1.4 3.4 2.0 2.5 2.4 1.2

Trough valuation 0.9 0.5 1.8 0.7 1.4 0.9 0.5




Table 7 depicts the worst-case valuation for various banks. We have factored worst-case slippage and consequent impact on net interest income and provisioning to derive at book value and adjusted value. We have assigned target multiple, which is a discount to the historic median valuation, in order to arrive at worst-case valuation of a bank. Most banks covered in the note trade at a discount to our worst-case valuation, except for KMB. Banks trading at a discount to our worst-case valuation are: AXSB (-12%), DCBB (-19%), HDFCB (-4%), ICICIBC (-10%), IIB (-36%), and SBI (-4%). Similarly, KMB is trading at a 22% premium to our worst-case valuation.

Corporate loan book We tried to look for exposure to corporates where the interest coverage ratio is less than 1.5x. In case of companies where these ratios are irrelevant (such as NBFCs/HFCs) or in cases where financials not available in a public domain, we looked at the credit rating data and other solvency matrixes (like CRAR, D/E, etc). HDFCB stands out among banks in terms of likely corporate stress with a potential stress of 3.4%, while the same number for IIB is 14%. The sample that we analysed constitutes c.45% of loan exposure in most cases. We have mirrored the outcome of the sample to the whole corporate exposure.

Table 8: Corporate loan stress analysis AXSB DCB HDFCB ICICIBC IIB KMB SBI

Total credit Exposure, Rs bn 6,431 254 9,173 7,421 2,496 2,188 22,833

Domestic Corporate loan exposure, Rs bn 3,256 84 3,099 2,269 1,374 929 8,277

Sample analysed, Rs bn 1,412 40 1,394 1,042 884 470 3,566

% to total corporate exposure 43% 48% 45% 46% 64% 51% 43%

Interest coverage of less than 1.5x 8.3% 6.4% 3.4% 9% 14.3% 6% 7.5%

Stress corporate % to total exposure 1.4% 1.0% 0.4% 1.2% 5.1% 1.2% 1.2%


Retail: 2009 may not repeat as the sector has come a long way since the previous crisis Retail delinquency has been stable for banks at c.2% since 2015. The industry has seen a peak of retail stress in 2009 (post Lehman crisis). Overall retail NPAs peaked at 4.4%, within which home loan peaked was at 2.3%, personal loan at 5.3%, credit card at 16.7%, and auto loans were at 3.7%. Over the last decade or so, retail lending evolved with the advent of credit bureaus, score-based underwriting practices, analytics, etc. Overall retail-credit portfolio of banks is better than what it was in 2009. Hence, we do not expect the retail stress to surpass the previous high of 4.4%; it is currently at c.2%. In our worst-case analysis for the retail sector, we have factored stress doubling, so also for individual banks retail portfolio.

Retail loan delinquency


0.0%

5.0%

10.0%

15.0%

20.0%

Home loan LAP Personal loancredit card Auto loan Retail



Agriculture and MSME loans According to TransUnion Cibil, private banks exhibited NPAs of 3-4% in the MSME segment between September 2017 to September 2019. Within this, the new private banks (on an average) exhibited lowest delinquency rates. NPA levels of PSBs increased to 18.9% in September 2019 from 16.7% in September 2017. In our worst-case scenario analysis, we have factored the MSME delinquency doubling for private banks from current levels. Being an essential commodity, the agriculture segment, in our view, will not be as significantly impacted as other sectors. However, we have factored delinquency in agriculture based on individual banks’ past experiences in this segment.

NPA rate increased for PSBs and NBFCs

Source: TransUnion CIBIL



Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.

Kotak Mahindra Bank (KMB IN)

A quality play

INDIA | BANKING | Company Update

26 March 2020

Key investment arguments

Stable asset quality and credit cost: Superior underwriting skills and strong monitoring of portfolio has been key strengths of KMB. It has had a cautious view on the SME sector for the past few quarters; we estimate its exposure towards this segment to be c.8% as of Dec 2019. KMB should experience lower slippage compared to peer banks in case of fresh rounds of defaults. We have modelled a slippage of 1.5% for FY21 resulting in credit cost of c.90bps.

Strong deposit franchise: KMB has a strong deposit franchise with CASA ratio of 53% as of Dec 2019. Retail deposits form 62% of total deposits. We believe after the Yes Bank crisis, KMB would be one of the beneficiaries based on its strong brand name and higher interest rate offered on deposits.

Enough levers to maintain NIMs: KMB’s net interest margin increased by c.36bps over the last one year, mainly because of declining cost of deposit (-30 bps in the last one year) as the bank cut and realigned its deposit rates. Going forward, declining interest rate is expected to put pressure on margins, but its low-cost deposit franchise and shift in asset mix is likely to provide cushion; hence, we see decline in NIM (we model a 15bps fall for FY21 in our base case) to be marginal from here.

Credit growth to remain subdued: With the whole country in lock-down we expect credit growth to remain moderate in 4Q20 (+7% yoy) and FY21 (+13% yoy). However, once economic growth picks up, KMB will be one of the key beneficiaries, in our view, given its strong capital position (Tier-1 at 17.7%) and sufficient liquidity (LCR at 116%). Also, companies have been consolidating their banking relationships with a few strong banks and KMB should be one of the key beneficiaries of this trend, we believe.

Outlook and valuation: Strong capital and high proportion of low‐cost deposits should allow Kotak bank to grow its loan book to capture market share, however under current scenario we expect bank to continue to remain cautious. While we believe higher margins and cost optimization should lead to enhanced return ratio in medium term, we cut our estimates mainly for lower credit growth and higher credit cost. As a result our NII estimates decline by 4%/6% for FY21/22, and our PAT estimates decreased by 10%. At CMP, the stock trades at 2.9x/2.6x of our FY21/22 adj. BVPS of Rs 280/319. We upgrade the stock to BUY rating with a TP to 1500, implying a multiple of 3.7x to FY21 adj book value of Rs 280, valuing subsidiary at Rs 465.

SOTP

Business Total Value Per Share % of Total Value

INR mn INR %

Kotak Bank 19,81,119 1,038 69%

Kotak Prime 1,12,553 59 4%

Kotak Life Insurance 3,77,094 198 13%

Kotak Securities & Capital Company 1,50,180 79 5%

Kotak AMC 1,97,975 105 7%

Kotak Investments 23,608 12 1%

Kotak International Subsidiaries 15,089 9 1%

Kotak Investment Advisors 4,735 3 0%

TOTAL 1,503 100.0%

Source: Company, PhillipCapital India Research

BUY (UPGRADE) CMP RS 1290 TARGET RS 1500 (+16%)

SEBI CATEGORY: LARGE CAP

COMPANY DATA

O/S SHARES (MN) : 1911

MARKET CAP (RSBN) : 3245

MARKET CAP (USDBN) : 45.6

52 - WK HI/LO (RS) : 1734 / 1210

LIQUIDITY 3M (USDMN) : 59.8

PAR VALUE (RS) : 5

SHARE HOLDING PATTERN, %

Dec 19 Sep 19 Jun 19

PROMOTERS : 30.0 30.0 30.0

FII / NRI : 40.0 40.3 40.7

FI / MF : 12.2 12.1 11.5

NON PRO : 10.6 10.6 10.1

PUBLIC & OTHERS : 7.4 7.0 7.7

KEY FINANCIALS

Rs mn FY20E FY21E FY22E

Pre-prov ROE (%) 21.6% 20.1% 20.6%

Pre-prov ROA (%) 3.1% 2.9% 3.0%

Net Profit 63.5 64.9 79.9

% growth 30.5% 2.1% 23.2%

EPS (Rs) 33.3 34.0 41.9

Adj BVPS (Rs) 249.3 280.1 319.5

ROE (%) 13.8% 12.4% 13.5%

P/E (x) 24.9 24.4 19.8

Adj P/BV (x) 3.3 3.0 2.6

CHANGE IN ESTIMATES

__Revised Est. __ __% Revision__

Rs bn FY20E FY21E FY20E FY21E

NII 134 145 -1% -4%

PPP 99 105 0% -7%

Core PAT 63 65 -1% -10%

EPS (Rs) 33 34 1% -10%

Sujal Kumar, Research Analyst Manish Agarwalla, Research Analyst


KOTAK MAHINDRA BANK COMPANY UPDATE

Financials

Income Statement Y/E Mar, Rs bn FY19 FY20E FY21E FY22E

Interest on Loans 183.7 210.7 229.4 264.3

Interest on Investments 48.7 52.3 57.7 67.1

Others 7.0 6.3 7.4 7.8

Total Interest Earned 239.4 269.3 294.6 339.1

Total Interest Expended 126.8 135.1 149.8 172.5

Net Interest Income 112.6 134.2 144.8 166.6

Total non-interest income 46.0 51.1 57.8 66.1

Total Income 158.6 185.4 202.6 232.7

Personnel Expenses 31.6 37.6 41.4 45.5

Other Expenses 43.6 49.2 56.6 65.1

Total Op expenses 75.2 86.8 98.0 110.6

Net Inc (Loss) before prov 83.5 98.5 104.7 122.1

Provision and contingencies 9.8 13.8 16.5 13.6

Provision for Invst deprn -0.1 1.1 1.7 2.0

Net Inc (Loss) before tax 73.9 83.6 86.5 106.6

Provision for Income Tax 25.2 20.1 21.6 26.6

Net Profit 48.6 63.5 64.9 79.9

Balance Sheet Y/E Mar, Rs bn FY19 FY20E FY21E FY22E

Assets

Cash & Bal with RBI 247 239 245 250

Loans, Adv & Int accrued 2,057 2,208 2,498 2,923

Investments 712 789 935 1,068

Fixed Assets (Net) 17 17 17 17

Other assets 90 100 116 120

Total Assets 3,122 3,354 3,810 4,378

Liabilities

Share capital 15 15 15 15

Reserves and Surplus 414 476 539 616

Borrowing 313 216 216 221

Total Deposits 2,259 2,537 2,926 3,406

Other liab incld prov 111 100 105 111

Total Liabilities 3,122 3,354 3,810 4,378

Source: Company, PhillipCapital India Research Estimates

Valuation Ratios

FY19 FY20E FY21E FY22E

Earnings and Valuation Ratios

Pre-provision Operating RoAE (%) 20.8% 21.6% 20.1% 20.6%

RoAE (%) 12.1% 13.8% 12.4% 13.5%

Pre-provision Operating ROA (%) 2.9% 3.1% 2.9% 3.0%

RoAB (%) 1.9% 2.2% 2.0% 2.1%

EPS (Rs.) 25.5 33.3 34.0 41.9

Dividend per share (Rs.) 0.6 0.8 0.9 1.0

Book Value (Rs.) 224.8 257.3 290.3 331.0

Adj BV (Rs.) 219.1 249.3 280.1 319.5

Revenue Analysis Interest income on IBA (%) 9.2% 9.2% 9.0% 9.0%

Interest cost on IBL (%) 5.4% 5.1% 5.1% 5.1%

NIM on IBA / AWF (%) 4.3% 4.6% 4.4% 4.4%

Core fee Inc / AWF (%) 1.5% 1.4% 1.5% 1.5%

Portfolio gains / Total Inc (%) 0.0% 0.0% 0.0% 0.0%

Op.Exp / TI (%) 47.4% 46.8% 48.3% 47.5%

Op.Exp / AWF (%) 2.9% 3.0% 3.0% 2.9%

Employee exps / Op exps (%) 42.0% 43.3% 42.2% 41.1%

Tax / Pre-tax earnings (%) 34.1% 24.0% 25.0% 25.0%

Asset Quality

GNPAs / Gr Adv (%) 2.14% 2.53% 2.81% 2.70%

NNPAs / Net Adv (%) 0.75% 0.90% 1.01% 0.97%

Growth Ratio

Loans (%) 21.2% 7.4% 13.1% 17.0%

Investments (%) 10.3% 10.8% 18.5% 14.2%

Deposits (%) 17.3% 12.3% 15.3% 16.4%

Networth (%) 14.4% 14.3% 12.8% 14.0%

Net Int Income (%) 18.1% 19.2% 7.9% 15.1%

Non-fund based income (%) 19.9% 11.0% 13.1% 14.2%

Non-Int Exp (%) 17.0% 15.5% 12.8% 12.9%

Profit Before Tax (%) 18.8% 13.2% 3.5% 23.2%

Net profit (%) 19.1% 30.5% 2.1% 23.2%

Asset / Liability Profile

Avg CASA/ Deposits (%) 53% 54% 54% 54%

Avg Adv / Avg Dep (%) 91% 90% 86% 86%

Avg Invst / Avg Dep (%) 34% 32% 32% 32%

Incr Adv / Deposits (%) 108.2% 54.3% 74.6% 88.6%

Avg Cash / Avg Dep (%) 10.8% 10.3% 8.9% 7.8%

Capital Adequacy Ratio:

Tier I (%) 16.9% 18.1% 18.0% 17.9%

CET 1 (%) 16.7% 17.9% 17.8% 17.8%


Page | 11 | PHILLIPCAPITAL INDIA RESEARCH Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.

DCB Bank (DCBB IN)

Current value factors worst scenario

INDIA | BANKING | Company Update

26 March 2020

Reason for upgrade:

Secured retail book and lower exposure to corporate puts DCBB on a better footing in terms of asset quality.

Granular deposits and stable LCR provides comfort on the liability side. The proportion of top-20 depositors fell to 8.2% from 12% in March 2019.

Our worst-case scenario analysis suggests a potential stressed book of 3.9%, which is the lowest amongst private banks.

Management comments/concall takeaways:

Deposits: Deposit position is comfortable even after the Yes Bank crisis. Though there were few withdrawals from the current and savings accounts, the bank also received new deposits. Contribution from top-20 depositors declined to 8.2% from 12% in March.

Asset quality: Don’t see major impact on the corporate portfolio, as the book is granular and the bank has a small proportion of corporate loans. MFI exposure is at 5-6%, including PTC (pass through certificates) and BC (business correspondent) models, which provide cushion in the form of first-loss guarantee or FLDG (first loss default guarantee).

Strong capital position: Have adequate capital (CET-1 at 12.3%); do not see balance-sheet challenge.

Branch addition: Plan to add 14-15 branches, but it may get delayed due to the lockdown.

Outlook and valuation: The on-going lockdown would have a bearing on loan growth and asset quality, so we cut our FY21/22 earnings estimates by 29%/11%. At CMP, the stock trades at 0.7x/0.6x FY21/22 ABVPS of Rs 107/123. Even in the worst-case scenario (factoring 3.9% incremental stress), the bank would deliver RoA of 0.6% and ABVPS of Rs 98. Historically, the bank has traded at a median valuation of 1.2x. We assign a multiple of 1x to our FY21 ABVPS of Rs 107. Upgrade to BUY from SELL with a target of Rs 110 (Rs 150 earlier).

BUY (UPGRADE) CMP RS 80 TARGET RS 107 (+38%)

SEBI CATEGORY: SMALL CAP

COMPANY DATA

O/S SHARES (MN) : 310

MARKET CAP (RSBN) : 25.1

MARKET CAP (USDBN) : 0.3

52 - WK HI/LO (RS) : 245 /81

LIQUIDITY 3M (USDMN) : 1.8

PAR VALUE (RS) : 10

SHARE HOLDING PATTERN, %

Dec 19 Sep 19 Jun 19

PROMOTERS : 14.9 14.9 14.9

FII / NRI : 31.2 30.5 30.8

FI / MF : 26.2 23.6 21.1

NON PRO : 6.7 7.4 8.4

PUBLIC & OTHERS : 21.0 23.6 24.8

PRICE PERFORMANCE, %

1MTH 3MTH 1YR

ABS -51.1 -52.1 -58.8

REL TO BSE -17.2 -16.4 -28.7

KEY FINANCIALS

Rs mn FY19 FY20E FY21E

Pre-prov ROE (%) 21.8 21.6 21.1 Pre-prov ROA (%) 2.0 2.0 1.9 Net Profit 3,254 3,571 3,178 % growth 32.6 9.7 -11.0 EPS (Rs) 10.5 11.5 10.3 ABVPS (Rs) 87.8 96.5 107.4 ROE (%) 11.0 10.8 8.6 P/E (x) 7.7 7.0 7.9 Adj P/BV (x) 0.9 0.8 0.8

CHANGE IN ESTIMATES

__Revised Est. _ __% Revision__

Rs bn FY20E FY21E FY20E FY21E

NII 12.6 13.9 -1 -4

PPP 7.2 7.8 -1 -4

Core PAT 3.6 3.2 -2 -29

EPS (Rs) 11.5 10.3 -2 -29 Manish Agarwalla, Research Analyst Sujal Kumar, Research Analyst


DCB BANK COMPANY UPDATE

Financials

Income Statement Y/E Mar, Rs mn FY19 FY20E FY21E FY22E

Interest on Loans 24,479 28,444 31,857 35,999

Interest on Investments 5,354 6,157 6,773 7,789

Others 582 660 750 850

Total Interest Earned 30,415 35,262 39,381 44,638

Total Interest Expended 18,922 22,703 25,474 29,014

Net Interest Income 11,493 12,559 13,906 15,624

Total non-interest income 3,502 3,743 4,009 4,487

Total Income 14,995 16,302 17,915 20,112

Personnel Expenses 4,340 4,622 5,084 5,847

Other Expenses 4,189 4,529 5,037 5,846

Total Op expenses 8,529 9,151 10,121 11,693

Net Inc (Loss) before prov 6,466 7,151 7,794 8,419

Provision and contingencies 1,401 1,900 3,500 2,200

Net Inc (Loss) before tax 5,066 5,251 4,294 6,219

Provision for Income Tax 1,812 1,680 1,117 1,617

Net Profit 3,254 3,571 3,178 4,602

Balance Sheet Y/E Mar, Rs mn FY19 FY20E FY21E FY22E

Assets

Cash & Bal with RBI 27,934 30,727 35,609 41,278

Loans, Adv & Int accrued 2,35,680 2,61,886 2,93,612 3,37,368

Investments 79,664 85,802 97,837 1,12,369

Fixed Assets (Net) 5,260 5,786 6,364 7,001

Other assets 9,381 10,319 10,240 11,612

Total Assets 3,57,918 3,94,520 4,43,662 5,09,629

Liabilities

Share capital 3,096 3,096 3,096 3,096

Reserves and Surplus 25,617 29,559 33,201 38,267

Debt 8,583 10,728 13,410 16,763

Borrowing 18,650 22,006 25,968 30,642

Total Deposits 2,86,851 3,12,487 3,49,923 4,00,610

Other liab incld prov 12,679 14,200 15,621 17,807

Total Liabilities 3,57,918 3,94,520 4,43,662 5,09,629


Valuation Ratios



Pre-provision Oprting RoAE (%) 21.8 21.6 21.1 20.4

RoAE (%) 11.0 10.8 8.6 11.1

Pre-provision Oprting ROA (%) 2.0 1.9 1.9 1.8

RoAB (%) 1.03 0.99 0.79 1.00

EPS (Rs.) 10.5 11.5 10.3 14.9


Book Value (Rs.) 100.6 113.4 125.2 141.5

Adj. BV (Rs.) 87.8 96.5 107.4 123.0

1.5% 1.5% 1.2% 1.6%

Revenue Analysis Interest income on IBA (%) 9.6 9.8 9.8 9.7

Interest cost on IBL (%) 6.6 6.9 6.9 6.9

NIM on IBA / AWF (%) 3.6 3.5 3.5 3.4

Core fee Inc / AWF (%) 0.8 0.8 0.7 0.7

Portfolio gains / Total Inc (%) 2.6 3.5 2.6 2.8

Op.Exp / TI (%) 58.4 58.1 57.9 59.8

Op.Exp / AWF (%) 2.7 2.5 2.5 2.5

Employee exps / Op exps (%) 50.9 50.5 50.2 50.0

Tax / Pre-tax earnings (%) 35.8 32.0 26.0 26.0

Asset Quality

GNPAs / Gr Adv (%) 1.8 2.2 2.6 2.5

NNPAs / Net Adv (%) 0.7 1.1 1.1 1.0

Growth Ratio

Loans (%) 15.9 11.1 12.1 14.9

Investments (%) 26.0 7.7 14.0 14.9

Deposits (%) 17.9 8.9 12.0 14.5

Networth (%) 11.0 12.7 10.4 13.1

Net Int Income (%) 15.5 9.3 10.7 12.4

Non-fund based income (%) 17.5 2.5 11.5 10.6

Non-Int Exp (%) 9.2 7.3 10.6 15.5

Profit Before Tax (%) 31.2 3.7 (18.2) 44.8

Net profit (%) 32.6 9.7 (11.0) 44.8


Avg CASA/ Deposits (%) 23.9 23.7 23.2 22.4

Avg Adv / Avg Dep (%) 81.3 81.3 81.8 81.9

Avg Invst / Avg Dep (%) 27.0 27.6 27.7 28.0

Incr Adv / Deposits (%) 74.1 102.2 84.7 86.3

Avg Cash / Avg Dep (%) 9.7 9.8 10.0 10.2

Capital Adequacy Ratio: 16.8 17.4 17.5 17.5

Tier I (%) 13.1 13.4 13.1 12.9

CET 1 (%) 13.1 13.4 13.1 12.9

NNPAs to Equity (%) 4.9 7.9 7.9 7.5


AXIS BANK COMPANY UPDATE

Financials – Axis Bank Income Statement Y/E Mar, Rs bn FY19 FY20E FY21E FY22E

Interest on Loans 413 477 535 615

Interest on Investments 113 111 111 123

Others 23 28 29 31

Total Interest Earned 550 616 674 769

Total Interest Expended 333 372 414 465

Net Interest Income 217 244 261 303

Total non-interest income 131 154 144 162

Total Income 348 399 405 466

Personnel Expenses 47 53 58 65

Other Expenses 111 119 131 145

Total Op expenses 158 171 189 210

Net Inc (Loss) before prov 190 227 216 256

Provision & cont. 120 138 110 88

Net Inc (Loss) before tax 70 89 106 167

Provision for Income Tax 23 43 26 42

Net Profit 47 45 79 126


Assets


Loans, Adv & Int accrued 4948 5639 6294 7238

Investments 1807 1651 1819 2030


Other assets 542 623 698 782

Total Assets 8,010 8,501 9,456 10,757

Liabilities



Debt 267 307 347 387

Borrowing 1217 791 919 1105

Total Deposits 5517 6187 6850 7752




Valuation Ratios



Pre-provision Operating RoAE (%) 29.2 29.7 24.0 26.0

RoAE (%) 7.2 5.9 8.8 12.8

Pre-provision Operating ROA (%) 2.5 2.8 2.4 2.5

RoAB (%) 0.68 0.60 0.96 1.35

EPS (Rs.) 18.2 16.1 27.9 44.0


Book Value (Rs.) 259.4 306.3 327.8 363.0

Adj BV (Rs.) 228.7 276.2 301.0 336.5

Revenue Analysis Interest income on IBA (%) 7.9 8.1 8.1 8.2


NIM on IBA / AWF (%) 3.1 3.2 3.1 3.3

Core fee Inc / AWF (%) 1.5 1.5 1.5 1.5


Op.Exp / TI (%) 46.8 46.0 48.1 46.6

Op.Exp / AWF (%) 2.3 2.2 2.3 2.3



Asset Quality

GNPAs / Gr Adv (%) 5.3 4.7 4.6 3.9

NNPAs / Net Adv (%) 2.1 1.9 1.6 1.3

Growth Ratio

Loans (%) 12.5 14.0 11.6 15.0

Investments (%) 13.5 (8.7) 10.2 11.6

Deposits (%) 20.8 12.1 10.7 13.2

Networth (%) 5.1 29.8 7.6 11.3

Net Int Income (%) 16.6 12.5 6.7 16.5


Non-Int Exp (%) 13.2 8.3 10.0 11.3

Profit Before Tax (%) 5,636.7 27.5 18.9 58.4

Net profit (%) 1,596.4 (2.8) 74.5 58.4



Avg Adv / Avg Dep (%) 86.3 85.3 86.7 88.2

Avg Invst / Avg Dep (%) 33.7 29.5 26.6 26.4


Avg Cash / Avg Dep (%) 11.0 10.4 8.8 8.6


Tier I (%) 12.5 15.4 15.1 15.0

CET1 (%) 11.3 14.0 13.7 13.6

NNPAs to Equity (%) 16.9 14.0 11.7 10.4


HDFC BANK COMPANY UPDATE

Financials – HDFC Bank


Interest on Loans 775 915 1,043 1,231


Others 14 24 26 29

Total Interest Earned 990 1,149 1,302 1,535




Total Income 659 785 860 1,007





Provision for NPAs 76 114 137 164



Net Profit 211 261 276 319


Assets

Cash & Bal with RBI 813 942 1,055 1,182

Loans, Adv&Int accrued 8,194 9,669 11,119 13,152

Investments 3,010 3,280 3,897 4,564


Other assets 387 426 477 535

Total Assets 12,445 14,364 16,602 19,494

Liabilities



Debt 127 153 176 202

Borrowing 963 1,060 1,303 1,590

Total Deposits 9,293 10,851 12,485 14,679

Other liabincldprov 489 523 646 782



Valuation Ratios




RoAE (%) 16.5 16.4 15.3 15.7


RoAB (%) 1.89 2.02 1.84 1.83

EPS (Rs.) 38.7 48.0 50.7 58.6


Book Value (Rs.) 273.9 311.7 350.9 396.9

Adj BV (Rs.) 269.8 306.5 342.4 388.8

Revenue Analysis

Interest income on IBA (%) 8.9 8.9 8.7 8.8


NIM on IBA / AWF (%) 4.3 4.3 4.1 4.1

Core fee Inc / AWF (%) 1.4 1.5 1.4 1.4


Op.Exp / TI (%) 40.2 39.6 41.2 41.3

Op.Exp / AWF (%) 2.3 2.3 2.3 2.4



Asset Quality

GNPAs / Gr Adv (%) 1.4 1.6 2.0 2.0

NNPAs / Net Adv (%) 0.4 0.4 0.6 0.5

Growth Ratio

Loans (%) 24.5 18.0 15.0 18.3

Investments (%) 19.8 9.0 18.8 17.1

Deposits (%) 17.0 16.8 15.1 17.6

Networth (%) 40.4 13.8 12.6 13.1

Net Int Income (%) 20.3 15.3 10.7 17.3


Non-IntExp (%) 15.1 16.4 15.1 17.6

Profit Before Tax (%) 20.6 13.8 1.7 15.7

Net profit (%) 20.5 24.0 5.6 15.7



AvgAdv / Avg Dep (%) 84.6 87.4 87.5 87.5

AvgInvst / AvgDep (%) 32.0 31.2 30.8 31.1

IncrAdv / Deposits (%) 119.4 94.7 88.7 92.7

Avg Cash / AvgDep (%) 11.9 8.7 8.6 8.2


Tier I (%) 15.8 16.0 15.5 14.8

Internal Capital Generation rate (%) 14.9 15.1 14.8 14.2

NNPAs to Equity (%) 2.2 2.4 3.5 2.9

Page | 15 | PHILLIPCAPITAL INDIA RESEARC

ICICI BANK COMPANY UPDATE

Financials – ICICI Bank




Others 27 25 26 27





Total Income 415 487 544 622





Provision & contingencies 197 104 112 123



Net Profit 34 100 141 164


Assets Cash & Bal with RBI 803 862 926 995


Investments 2,147 2,368 2,628 2,920


Other assets 749 760 757 772

Total Assets 9,645 10,646 11,629 12,931

Liabilities



Preference capital 4 4 4 4

Debt 175 193 212 234

Borrowing 1,379 1,448 1,550 1,705

Total Deposits 6,561 7,430 8,168 9,145




Valuation Ratios




RoAE (%) 3.2 9.0 11.7 12.4


RoAB (%) 0.4 1.1 1.4 1.4

EPS (Rs.) 5.2 15.5 21.8 25.2


Book Value (Rs.) 168 178 194 213

Core Adj BV (Rs.) 138 152 167 187

Revenue Analysis



NIM on IBA / AWF (%) 3.2 3.5 3.5 3.6

Core fee Inc / AWF (%) 1.6 1.6 1.7 1.7


Op.Exp / TI (%) 45.0 44.7 45.4 45.6

Op.Exp / AWF (%) 2.1 2.3 2.4 2.4



Asset Quality

GNPAs / Gr Adv (%) 6.7 5.7 5.1 3.9

NNPAs / Net Adv (%) 2.1 1.4 1.3 1.1

Growth Ratio

Loans (%) 14.5 12.1 10.0 12.7

Investments (%) 2.6 10.3 11.0 11.1

Deposits (%) 16.3 13.2 9.9 12.0

Networth (%) 3.0 6.4 8.9 9.9

Net Int Income (%) 17.3 19.7 11.9 15.1


Non-Int Exp (%) 15.2 17.2 14.7 15.2

Profit Before Tax (%) (49.2) 353.6 10.3 15.9

Net profit (%) (50.4) 198.5 40.7 15.9



Avg Adv / Avg Dep (%) 81.8 82.5 82.9 84.3

Avg Invst / Avg Dep (%) 34.8 32.3 32.0 32.0


Avg Cash / Avg Dep (%) 13.5 11.9 11.5 11.1

Capital Adequacy Ratio:

Tier I (%) 16.9 15.8 15.9 15.9

CET1 (%) 15.1 14.2 14.2 14.2

NNPAs to Equity (%) 13.6 13.3 13.4 13.3


INDUSIND BANK COMPANY UPDATE

Financials – IndusInd Bank

Income Statement Y/E Mar, Rs bn FY19 FY20E* FY21E* FY22E*



Others 9 6 7 8





Total Income 167 189 201 230





Provision and contingencies 32 34 46 39



Net Profit 43 51 44 56

Balance Sheet Y/E Mar, Rs bn FY19 FY20E* FY21E* FY22E*

Assets



Investments 609 692 758 856


Other assets 145 159 154 169

Total Assets 2,880 3,240 3,569 4,080

Liabilities Share capital 7 7 7 7


Borrowing 476 481 491 540

Total Deposits 1,958 2,222 2,480 2,867



*Incl. BHAFIN IN, Growth numbers is for merged entity


Valuation Ratios

FY19 FY20E* FY21E* FY22E*


Pre-provision Operating RoAE (%) 34.6 31 27 27

RoAE (%) 15.7 15 11 13

Pre-provision Operating ROA (%) 3.7 4 3 3

RoAB (%) 1.78 2 1 2

EPS (Rs.) 61.9 72 62 80

Dividend per share (Rs.) 7.5 9 10 11

Book Value (Rs.) 445.6 535 585 651

Adj BV (Rs.) 408.2 495 529 588

Revenue Analysis Interest income on IBA (%) 10.4 10 10 10

Interest cost on IBL (%) 6.5 6 7 7

NIM on IBA / AWF (%) 4.5 4 4 4

Core fee Inc / AWF (%) 2.2 2 2 2

Portfolio gains / Total Inc (%) 3.6 5 3 3

Op.Exp / TI (%) 45.1 45 49 51

Op.Exp / AWF (%) 3.0 3 3 3

Employee exps / Op exps (%) 34.2 30 30 29

Tax / Pre-tax earnings (%) 31.7 27 27 27

Asset Quality

GNPAs / Gr Adv (%) 2.1 2.2 3.3 3.6

NNPAs / Net Adv (%) 1.2 1.2 1.5 1.5

Growth Ratio

Loans (%) 33.9 12 11 15

Investments (%) 18.3 14 10 13

Deposits (%) 28.4 13 12 16

Networth (%) 29.4 23 9 11

Net Int Income (%) 43.5 11 6 14

Non-fund based income (%) 23.4 13 12 16

Non-Int Exp (%) 30.4 12 17 19

Profit Before Tax (%) 14.4 12 (14) 28

Net profit (%) 18.8 19 (14) 28


Avg CASA/ Deposits (%) 43.3 43 42 40

Avg Adv / Avg Dep (%) 95.7 97 95 94

Avg Invst / Avg Dep (%) 32.3 31 31 30

Incr Adv / Deposits (%) 113.4 91 92 94

Avg Cash / Avg Dep (%) 8.6 8 9 9


Tier I (%) 15.1 16.3 15.3 14.5

CET I (%) 13.5 14.5 13.5 12.7

NNPAs to Equity (%) 7.3 6.6 8.7 9.0


STATE BANK OF INDIA COMPANY UPDATE

Financial – State Bank of India Income Statement Y/E Mar, Rs bn FY19 FY20E FY21E FY22E

Interest on Loans 1,616 1,810 1,901 2,072


Others 68 85 90 94

Total Interest Earned 2,429 2,573 2,668 2,847

Total Interest Expended 1,545 1,591 1,656 1,768

Net Interest Income 883 982 1,012 1,079


Total Income 1,251 1,362 1,370 1,453





Provision and contingencies 538 375 321 280



Net Profit 8 142 184 222


Assets

Cash & Bal with RBI 2,225 2,314 2,406 2,503


Investments 9,670 9,953 10,005 10,082


Other assets 2,663 2,931 3,177 3,383

Total Assets 36,809 38,851 40,441 43,252

Liabilities



Debt 283 333 383 433

Borrowing 3,535 3,005 2,404 2,572

Total Deposits 29,259 31,549 33,477 35,820

Other liab incld prov 1,311 1,416 1,473 1,532



Valuation Ratios




RoAE (%) 0.4 7.0 8.5 9.5


RoAB (%) 0.0 0.4 0.5 0.6

EPS (Rs.) 1 16 21 25

Dividend per share (Rs.) 0 2 3 3

Book Value (Rs.) 220 234 252 273

Adj BV (Rs.) 146 176 188 206

Revenue Analysis



NIM on IBA / AWF (%) 2.7 2.8 2.8 2.8

Core fee Inc / AWF (%) 0.8 0.8 0.8 0.8


Op.Exp / TI (%) 56.2 56.8 59.3 60.9

Op.Exp / AWF (%) 2.1 2.1 2.2 2.3



Asset Quality

GNPAs / Gr Adv (%) 7.53 6.18 6.06 5.69

NNPAs / Net Adv (%) 3.01 2.24 2.34 2.22

Growth Ratio

Loans (%) 13.0 6.4 5.1 9.9

Investments (%) (8.9) 2.9 0.5 0.8

Deposits (%) 7.5 7.8 6.1 7.0

Networth (%) 0.8 5.7 6.7 7.6

Net Int Income (%) 18.0 11.1 3.1 6.7


Non-Int Exp (%) 16.3 6.3 8.1 9.0

Profit Before Tax (%) (110.1) 1,465.0 1.2 20.7

Net profit (%) (112.6) 1,622.9 29.3 20.7



Avg Adv / Avg Dep (%) 65.9 68.9 68.7 69.6

Avg Invst / Avg Dep (%) 35.9 32.3 30.7 29.0


Avg Cash / Avg Dep (%) 7.3 7.5 7.3 7.1


Tier I (%) 10.7 10.6 10.8 10.8

CET1 (%) 9.6 9.6 9.9 9.9

NNPAs to Equity (%) 29.8 22.3 23.0 22.2



Stock Price, Price Target and Rating History (Axis Bank)

Stock Price, Price Target and Rating History (DCB)

Stock Price, Price Target and Rating History (HDFC Bank)

Stock Price, Price Target and Rating History (ICICI Bank)

B (TP 620) B (TP 620)

B (TP 580)

B (TP 770)

B (TP 560) B (TP 630)

B (TP 700) B (TP 765)

B (TP 850) B (TP 850) B (TP 825) B (TP 800) B (TP 800)

0

100

200

300

400

500

600

700

800

900

M-17B (TP 620)J-17 J-17 S-17 O-17 D-17 J-18 M-18A-18 J-18 J-18 S-18 O-18 D-18 J-19 M-19A-19 J-19 J-19 S-19 O-19 D-19 J-20 M-20

B (TP 210)

B (TP 240)

B (TP 240) B (TP 240) B (TP 240)

B (TP 215) B (TP 215)

B (TP 205)

B (TP 250) N (TP 230)

S (TP 150) S (TP 150)

20

60

100

140

180

220

260

M-17 A-17 J-17 J-17 S-17 O-17 D-17 J-18 M-18 A-18 J-18 J-18 S-18 O-18 D-18 J-19 M-19 A-19 J-19 J-19 S-19 O-19 D-19 J-20 M-20

B (TP 1730)

B (TP 1930) B (TP 2200)

B (TP 2230) B (TP 2530)

B (TP 2530)

B (TP 2524)

B (TP 2524)

B (TP 2640)

B (TP 2640)

B (TP 2740)

B (TP 1415) B (TP 1420)

500

600

700

800

900

1000

1100

1200

1300

1400

A-17 M-17 J-17 A-17 O-17 N-17 J-18 F-18 A-18 M-18 J-18 A-18 O-18 N-18 J-19 F-19 A-19 M-19 J-19 A-19 O-19 N-19 J-20 F-20



Stock Price, Price Target and Rating History (IndusInd Bank)

Stock Price, Price Target and Rating History (Kotak Bank)

B (TP 340) B (TP 400) B (TP 400)

B (TP 405)

B (TP 364) B (TP 364)

B (TP 400) B (TP 450)

B (TP 465) B (TP 490)

B (TP 540)

B (TP 650) B (TP 660)

100

150

200

250

300

350

400

450

500

550

600

M-17M-17 J-17 A-17 S-17 N-17 D-17 F-18 M-18B (TP 364)J-18 A-18 S-18 N-18 D-18 F-19 M-19M-19 J-19 A-19 S-19 N-19 D-19 F-20

B (TP 1660)

B (TP 1800)

B (TP 1900) B (TP 1900)

B (TP 2050) B (TP 2170)

B (TP 2170) B (TP 2000)

B (TP 1800) B (TP 1800)

B (TP 1550)

B (TP 1640) B (TP 1640)

300

500

700

900

1100

1300

1500

1700

1900

2100

2300

M-17M-17 J-17 A-17 S-17 N-17 D-17 J-18 M-18 A-18 J-18 J-18 S-18 O-18 D-18 J-19 M-19 A-19 J-19 J-19 A-19 O-19 N-19 J-20 F-20

B (TP 1545)

B (TP 1545) B (TP 1500)

B (TP 1500)

B (TP 1450)

N (TP 1485) N (TP 1485)

N (TP 1660) N (TP 1660)

800

1000

1200

1400

1600

1800

O-17 D-17 J-18 M-18 A-18 J-18 B (TP1545)

S-18 O-18 D-18 J-19 F-19 A-19 M-19 J-19 A-19 O-19 N-19 J-20 F-20



Stock Price, Price Target and Rating History (State Bank of India)

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. We have different threshold for large market capitalisation stock and Mid/small market capitalisation stock. The categorisation of stock based on market capitalisation is as per the SEBI requirement.

Large cap stocks Rating Criteria Definition

BUY >= +10% Target price is equal to or more than 10% of current market price

NEUTRAL -10% > to < +10% Target price is less than +10% but more than -10%

SELL <= -10% Target price is less than or equal to -10%.

Mid cap and Small cap stocks Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL <= -15% Target price is less than or equal to -15%.

Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources,

B (TP 350) B (TP 400) B (TP 345)

B (TP 380)

B (TP 380)

B (TP 370) N (TP 350)

N (TP 305)

B (TP 375)

0

50

100

150

200

250

300

350

400

M-17M-17 J-17 A-17 S-17 O-17 D-17 J-18 M-18 A-18 J-18 J-18 A-18 O-18 D-18 J-19 F-19 A-19 M-19 J-19 A-19 O-19 N-19 J-20 F-20



which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.

Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

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any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report:

Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No

4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report

No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.

Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

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Kindly note that past performance is not necessarily a guide to future performance.



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